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- 1. 12/9/13, 5:15 PMGlobal financial crisis: five key stages 2007- 2011 | Business | The Guardian Page 1 of 5http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages Search A trader at the New York stock exchange. The last four years have seen five key stages of the global financial crisis, with more likely to come. Photograph: Brendan Mcdermid/Reuters 9 August 2007. 15 September 2008. 2 April 2009. 9 May 2010. 5 August 2011. From sub-prime to downgrade, the five stages of the most serious crisis to hit the global economy since the Great Depression can be found in those dates. Phase one on 9 August 2007 began with the seizure in the banking system precipitated by BNP Paribas announcing that it was ceasing activity in three hedge funds that specialised in US mortgage debt. This was the moment it became clear that there were tens of trillions of dollars worth of dodgy derivatives swilling round which were worth a This site uses cookies. By continuing to browse the site you are agreeing
- 2. to our use of cookies. Find out more here Global financial crisis: five key stages 2007-2011 From sub-prime mortgages in 2007 to the newly downgraded US debt status, the latest crisis point is unlikely to be the last Larry Elliott, Economics editor The Guardian, Sunday 7 August 2011 16.49 BST http://www.theguardian.com/uk http://www.theguardian.com/business/global-economy http://www.theguardian.com/info/cookies http://www.theguardian.com/profile/larryelliott http://www.theguardian.com/profile/larryelliott http://www.guardian.co.uk/theguardian 12/9/13, 5:15 PMGlobal financial crisis: five key stages 2007- 2011 | Business | The Guardian Page 2 of 5http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages lot less than the bankers had previously imagined. Nobody knew how big the losses were or how great the exposure of individual banks actually was, so trust evaporated overnight and banks stopped doing business with each other. It took a year for the financial crisis to come to a head but it did so on 15 September 2008 when the US government allowed the investment bank
- 3. Lehman Brothers to go bankrupt. Up to that point, it had been assumed that governments would always step in to bail out any bank that got into serious trouble: the US had done so by finding a buyer for Bear Stearns while the UK had nationalised Northern Rock. When Lehman Brothers went down, the notion that all banks were "too big to fail" no longer held true, with the result that every bank was deemed to be risky. Within a month, the threat of a domino effect through the global financial system forced western governments to inject vast sums of capital into their banks to prevent them collapsing. The banks were rescued in the nick of time, but it was too late to prevent the global economy from going into freefall. Credit flows to the private sector were choked off at the same time as consumer and business confidence collapsed. All this came after a period when high oil prices had persuaded central banks that the priority was to keep interest rates high as a bulwark against inflation rather than to cut them in anticipation of the financial crisis spreading to the real economy. The winter of 2008-09 saw co-ordinated action by the newly formed G20 group of developed and developing nations in an attempt to prevent recession turning into a slump. Interest rates were cut to the bone, fiscal stimulus packages of varying sizes announced, and electronic money created through quantitative easing. At the London G20 summit on 2 April 2009, world leaders committed
- 4. themselves to a $5tn (£3tn) fiscal expansion, an extra $1.1tn of resources to help the International Monetary Fund and other global institutions boost jobs and growth, and to reform of the banks. From this point, when the global economy was on the turn, international co-operation started to disintegrate as individual countries pursued their own agendas. 9 May 2010 marked the point at which the focus of concern switched from the private sector to the public sector. By the time the IMF and the European Union announced they would provide financial help to Greece, the issue was no longer the solvency of banks but the solvency of governments. Budget deficits had ballooned during the recession, mainly as a result of lower tax receipts and higher non-discretionary welfare spending, but also because of the fiscal packages announced in the winter of 2008-09. Greece had unique problems as it covered up the dire state of its public finances and had http://www.theguardian.com/business/financial-crisis http://www.theguardian.com/business/lehmanbrothers http://www.theguardian.com/business/bear-stearns http://www.theguardian.com/business/northern-rock http://www.theguardian.com/business/oil http://www.theguardian.com/business/interest-rates http://www.theguardian.com/world/g20 http://www.theguardian.com/world/eu http://www.theguardian.com/world/greece
- 5. 12/9/13, 5:15 PMGlobal financial crisis: five key stages 2007- 2011 | Business | The Guardian Page 3 of 5http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages difficulties in collecting taxes, but other countries started to become nervous about the size of their budget deficits. Austerity became the new watchword, affecting policy decisions in the UK, the eurozone and, most recently in the US, the country that stuck with expansionary fiscal policy the longest. Last Friday, the morphing of a private debt crisis into a sovereign debt crisis was complete when the rating agency, S&P, waited for Wall Street to shut up shop for the weekend before announcing that America's debt would no longer be classed as top- notch triple A. This could hardly have come at a worse time, and not just because last week saw the biggest sell-off in stock markets since late 2008. Policymakers are confronted with a slowing global economy and a systemic crisis in one of its component parts, Europe. To the extent that they are united, they are united in stupidity, wedded to blanket austerity that will make matters worse not better. And they have yet to tackle the issue that lay behind the 2007 crisis in the first place, the imbalances between the big creditor nations such as China and Germany, and big debtors like the US.
- 6. In the circumstances, it is hard to be wildly optimistic about how events will play out. Markets are bound to remain highly jittery, although it seems unlikely that American bond yields will rocket as a result of the S&P downgrade. Japan lost its triple A rating long ago and has national debt well in excess of 200% of GDP but its bond yields remain extremely low. The reason for that is simple: Japan's growth prospects are poor. So are America's, which is why bond yields will remain low in what is still, for the time being, the world's biggest economy. The dressing down given to Washington by Beijing following the S&P announcement was, however, telling. Growth rates of close to 10% mean that the moment China overtakes the US is getting closer all the time, and the communists in the east now feel bold enough to tell the capitalists in the west how to run their economies. Whatever it means for financial markets this week, 5 August 2011 will be remembered as the day when US hegemony was lost. All this is terrible news for Barack Obama. He has not delivered economic recovery. The US is drowning in negative equity and foreclosed homes. No president since Roosevelt has won an election with unemployment as high as it is today. Fiscal policy will be tightened over the coming months as tax breaks expire and public spending is cut. The Federal Reserve only has the blunt instrument of QE with which to stimulate the economy, and will only be able to deploy it after a softening up
- 7. process for the markets that will take several months. On top of that, Obama will now be branded as the president who presided over the national humiliation of a debt downgrade. He looks more like Jimmy Carter than FDR. http://www.theguardian.com/world/europe-news http://www.theguardian.com/world/china http://www.theguardian.com/world/germany http://www.theguardian.com/world/japan http://www.theguardian.com/world/barack-obama 12/9/13, 5:15 PMGlobal financial crisis: five key stages 2007- 2011 | Business | The Guardian Page 4 of 5http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages What's this?More from the Guardian What's the secret of a long and happy relationship? 07 Dec 2013 Man about to jump to his death? Then it must be time for a selfie... 06 Dec 2013 Nigella Lawson endures trial by media, and her appearance is exhibit A 05 Dec 2013 Households have reined in Christmas spending during slump, figures show 04 Dec 2013 House building drives surge in UK construction activity 03 Dec 2013
- 8. What's this?More from around the web UAE economy: Property revival continues, risks remain (HSBC Global Connections) IKEA’s CIO on Work-Life Balance (Business Value Exchange) 99% of Americans don't know about this email trick (Frank Addante) China inches closer to passenger jet production (Nikkei Asian Review) One Guy’s PR Creepiness Throws Unfairly Harsh Light on an Entire Profession (Media Orchard) Not that the Europeans should get too smug about this, because what we are witnessing is not just the decline of the US but the decline of the west. One response to last week's meltdown was the announcement of talks between the G7 – the US, the UK, Germany, Italy, France, Canada and Japan – but while this would have been appropriate 20 years ago it is not going to calm markets today. Holding a G7 meeting without China today is like expecting the League of Nations without the US to tackle totalitarianism in the 1930s. There is no happy ending to this story. At best there will be a long period of weak growth and high unemployment as individuals and banks pay down the excessive levels of debt
- 9. accumulated in the bubble years. At worst, the global economy will be plunged back into recession next year as the US goes backwards and the euro comes apart at the seams. The second, gloomier scenario, looks a lot more likely now than it did a week ago. Why? Because there is no international co-operation. There are plans for austerity but no plans for growth. Even countries that could borrow money for fiscal stimulus packages reluctant to do so. Europe lacks the political will to force the pace of integration necessary to avoid disintegration of the single currency. Commodity prices are coming down, but that is the only good news. We are less than halfway through the crisis that began on 9 August 2007. That crisis has just entered a dangerous new phase. Ads by Google Director/CEO Jobs - Dubai Board Level Jobs in Middle East Search & Apply Now! http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages# http://www.guardian.co.uk/lifeandstyle/2013/dec/07/secret- long-happy-marriage http://www.guardian.co.uk/media/greenslade/2013/dec/06/news- photography-new-york-post http://www.guardian.co.uk/lifeandstyle/womens- blog/2013/dec/05/nigella-lawson-trial-media-appearance- charles-saatchi http://www.guardian.co.uk/business/2013/dec/04/households-
- 11. NLbqv0I2nkUJNlrFu4zvknaRVWPfc8uuUZ9BQioNdyx6D6uEl5 v_tUgxsUTVqpwYJN4BgMhLXjJIK_S0JFHExpHJFBkSz6IauBI gh-bDzBAf6lDibV-wjF4AHton0KQ%26ai2%3DCM-8m- sGlUu6EN9HL8APWkYHYB8-6qpQDv- iXu5ABwI23ARADIIW76A8oA1CE8dfW_P____8BYJFeoAHhq YXeA8gBAakCpgSPMowCtz6oAwGqBKcBT9DJIOMBuitwWjls O65tJMqutFZA2bmZNl1DzE0J4Q9JCtQSZtDh4G18TGZsQfMu XCAc9mU9u4d3R1XfNketxrXshnf- Fgjr11DOz5JPjS26r9CNp5FCTZaxbuM75J2kVVj33PLrlGfQUIq DXcseg- rhJeb_7VIMbDgjdMMGCTeAYDIS14ySCv0tCRRxMaRyRQZEs -iGrgSIIfmw8wQH-pQ4mx7qAB-AB4fW- iE&usg=AFQjCNH9CfsL09D_v8ofL_lN1Hb-Hw5uIQ http://googleads.g.doubleclick.net/aclk?sa=l&ai=CIqzk- sGlUu6EN9HL8APWkYHYB- mBpaIEkcHmwGSz4KGGNBABIIW76A8oA1DAjaz7- P____8BYJFeoAGD5o_uA8gBAakCT6rj00h0uz6oAwGqBK0BT 9CZY9MBuCtwWjlsO65tJMqutFZA2bmZNl1DzE0J4Q9JCtQSZ tDh4G18TGZsQfMuXCAc9mU9u4d3R1XfNketxrXshnf- Fgjr11DOz5JPjS26r9CNp5FCTZaxbuM75J2kVVj33PLrlGfQUIq DXcseg-rhJeaH7lJEbJZVyOEmCAIITgdq0uiY5Ra- QxRxvkiECuxHO6iGriaIIb2w8ySH-pQtnqmg7z0mVsKd47yAB- WZ8BE&num=1&sig=AOD64_1RZnCkWhZgDi1gwNWjgEymh m4Ltw&client=ca- guardian_js&adurl=http://www.careerintelligence.com/home2/ 12/9/13, 5:15 PMGlobal financial crisis: five key stages 2007- 2011 | Business | The Guardian Page 5 of 5http://www.theguardian.com/business/2011/aug/07/global- financial-crisis-key-stages careerintelligence.com/Exec_Jobs Coming Economic Collapse
- 12. 18 Critical Items You Need To Prepare, Tomorrow May Be Too Late wealthdaily.com/Economic_Collapse stocks trading online Open account for free no commission CFD service-your capital is at risk www.plus500.ae © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. http://googleads.g.doubleclick.net/aclk?sa=l&ai=CIqzk- sGlUu6EN9HL8APWkYHYB- mBpaIEkcHmwGSz4KGGNBABIIW76A8oA1DAjaz7- P____8BYJFeoAGD5o_uA8gBAakCT6rj00h0uz6oAwGqBK0BT 9CZY9MBuCtwWjlsO65tJMqutFZA2bmZNl1DzE0J4Q9JCtQSZ tDh4G18TGZsQfMuXCAc9mU9u4d3R1XfNketxrXshnf- Fgjr11DOz5JPjS26r9CNp5FCTZaxbuM75J2kVVj33PLrlGfQUIq DXcseg-rhJeaH7lJEbJZVyOEmCAIITgdq0uiY5Ra- QxRxvkiECuxHO6iGriaIIb2w8ySH-pQtnqmg7z0mVsKd47yAB- WZ8BE&num=1&sig=AOD64_1RZnCkWhZgDi1gwNWjgEymh m4Ltw&client=ca- guardian_js&adurl=http://www.careerintelligence.com/home2/ http://googleads.g.doubleclick.net/aclk?sa=l&ai=CMkzY- sGlUu6EN9HL8APWkYHYB6aa5a4F_r_A1GLAjbcBEAIghbvo DygDUObTkZQGYJFeoAGy9ovWA8gBAagDAaoEpwFP0JlQw AG7K3BaOWw7rm0kyq60VkDZuZk2XUPMTQnhD0kK1BJm0 OHgbXxMZmxB8y5cIBz2ZT27h3dHVd82R63GteyGd_4WCOv XUM7Pkk- NLbqv0I2nkUJNlrFu4zvknaRVWPfc8uuUZ9BQioNdyx6D6uEl5 v_tUgxsUTVqpwYJN4BgMhLXjJIK_S0JFHExpHJFBkSz6IauBI gh-bDzBAf6lDibV- wjF4AHton0KQ&num=2&sig=AOD64_3O4qYPotgOIZYyrAItH E8ohmwylw&client=ca- guardian_js&adurl=http://www.wealthdaily.com/aqx_p/39928/gl obal_economic_collapse