Global Economic Collapse 2008 And 2013 Reasons And Solutions Pdf
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For decades, the basic idea that governed economic thinking was that markets work: The right price will always find a buyer and a seller, and millions of buyers and sellers are far better than a few government officials at determining the right price. But then came the Great Recession, when the global financial system seemed on the verge of collapse—as did prevailing notions about how the economic and financial world is supposed to function.
- Great Recession
- The Case of the International Monetary Fund and the 2008 Global Financial Crisis
- What should we know about the next recession?
- From Boom to Bust: The Economic Crisis in Spain 2008–2013
This case study examines five dimensions of the — financial crisis in the United States: 1 the devastating effects of the financial crisis on the U. The case study examines five crucial dimensions of the — financial crisis in the United States: 1 the devastating effects of the financial crisis on the U. These efforts include massive loans, forced acquisitions, capital infusions, tainted asset purchases, instantaneous conversion of investment banks into commercial banks, receiverships, and TARP funds.
The macroeconomic and human consequences of that crisis are becoming all too clear. These events have raised many questions for policy-makers and for market participants. What caused this global financial crisis? Why did it develop in the way it did? What have been the consequences, both for the global economy and the financial system itself? And are there any countermeasures that governments and other policy-makers can take, to reduce the costs of the present crisis, and to prevent a recurrence?
These are all good questions and will no doubt keep many of us busy in the period ahead. This morning, I would like to suggest a few answers to at least some of these questions. As with any large event in any field of human endeavour, it is never about just one thing. There were many causes of the financial crisis, some recent and some longstanding. I would like to focus on three of those causes today: the misperception and mismanagement of risk; the level of interest rates; and the regulation of the financial system.
Perhaps the most basic underlying driver of the crisis was the inherent cycle of human psychology around risk perceptions.
When times are good, perceptions of risk diminish. People start to convince themselves that the good times will go on forever. Then, when the cycle turns, risk aversion increases again, often far beyond normal levels, let alone those seen during the boom. We can see in Graph 1 how investors' perception of risk changed in the years leading up to the crisis. Yields on emerging market bonds or US companies at the riskier end of the spectrum all narrowed relative to those on US government bonds and other securities that are seen as very safe.
The effects of this boom-bust cycle of psychology are amplified when investors use leverage. Borrowing to purchase assets is lucrative when asset prices are rising, because all the upside beyond the interest costs goes to the investor, not the lender. But when times are bad and asset valuations are falling, investors' losses are magnified by leverage.
A second element that coincided with the perceptions of lower risk was the low level of interest rates in the early part of this decade. At the short end, policy interest rates in the major economies reached levels that were unusually low compared with history, as shown in Graph 2. At the longer end, bond yields in the major economies were also unusually low over this period. Over time, though, many observers have come to the view that unusually strong investor demand had pushed long rates down.
Among those investors were central banks and other government agencies in emerging and industrialised economies, which were accumulating foreign reserves. Many observers were concerned about the way the low level of interest rates made higher leverage so attractive. Inflation pressures were quite subdued at that time, so the macroeconomic situation didn't necessarily warrant much higher interest rates.
There has been plenty of debate, inside and outside central banks, on whether monetary policy should also respond to financial stability concerns.
But there is also recognition in many quarters that low interest rates were not — and shouldn't be — enough to cause such a crisis on their own. A lack of appropriate financial regulation in some countries is widely regarded as one of the important causes of the crisis.
Many shortcomings have been identified in this area. These include: the capital requirements on complex financial products such as collateralised debt obligations CDOs ; the use of ratings provided by the private-sector rating agencies in the regulation of banks; the way credit rating agencies have themselves been regulated; and the structure of remuneration arrangements and the risk-taking incentives they create.
Perhaps most crucially, many internationally active banks failed to perceive, or appropriately manage, the risks involved in certain financial products and markets, and regulators did not make them do better on this front. With this background in mind, I'd like to turn to the specifics of the build-up of tensions that finally broke as this financial crisis.
Appetite for risk had been strong for some years; that risk was priced cheaply; and as a result, credit markets were booming and some measures of leverage were rising.
The low price of risk was in fact regularly cited in the Bank's Financial Stability Reviews as a potential source of vulnerability for the global financial system.
American households traditionally took out fixed-rate mortgages, often guaranteed by the government-sponsored enterprises Fannie Mae and Freddie Mac — the GSEs. As rates fell, households refinanced in large numbers, but this extra origination business dried up once rates started to rise again. Rather than shrink their business, US mortgage lenders pursued riskier segments of the market that the GSEs did not insure, as Graph 4 shows. At the time, this was considered a positive development, because it was thought that it allowed more people to become home owners.
They allowed households to pay the very high housing prices that their own stronger demand was generating. As the US housing boom wore on, lending standards eased further. As Graph 5 shows, up until the sub-prime market segment increasingly allowed mortgages with very high loan-to-valuation ratios: that is, borrowers did not need much deposit.
Low-doc loans became more common across the board. These are mortgages where the borrower can pick a repayment level that is so low that the loan balance actually rises for a while — something that is essentially unheard of in other countries. The result of all that mortgage borrowing was, as shown in Graph 6, an increase in leverage, defined to be the ratio of home mortgage debt to the value of the housing stock.
This measure had been quite stable in the United States for a number of years. The exact date depends on the price series used.
Since many home owners own their homes outright, the US figure implies that many Americans had very little equity in their homes by the time the boom peaked.
And of course, this measure of leverage has increased a great deal since US housing prices started to fall. US households weren't alone in gearing themselves up like this. Although corporate sectors around the world were by and large relatively restrained in their behaviour, there were some pockets where borrowing and gearing expanded a great deal.
Some examples include the asset-backed commercial paper market, which is often used to finance entities that invest in other securities, and the leveraged loan market, often used to finance buyouts of companies. And as Graph 7 shows, leveraged buyout activity boomed, especially in North America and Europe. As with the mortgage market, the excesses built up most where the financing structures were most opaque, and the underestimation of the risks was greatest. But you can't borrow your way to a good time forever, and this recent example of a credit-fuelled boom was no exception.
The first signs of trouble were in the US mortgage market. Lending standards had eased so far — and outright fraud had gotten to be such a problem — that arrears rates started to rise more than lenders and investors expected. Graph 8 shows that the rise started in around for both prime and sub-prime mortgages, but became more obvious through The extraordinary thing was that, unlike in every other housing bust, arrears rates increased significantly before the labour market started to weaken.
The first consequence of this was the failure of a number of US mortgage lenders. Some of these were brought down by early defaults, where the borrower didn't even make the first payment.
If a loan is securitised and sold, the lender typically has to compensate the buyers of the securities if the loan defaults soon afterwards. But not all of these losses on mortgages could be pushed back on the original lender or broker, especially if these had already gone out of business. After years of underestimating risks on mortgage-related and other complex securities, banks and other investors started to realise just how risky these securities were.
They also started to realise that they didn't know how exposed their counterparties were to these losses. Following a series of loss announcements and suspensions of some bank-sponsored investment funds in mid , market participants began to hoard liquidity. They were worried about their counterparties, but they were also worried about their own future liquidity needs. As a result, the asset-backed commercial paper market froze in several countries.
The rates at which banks would lend to each other in overnight and term money markets started to widen. Normally these money market rates sit close to the policy rates set by central banks, but that relationship broke down in August , as Graph 9 shows.
Investor demand for certain kinds of mortgage-backed securities also dried up in the following months. Lenders that had depended on short-term money markets or securitisation therefore started to find it very difficult to obtain funding.
Compared to loans in most other countries, US mortgages are more likely to be packaged into securities. And if the market price of these securities should fall, accounting treatment often requires that the loss be recognised immediately, which is not the case for a traditional loan portfolio. For these reasons, it should not be surprising that banks' losses have been concentrated in securities holdings rather than traditional on-balance sheet lending.
This meant that investment banks and others with large securities trading and investment books have been especially affected. The first major firm that had to be rescued was Bear Stearns, but many others had already declared losses by then. As shown in Graph 10, total profits in several banking systems started to turn negative. In this environment, banks' perceptions of risk increased, and they started to tighten lending standards.
A feedback loop started to develop. Banks were becoming more risk-averse, but so were their customers, who started to pull back on spending.
The major industrialised economies of the United States, euro area and Japan were already experiencing economic contractions by the first half of As investors and others began to realise the macroeconomic consequences of the turmoil, other asset markets were also affected. Share prices fell sharply all over the world, especially for banks, as shown by the indices in Graph Prices fell even further when Lehman Brothers failed.
Lehman had been an important player in many of the securities and derivative markets that were freezing up. It even had a sub-prime mortgage subsidiary, which it shut down in August Lehman had already incurred substantial losses in the quarters prior to its failure. And once people start to become concerned about a bank's solvency, it becomes very hard to prevent the loss of counterparty confidence that can bring that insolvency on.
When Lehman failed, it triggered a further increase in risk aversion. There was a flight to the safety of government bonds, and away from emerging market and other assets.
Yield spreads on traditionally risky assets widened further, as well as those on newer kinds of derivatives and securities such as credit default swaps or collateralised debt obligations. Those newer classes of assets were especially affected by the increase in the price of risk.
They didn't have much history to use to measure their riskiness in the upswing, so the subsequent surprise factor in the downswing was greater.
The Case of the International Monetary Fund and the 2008 Global Financial Crisis
Report Economic Growth. Download PDF. What this report finds: The U. Monetary policy Federal Reserve action plays an important supporting role, but it cannot fight a recession by itself. Why it matters: There is a real possibility that the U. Unfortunately, for political reasons, policymakers are often resistant to increasing public spending during a recession—especially when the debt-to-GDP ratio is high—even though overwhelming evidence shows that that is the most effective way to put a quick end to a recession.
What should we know about the next recession?
Great Recession , economic recession that was precipitated in the United States by the financial crisis of —08 and quickly spread to other countries. Beginning in late and lasting until mid, it was the longest and deepest economic downturn in many countries, including the United States, since the Great Depression — c. The financial crisis, a severe contraction of liquidity in global financial markets, began in as a result of the bursting of the U.
From Boom to Bust: The Economic Crisis in Spain 2008–2013
Developing countries were hit hard by the financial and economic crisis, although the impact was somewhat delayed. Every country had different challenges to master. The closer the developing countries are interconnected with the world economy, the crasser the effects. And the incipient recovery that is becoming noticeable is, for the time being, restricted to only a few countries and regions. The crisis was transmitted primarily by trade and financial flows forcing millions back into poverty.
This chapter analyzes the overall economic crisis that started in in Spain. It is impossible to disentangle the banking crisis from the overall economic crisis that affected the country at the same time. This chapter looks at the performance of the Spanish economy throughout the s and the first decade of the twentieth century. The economic crisis that hit the country in cannot be separated from the subsequent financial crisis. In order to contextualize the banking games that inform the next chapters and to understand the overall consequences that the economic crisis had on Spanish banks and cajas , this chapter examines the economic crisis and analyzes its causes and consequences.
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Но тут ее осенило. Она остановилась у края длинного стола кленового дерева, за которым они собирались для совещаний.
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