Financial crisis is 'man made catastrophe‘

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Financial crisis is 'man made catastrophe‘

  1. 1. Financial CrisisThe term financial crisis is applied broadly to a variety of situationsin which some financial institutions or assets suddenly lose alarge part of their value.
  2. 2. Types of Financial Crisis• Banking crisis• Currency crisis• Stock market crash• Recession
  3. 3. Oil Crisis in 1973The oil Crisis started in betweenOctober 1973.1973-1974 oil crisis which was led byArab members of the Organization ofPetroleum Exporting Countries (OPEC).
  4. 4. Some fact of Oil Crisis• The crisis also prompted a call for individuals and businesses to conserveenergy, most notably a campaign by the Advertising Council using the tag line "Dont BeFuelish."• The 1973 oil crisis was a major factor in Japans economy shifting from oil-intensiveindustries, and resulted in huge Japanese investments in industries such aselectronics• The UK, Germany, Italy, Switzerland, and Norway banned flying, driving and boating onSundays. The Netherlands imposed prison sentences for those who used more thantheir given ration of electricity.• To help reduce consumption, in 1974 a national maximum speed limit of 55 mph (about88 km/h) was imposed through the Emergency Highway Energy Conservation Act.
  5. 5. Germany Hyperinflation 1918-1924
  6. 6. What is Inflation? The rate at which the general level of prices for goods andservices is rising.
  7. 7. GERMANYBefore World War I Germanywas a prosperouscountry, with a gold-backedcurrency, expandingindustry, and worldleadership inoptics, chemicals, andmachinery.
  8. 8. The Weimar Republic 1919-1933 German’s new democraticgovernment that lasted from1919 until 1933. It was weak and unpopular German people wereunhappy with the newsystem.
  9. 9. The Cause of German Crisis 1923
  10. 10. Cause 1 : The French Invade the Ruhr Weimar Republic German workers striking Treaty of Versailles The reparations Deal with the Ruhr Crisis in1923.
  11. 11. Cause 1 : The French Invade the Ruhr Reparations were fixed at£6600 million(£6.6 billion) Missed reparations. Take direct action Responded with passiveresistance
  12. 12. Crisis 2: Hyperinflation Printed extra banknotesValue of money goes down Prices rise to compensatePensions and savings lost Wages lost all value peopleblamed new Weimar government
  13. 13. Line would build up filled with people who wantedto buy the few items left in stores.
  14. 14. Stacks of German Marks, which werepractically worthless due to super inflation.The value of money Playing with money
  15. 15. Ruble Crisis, 1998Causes• Declining Productivity.• High fixed exchange rate.
  16. 16. Declines in demand for Crude Oil & Nonferrous metals.
  17. 17. Political Crisis
  18. 18. Coal miners went on strike
  19. 19. The Panic of 1907
  20. 20. What Caused the Panic?• Retraction of market liquidity by a number of New York Citybanks• Loss of confidence among depositors
  21. 21. Effects• The Connection to the Stock Market• Panic at the Trust Companies
  22. 22. Euro Crisis• Eurozone - is the economicand monetary unionof member countries ofEurope who have adoptedEuro as their commoncurrency.
  23. 23. So who kept to the rules?
  24. 24. Government Borrowing Cost
  25. 25. So what really caused the crisis?• Total Debt
  26. 26. Effect on GDPAnnual GDP growth % change from previous year
  27. 27. DeficitGovernment annual surplus or deficit
  28. 28. UnemploymentUnemployment rate
  29. 29. DebtGovernment debt as a proportion of GDP
  30. 30. Great Recession 2008 National Bureau Of EconomicResearch (NBER) is the officialagency in charge of declaring thatthe economy is in the state ofrecession. Recession is significant decline ineconomic activity lasting morethan few months, which isnormally visible in real GDP, realincome, employment, industrialproduction, & wholesale-retailsales.
  31. 31. Interest RatesThe Fed injected additional reserves and kept interestrates at 2% or less throughout 2002-2004.
  32. 32. House Price ChangeHousing prices were relatively stable during the 1990s, but theybegan to rise toward the end of the decade.From the summer of 2006 home prices started declining.
  33. 33. Bubble that burst…• In the US nearly 10.8% of total homeowners –had zero or negative equity as of March 2008• However, as the home prices were fallingrapidly, the lending companies found them in asituation where loan amount exceeded the totalcost of the house. Eventually, there remained nooption but to write off losses on these loans.• During 2007, nearly 1.3 million U.S. housingproperties were subject to foreclosure activity.• Sales volume (units) of new homes dropped by26.4% in 2007 as compare to 2006.
  34. 34. Unemployment
  35. 35. Effect on GDP
  36. 36.  Sep. 14 Lehman Brothers 4th largest investment bankdeclared bankrupt Bank of America agreed to purchase Merrill Lynch AIG took $82.9 billion to tide over the crisis.
  37. 37. • The lender racked up almost $900 million in losses ashome prices tumbled and foreclosures climbed to a record• Indy Mac shares lost 87 percent of their value in 2007 and another95 percent in 2008
  38. 38. U.S. housing policies are the root cause of the current financial crisis.Other players-- “greedy” investment bankers; foolish investors;imprudent bankers; incompetent rating agencies; irresponsiblehousing speculators; short sighted homeowners; and predatorymortgage brokers, lenders, and borrowers--all played a part.- Peter J. Wallison(lawyer & White House counsel)

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