The document discusses the global financial crisis of 2008. It began in the US due to risky subprime mortgages and the securitization and trading of mortgage-backed securities. As housing prices fell and borrowers defaulted, major financial institutions that had invested in these securities collapsed, resulting in a global credit crunch. This caused recessions around the world as global trade declined. While Pakistan's financial sector was not directly impacted, its economy still suffered effects through slowing global demand and reduced foreign investment.

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causes and means of this financial crisis Why its impact went globally Impact on pakistan
Conclusion
Project of Madam Rabail Gul
Poster presented by: Ahsan Ali Kehar & Ifthikar Ahmad
The Global Financial Crisis 2008
In 2008 the world economy faced its most dangerous crisis since the
Great Depression of the 1930s. The contagion, which began in 2007
when sky-high home prices in the United States finally turned decisively
downward, spread quickly, first to the entire U.S. financial sector and
then to financial markets overseas. The casualties in the United States
included a) the entire investment banking industry, b) the biggest
insurance company, c) the two enterprises chartered by the
government to facilitate mortgage lending, d) the largest mortgage
lender, e) the largest savings and loan, and f) two of the largest
commercial banks. The carnage was not limited to the financial sector,
however, as companies that normally rely on credit suffered heavily.
As the global financial crisis 2008 started from USA because of stock
market were fallen. And the financial crisis happened because banks
were able to create too much money, too quickly, and used it to push
up house prices and speculate on financial markets. Every time a bank
makes a loan, new money is created. In the run up to the financial crisis
banks created ,In December the National Bureau of Economic Research,
the private group recognized as the official arbiter of such things,
determined that a recession had begun in the United States in
December 2007, which made this already the third longest recession in
the U.S. since World War II.
1 The first inkling that the economy was in trouble was when housing prices
started to drop in 2006. However, at that time realtors were relieved. They
thought the overheated housing market would safely return to a more
sustainable level.
What realtors didn't realize was the number of homeowners with questionable
credit who had loans for 100% (or more) of their home's value. The Community
Reinvestment Act pushed banks to make loans in subprime areas, but that
wasn't the true cause. The Gramm-Rudman Act allowed banks to engage in
trading highly-profitable derivatives, which they sold to
investors. These mortgage-backed securities needed mortgages as collateral.
The derivatives created insatiable demand for more and more mortgages.
its effects in the middle of 2007 and into 2008. Around the world stock markets
have fallen, large financial institutions have collapsed or been bought out, and
governments in even the wealthiest nations have had to come up with rescue
packages to bail out their financial systems
2 the main cause is However, hedge funds and other financial institutions
around the world owned them. They were in mutual funds, corporate assets
and pension funds.
Since the original mortgages had been chopped up and resold in tranches, the
actual derivatives were impossible to price. That's why their value on the
Why did stodgy pension funds buy such risky assets? They thought they'd be
protected from any downside risk because they owned insurance in the form of
credit default swaps.
A traditional insurance company known as AIG sold these swaps. Unfortunately,
as the derivatives went bust, AIG realized it couldn't honor all swaps.
3 the Federal Reserve thought the damage from the subprime mortgage crisis
would remain isolated to housing. For more, see Causes of the Subprime
Mortgage Crisis.
When financial institutions realized they would have to absorb all the losses,
widespread panic gripped global financial institutions. No one wanted to be
caught holding the bag. Banks resisted lending to each other so they wouldn't
get stuck with the potentially worthless mortgages as collateral. As a result,
interbank borrowing costs (known as LIBOR) rose.
the Federal Reserve thought the damage from the subprime mortgage crisis would remain isolated to housing. For more, see Causes of the Subprime Mortgage Crisis.
When financial institutions realized they would have to absorb all the losses, widespread panic gripped global financial institutions. No one wanted to be caught holding the bag. Banks resisted lending to each other so they wouldn't get stuck with the potentially worthless mortgages as collateral. As a result, interbank borrowing costs (known as LIBOR) rose.
the Federal Reserve thought the damage from the subprime mortgage crisis would remain isolated to housing. For more, see Causes of the Subprime Mortgage Crisis.
When financial institutions realized they would have to absorb all the losses, widespread panic gripped global financial institutions. No one wanted to be caught holding the bag. Banks resisted lending to each other so they wouldn't get stuck with the potentially worthless mortgages as collateral. As a result, interbank borrowing costs (known as LIBOR) rose.
As the global financial crisis 2008 started from USA because of stock market were fallen. And the financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. Every time a bank makes a loan, new money is created. In the run up to the financial crisis banks created ,In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in the U.S. since World War II.As the global financial crisis 2008 started from USA because of stock market were fallen. And the financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. Every time a bank makes a loan, new money is created. In the run up to the financial crisis banks created ,In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in the U.S. since World War II.As the global financial crisis 2008 started from USA because of stock market were fallen. And the financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. Every time a bank makes a loan, new money is created. In the run up to the financial crisis banks created ,In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in the U.S. since World War II.As the global financial crisis 2008 started from USA because of stock market were fallen. And the financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. Every time a bank makes a loan, new money is created. In the run up to the financial crisis banks created ,In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in the U.S. since World War II.As the global financial crisis 2008 started from USA because of stock market were fallen. And the financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. Every time a bank makes a loan, new money is created. In the run up to the financial crisis banks created ,In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in the U.S. since World War II.
Each in its own way, economies abroad marched to the American drummer. By
the end of the year, Germany, Japan, and China were locked in recession, as
were many smaller countries. Many in Europe paid the price for having dabbled
in American real estate securities. Japan and China largely avoided that pitfall,
but their export-oriented manufacturers suffered as recessions in their major
markets—the U.S. and Europe—cut deep into demand for their products. Less-
developed countries likewise lost markets abroad, and their foreign investment,
on which they had depended for growth capital, withered. With none of the
biggest economies prospering, there was no obvious engine to pull the world
out of its recession, and both government and private economists predicted a
rough recovery.
Each in its own way, economies abroad marched to the American drummer. By the end of the year, Germany, Japan, and China were locked in recession, as were many smaller countries. Many in Europe paid the price for having dabbled in American real estate securities. Japan and China largely avoided that pitfall, but their export-oriented manufacturers suffered as recessions in their major markets—the U.S. and Europe—cut deep into demand for their products. Less-developed countries likewise lost markets abroad, and their foreign investment, on which they had depended for growth capital, withered. With none of the biggest economies prospering, there was no obvious engine to pull the world out of its recession, and both government and private economists predicted a roug
AhsanBecause the whole economic activities based on baking system.
And eventually the debts became unplayable.an other effect can be
substantial reduction in their exports, as the rapid pace of trade
expansion of this decadedecelerates sharply. The IMF recently
projected growth in world trade volumes of just 4.1percent in 2009,
down from 9.3 percent as recently as 2006; in our own more
recentprojections, the deceleration is much more rapid and could in
fact lead trade volumes to fallin 2009 (World bank Forthcoming).
While the fall in export volume growth is projected tobe greater for
ad
vanced economies than for developing economies
Second round effects will likely deepen the slowdown. Because of the
investmentsurge of the past five years, an especially large number of
investment projects are alreadyunderway. As investment financing
drops off, two outcomes are possible, neither of themattractive. In
some cases, the projects will not be completed, making them
unproductive andsaddling banks’ balance sheets with non-
performing loans. In other cases, when the projectsare completed,
they will add to the excess production capacity that will result from
thAs a result of all these factors, we now expect that developing
countries’ collectiveGDP growth will decline to less than 5 percent,
compared with an average of more than 7percent in 2004-07In
addition, banks lends when they are confident that they will be
repaid. So when the economy is doing badly banks prefer to limit
their lending. However although they reduce the amount of new
loans they make, the public still have to keep up repayments on the
debts they already have. The problem is that when money is used to
repay loans, that money is destroy and disappears from the economy.
e globalslowdown, and thereby add to the risk of deflation
World map showing real GDP growth rates for
2009 (Countries in brown were in recession.
Several commentators have suggested that if the liquidity crisis
continues, an extended recession or worse could occur.[226] The
continuing development of the crisis has prompted fears of a
global economic collapse although there are now many
cautiously optimistic forecasters in addition to some prominent
sources who remain negative
The financial crisis is likely to yield the biggest banking shakeout since
the savings-and-loan meltdown.[228] Investment bank UBS stated on
October 6 that 2008 would see a clear global recession, with recovery
unlikely for at least two years.[229] Three days later UBS economists
announced that the "beginning of the end" of the crisis had begun,
with the world starting to make the necessary actions to fix the crisis:
capital injection by governments; injection made in economic history
The developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,foThe developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; with a slowdown in global demand and fall in commodity prices having varying effects, the capital account; with a significant reduction in privateinflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and political crisiswhich predate the global financial crisis. Inflation, trade deficit, balance of payment,fo
The developing nature of the financial sector has been a saving grace for
the Pakistani economy. Less developed linkages with international
markets have meant that the direct impact of the financial crisis has not
been felt by the Pakistani financial sector. However; effects of the crisis
have been felt, even though in a limited manner, by the real sectors of the
economy. The effects of the global slowdown have been transmitted
through the trade balance; with a slowdown in global demand and fall in
commodity prices having varying effects, the capital account; with a
significant reduction in privateinflows to Pakistan. Pakistan, a fragile
economy, has been facing both economic and political crisiswhich predate
the global financial crisis. Inflation, trade deficit, balance of
payment,foreign exchange reserves, circular debt, poor performance of
banking sector andKarachi stock exchange political instability have
remained the key indicators of Pakistaneconomic crisis.
Introduction
The financial crisis of 2007-08 has taught us that the confidence of the
financial market, once shattered, can't be quickly restored. In an
interconnected world, a seeming liquidity crisis can very quickly turn into
a solvency crisis for financial institutions, a balance of payment crisis for
sovereign countries and a full-blown crisis of confidence for the entire
world. But the silver lining is that, after every crisis in the past, markets
have come out strong to forge new beginnings.
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