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Andreas Whittam Smith: we could be on published in 1951.

He had led the Federal Reserve


the brink of a great depression from 1934 to 1948 and seen everything. I quote
The Independent 13th October him extensively because of his sudden relevance:
"This is what happened to us in the Twenties," Mr
As we return to work this Monday morning, let the Eccles wrote, "We sustained high levels of
words of the director general of the International employment in that period with the aid of an
Monetary Fund, Dominique Strauss-Kahn, ring in exceptional expansion of debt outside of the
our ears. Mr Strauss-Kahn, having spent all banking system (which) increased about 50 per
Saturday with finance ministers in Washington , cent. This debt, at high interest rates, largely took
warned that the global financial system has been the form of mortgage debt on housing, office, and
pushed "to the brink of a systemic meltdown". And hotel structures, consumer instalment debt,
he added that the measures taken thus far to deal brokers' loans, and foreign debt."
with the financial crisis "have not yet achieved the Before going further, notice the similarities
goal of stabilising markets and bolstering between then and now the presence of mortgage
confidence". debt and of shadow banking what Mr Eccles
I stretch "systemic" to mean that we are all called debt outside the banking system. Mr Eccles
affected by what has begun to happen the went on: "The stimulation to spend by debt
shrinking of bank credit. Banks won't even lend to creation of this sort was short-lived and could not
each other, let alone to the rest of us. In a sense, be counted on to sustain high levels of
they know too much. Grimly aware of the employment for long periods of time ... The time
substantial amounts of dud loans on their own came when there were no more poker chips to be
books, following a prolonged period of over- loaned on credit. Debtors thereupon were forced to
optimistic lending, they assume the worst of each curtail their consumption in an effort to create a
other. They also turn down highly respectable margin that could be applied to the reduction of
companies, the mainstays of the economy, when outstanding debts. This naturally reduced the
they come to them for credit. For as the banks' demand for goods of all kinds and brought on what
mistakes return to haunt them, they feel compelled seemed to be overproduction, but was in reality
to hoard cash. under consumption when judged in terms of the
Two weeks ago, for instance, I was on the real world instead of the money world. This, in
executive floor of a large company, a household turn, brought about a fall in prices and
name for generations. Decent people run it. It employment ... (finally) the vicious circle of
makes substantial profits. I found the directors deflation was closed (with) one-third of the entire
stunned to discover that they could no longer go on working population unemployed. This then, was
raising short-term loans from time to time to my reading of what brought on the depression."
balance out the ebbs and flows of their cash flows. It has long been fashionable to say that this can
This was a "first" in the company's long history. never happen again because this time we know
From now onwards, the directors would have to better than to let banks actually crash that is,
run their business more cautiously. They will apart from Lehman Brothers a few weeks ago,
provide less employment and reduce the orders whose collapse had had such serious
they place with outside suppliers. consequences. Nor would governments savagely
Systemic, because virtually all businesses have hack into public spending as they did in the early
some borrowing. Credit is the oxygen in the 1930s though there are plenty of reasons in 2008
system. Take it away and businesses begin to to cut back. Nor would we lapse into protectionism
falter. They become like climbers at high again in spite of increasing temptation to move
altitudes.An example is the plight of local in that direction. We know what not to do. But do
authorities and charities whose funds have been we know what to do?
trapped in insolvent Icelandic banks. Some of "On the brink," observed Mr Strauss-Kahn, a clear
these lenders will have difficulty in paying their reference to the failure of the Group of Seven
bills and so they will unwittingly harm others who industrialised nations to decide anything definite at
know nothing of Icelandic banks. their meeting on Saturday. But since then, I am
Systemic, seeing that the United States , Germany , glad to say, the pace has quickened. There are
Japan and most large economies are feeling the three encouraging developments. This morning,
effects. Last week, for instance, shares in General we are likely to learn which British banks are to
Motors crashed to their lowest level since 1950. get money under the UK Government's 50bn
Yes, since just before the company launched the bank rescue. These may well be HBOS and Royal
first ever "American" sports car, the Chevrolet Bank of Scotland .
Corvette, with its white paintwork and red The Bush administration has quickly embarked on
upholstery. Over 50 years later, General Motors' an overhaul of its own strategy for rescuing the
customers are having increasing difficulty in foundering financial system. Having two weeks
obtaining car finance. And the stock market was ago persuaded Congress to let it spend $700bn to
spooked by the fact that loans raised by General buy distressed securities tied to mortgages, the
Motors itself, already classified as "junk" debt, are White House has decided in addition to follow
to be down-rated even further to sub-junk, I Britain's approach. The US government would
suppose. In these circumstances, virtually nobody inject capital directly into the nation's banks.
will lend to this giant. Finally, the French government also appears to be
"Meltdown," in Mr Strauss-Kahn's phrase, is not moving towards the British solution, expressing a
an exaggeration because depriving the economic willingness to guarantee banks' short-term
system of credit would quickly result in prolonged borrowings as well as their deposits.
recession, or depression, call it what you will. As an international civil servant rather than a
Stock markets suddenly began to sense this finance minister with daily politics to consider, Mr
possibility last week. That is why investors rushed Strauss-Kahn may have felt that he should issue
for the exit. the dreadful warnings that others dare not
Indeed, it is not fanciful to make comparisons with proclaim. Governments won't even use the word
the Great Depression, which started with the stock "recession" when it is staring them in the face.And
market crash of 29 October 1929 and ended some while the weekend's developments have by no
time in the late 1930s. President Roosevelt's means achieved "the goal of stabilising markets
chairman of the Federal Reserve, Marriner Eccles, and bolstering confidence", they do represent
tried to sum up its essence in his memoirs progress of a kind.

STUDENT As QUESTIONS (Do not show to Student B)

1) What springs to mind when you hear the words financial crisis?
2) Why is the world in a financial crisis?
3) What is happening that makes the situation a crisis?
4) How badly hit is your country by the crisis?
5) US President George W. Bush says he has the tools to fix the crisis. What do you
think of this?
6) Are you affected by the global financial crisis?
7) How much worse do you think things will get?
8) How does this crisis compare with the stock market falls after 9-11 or the crash in
1987?
9) Whats the best way out of a crisis?
10) Whos to blame?

TUDENT Bs QUESTIONS (Do not show to Student A)

1) Do you like following the news on the global financial crisis?


2) What does the crisis say about capitalism?
3) After Americas insurance giant AIG was rescued with taxpayers money, the
companys executives responded to the crisis by spending hundreds of thousands
of dollars at a spa resort in California. Should they be fired?
4) Will the crisis have a knock-on effect for poor countries who rely on foreign aid?
5) How can governments suddenly spend hundreds of billions of dollars on this crisis
but cannot spend the money on basic social services?
6) Why cant governments act together on a single rescue plan?
7) Do you think America will lose power because of this crisis?
8) Are you interested in news of the global financial crisis?
9) What questions would you like to ask the worlds economists?
10) What will happen if the world economy goes into a depression?

U.S. FINANCIAL CRISIS DISCUSSION


STUDENT As QUESTIONS (Do not show these to student B)

1) What do you think of the U.S. financial crisis?


2) How serious do you think the crisis is?
3) What do you know about the causes behind this crisis?
4) What has most surprised you about this crisis?
5) Do you think the politicians are doing a good job of dealing with
thecrisis?
6) Top managers at the banks that collapsed received multi-million dollar
bonuses. What do you think about this?
7) The $700 billion bailout represents around $2,500 for every man, woman
and child in the USA. What do you think of this?
8) Do you think America will no longer be able to spend as much on aid to
poor countries and fighting wars?
9) What do you think ordinary Americans are thinking now?
10) Did greed play a part in the financial collapse?

Hundreds more free handouts at www.eslDiscussions.com

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U.S. FINANCIAL CRISIS DISCUSSION


STUDENT Bs QUESTIONS (Do not show these to student A)

1) Whats the latest news youve heard about the financial crisis?
2) Does the financial crisis mean capitalism doesnt work?
3) Should the US Government be bailing out failed financial institutions?
4) When America sneezes, the world catches a cold. Has your country felt
the knock-on effects of the financial crisis?
5) Do you think the crisis will improve or worsen?
6) Is your money safe?
7) What is the sub prime mortgage crisis talked about on the news?
8) Do you think George W. Bush needs to shoulder some blame for
thecrisis?
9) What questions would you like to ask the U.S. Treasury Secretary?
10) Do you think Americas economy will ever be as strong again?