Presentation Global financial crisis

1. EFFECT OF SUBPRIME CRISIS & EURO ZONE
CRISIS ON WORLD ECONOMY
Name: Nilesh Saha Section: B

3. Impact Of Global Financial Crisis
Impact on Stock Markets Globally
Losses to Investors
Freeze in Inter Bank Credit
Increasing Unemployment
Decline in Businesses Globally
Bailouts

5. INTRODUCTION
 “Subprime" refers to loans that do not meet Fannie Mae or Freddie
Mac guidelines
 This is generally due to one or a combination of factors, including
credit status of the borrower, income and job history, and income to
mortgage payment ratio
 The crisis represents the other side of a phase when a low rate of
interest, rising home prices and mortgage securitization brought
huge gains
 Some termed it as the beginning of “the second great depression”
because of the enormous dislocation
 Borrowers are considered as subprime because of poor credit
history & limited income and Lenders considered as subprime
because of greater risks & high returns

6. CAUSES OF SUBPRIME CRISIS
 Beginning in the mid-1990s, government regulations began to
erode the conventional lending standards.
 Fannie Mae and Freddie Mac hold a huge share of American
mortgages
 The Fed’s manipulation of interest rates during 2002-2006
 An SEC Rule change adopted in April 2004 led to highly
leverage lending practices by investment banks and their
quick demise when default rates increased.
 Doubling of the Debt/Income Ratio of Households since the
mid-1980s

7. PROCESS OF SUBPRIME CREDIT CRISIS
Economic Environment
 Low interest rates
 Property bubble
 Deterioration of
financing standards
 Sluggish regulation
 Financial innovation
 Lack of transparency
 Burst of property
bubble
Reaction of financial
institutions
Excessive financing –
search for yield
Spreading risks via
securitization where the
original risk can not be
seenTightening credit
conditions
Problems in fulfilling
subprime mortgage obligations

8. SUBPRIME CRISIS & ITS SPREADING IN THE GLOBAL FINANCIAL SYSTEM
Financing
possibilities
have narrowed
Cost of financing
has increased
Problems in fulfilling subprime mortgage
obligations
Losses of financial intermediaries and investors
Reassessing risks, and risk-taking
(banks, funds, investors)
Increase in counter-party risk, losses
of confidence
Impact on financial markets
and real economy

9. Impact Of SUBPRIME CRISIS
 Stock Market
 Capital Market & Asset Market
 Financial Institutions
 Home Owners
 Rate of Unemployment
 Minorities
 Liquidity & solvency Crisis

11. INTRODUCTION
 The term indicates the financial woes caused due to
overspending by come European countries
 This is also known as Euro Zone sovereign debt crisis
 When a nation lives beyond its means by borrowing
heavily and spending freely, there comes a point when it
cannot manage its financial situation
 The euro's value has decreased over the past few years
due to the European Debt Crisis.

12.  The Euro Debt Crisis began
in 2008 with the crash of
Iceland’s banking system,
which spread to Greece
 Spain, Portugal, and the
other nations later
followed Greece
COUNTRIES STATISTICS
France Debt/G.D.P: 81.7%
Unemployment. Oct 2011: 9.8%
S&P Rating: AAA
Germany Debt/G.D.P: 83.2%
Unemployment. Oct 2011: 5.5%
S&P Rating: AAA
Greece Debt/G.D.P: 142.8%
Unemployment. July 2011: 18.3%
S&P Rating: CC
Italy Debt/G.D.P: 119%
Unemployment. Oct 2011: 8.5%
S&P Rating: A
Portugal Debt/G.D.P: 93%
Unemployment. Oct 2011: 12.9%
S&P Rating: BBB-
Spain Debt/G.D.P: 60.1%
Unemployment. Oct 2011: 22.8%
S&P Rating: AA

13. CAUSES OF EURO ZONE CRISIS
 Slow economic growth of the euro zone countries
 Stress on banks around the world led to shrinking credit
availability
 Increase in Government spending & Declined in tax revenues
 Falling in Demand lead to decrease in Imports & Exports
 Housing bubbles burst in UK , Ireland, Spain as well as US
 Austerity has become part of the problem instead of the
solution

14. Impact of EUROZONE CRISIS
 Interest Rate Policy
 Fiscal Policy
 Rate of Unemployment
 Financial Market
 Credit Policy & Debt Crisis
 GDP Growth

15. THANK YOU

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