Name: Amina Farid

Roll No: 20021554-020

Course: Financial System & Banking Regulations
Course Code: Comm-206
Submitted To: Sir Ahsan Mukhtar
Program: Bs Banking & Finance (3rd)
Department: Commerce

Global Financial Crisis 1929 and 2008

Global Financial Crisis Introduction:
The Global Financial Crises has had a massive influence on the global
financial system. A financial crisis occurs when a fear or a fear of the panic
causes the whole operating of the economic system. Furthermore, financial
crisis is a condition in which the rate of financial organization falls quickly.
The main causes of the global financial crisis started when the unexpected
increasing of the financial crisis happened in the US and the associated set
up of deleveraging through financial institutes international.
The global financial crisis affected from thousands of judgments and changes
from different areas. The US authority and Wall Street put on this world-
shaking show up at once. And to be more particular, the leading officers in
politics and business pull in rows at the back of the minds.
Throughout the two crises, the global financial changed and financial crises
happened in various separate states that included signs of the disturbance
that was about to come.
Beginnings of the global financial crises explains that the Japanese and
Swedish banking crises starting in 1990 and 1991 individually, the US Loans
crisis, and the Asian financial crisis. It then also believes the causes of the
2007–09 crisis, involving global finance differences and policy missteps done
by the Federal Reserve and the central banks of other debit states.

Introduction of 1929 crisis:

It began in the United States in 1929 and continued up to 1939. It headed
to deprivation, thirst and job loss all over the world. This crisis had been
known as the great depression and the most terrible financial disaster till
2008 financial crises happened.
This crisis started after 1928 when the United State stock market observed a
huge growth. People bought shares from the money loaned out from banks.
After the collapse, many Americans frightened and withdrew their money
from banks. As banks have got invested in the stock market and they lost the
money and it caused depression for all of them.
Furthermore, it was because of the failure of the Federal Reserve to order
the income trade, credit accessibility, and interest costs is believed the top
cause of the global financial breakdown. Also, throughout the financial
recession, the joblessness rate in the U.S. rose from 3% to 25%, affecting
about 15 million.
Also, Workshops and firms had to close because a huge portion of
the residents could not buy stocks any longer. They had to send off most of
their worker’s home. By 1932 about 13 million Americans, one fourth of all
workers, were out of work. Those who continued their jobs had to work for
a small amount of pay. At that time the USA had no method to help the poor
people. There was no money for the jobless and most of them had to wait
in bread line to get food.
Americans and halving the national GDP. The remainder of the world also
experienced from the financial disaster expected to the gold requirement,
decreased expenditure and agriculture.

Introduction of 2008 crisis:

A seller works on the ground of the US Store Trade. In afternoon trading the
Dow Jones Industrial Average fell over 500 points as US stocks experienced a
sharp collapse. The crash made several families go and live on the streets. It
caused in a huge livestock market crash. Depositors wasted their life time
funds. Retirement accounts were lost. Their home values collapsed. Housing
prices fell by estimated 31%. The banks begun getting insolvent.
The financial market lost out almost US $8 trillion in US alone from 2007 to
2009. Lots of people lost their jobs. By October 2009, joblessness turned up
to 10%. There was a flow impact. The Indian stock market got a decrease of
over 50% in the year 2008-09.
In 2008, the planet suffered a huge financial crisis that is entrenched from the
U.S housing market. After creating a massive impact on the US market, the
financial crisis extended to Europe and the rest of the world. It just didn’t
destroyed markets but also collapse financial companies and disadvantaged
personal lives. For example, the financial crisis has caused in the collapse of
huge economic institutes such as Freddie Mac. These falls not only affected
own countries but also global range.
The Global Financial Crisis of 2008-2009 is commonly described as “The
Great Recession”. It happened regardless of the attempts of the Federal
Reserve and the U.S. Branch of the Funds. It has demonstrated that loads of
firms have destroyed and lots of people suffer the loss of their jobs and
homes around the world. The countries which were involved in that disaster
were such as United States, England and France.
There are several methods to calculate the cost of a financial crisis. By way
of any calculation, the cost of the 2008 financial crisis which affected the US
and worldwide was major. Some economic experts have assessed that the
only loans cost the US $500 billion, and others have estimated that the
expanded recession and gradual renewal cost each American $70,000 in
lifetime wages.

Causes of 1929 crisis:

In October of 1929, the stock market collapsed, mopping off billions of
dollars of treasure and publicizing the Great Depression. That day which is
29 October 1929 is also Known as “Black Tuesday”.

The era later World War I was called the Loud Twenties. It was that time of

renewal. Many European countries did not have sufficient money. They had
to pay a lot in return to the USA because the Americans helped to win the
war. Over all, Germany was weak because it had lost the war.

Simultaneously productions started producing many goods. People bought

new devices , like automobiles and other home supplies, but the normal
employee did not have much money. Purchasers had to get loans so that
they can purchase the items that they did not have the money for.

According to Ben Bernanke, a past chairman of the Federal Reserve, the

central bank helped set up the Depression. The Fed started increasing the
fed funds rate in 1928. It continued increasing it all through a collapse that
started in August 1929. When the supply market failed, investors changed
to the currency markets. The Fed did not raise the supply of money.

Investors withdrew all their deposits from banks. The collapse of the banks
made more panic. The Fed passed over the bank’s dilemma. This condition
damaged any of purchasers left confidence in financial organizations. Most
people then withdrew their cash and put it with them. That caused more
reduction in money supply.

Another important reason was the declining faith of financiers. Additionally,

a decrease in global market expected to low levels of manufacture, reduce
incomes, and joblessness aggravated the situation. Simultaneously,
thousands of farmers suffer the loss of their farms as they could not have
enough money to produce yields. So, they transferred to other areas, which
made the Soil Sink, a major issue in the financial recession.

Effects of Great Depression 1929:

The crisis in the US immediately distributed to more nations all around the
world. Various European countries that exchanged with America struggled
to defend their own financial system. They put income tax on trade in which
made imported stocks more expensive. They meant that people purchase
the things that their own up country created.
The US joblessness cost pointed from roughly 3% in 1929 to almost 25% in
1933 during the financial depression. The US stock marketplace lost 90% of
its profit, and people dropped all hopes of its rescue.
Besides that, those people who did not spend lost their money as banks
already invested their funds in the stock market. Almost around 650 US
banks failed as financiers lost confidence in the US financial system after the
stock market crash. Also, the purchaser price index fell by 27% from
November 1929 and remained there till November 1939. People lost faith in
private enterprise which took American governments to its knees.
End of the Depression (1929):
In 1932, the nation chose Franklin D. Roosevelt as head of state. He
promised to set up federal leadership procedures to end the Great
Depression. Inside 100 days, he hired the new deal into law, making 42 new
agencies during its lifetime. Many people disagree and say that World War II
ended the depression not the New Deal ended the Depression. However,
others argue that if FDR had paid as much on the New Deal as he did during
the War, it would have ended the Depression.
So, the end of the depression happened with the starting of World War II. In
Europe the people of different countries were looking for other heads. In
Germany a huge section of the people helped Adolf Hitler and the Nazi
Party. They pledged public job and gave them vacancies, specifically by
creating further weapons. The depression in Germany ended by 1936. After
the attack on Pearl Harbour in 1941, America entered the war. This ended
the Great Depression in the US.
Before that there was a deal happened as well, so basically a mixture of the
New Deal and World War II ended the US out of the Depression.

Causes of 2008 crisis:

The Global Financial Crisis started because of house market crash in 2007 as
well as high investments level. There were many reasons that given to the
cause of the 2008 crisis. Some of them are subprime mortgages, the housing
bubble, and government policies and regulations.
One of the easy cause of 2008 crises is easy credit access. With the
mortgage rise, many credit investors became plentiful. From stocks to
authority held companies and personal banks, credit was easily accessible.
This is because most private banks dropped the principles of using in order
to catch the massive market of real property investors. Therefore, many
credits worthless individuals had gain access to finances and mortgages.
When the house prices dropped, most banks and credit services went down
too. All the credit issue was pulled, and this made it not possible for people
to get economic support.
Some of the economic experts have credited the global financial crisis to the
climb in basic goods for example oil. The increase in oil costs had a wave
impact in all the other supplies and quickly most customers might not pay
for necessary items. This in turning impacted the manufacturers and
workers.
The subprime mortgage crisis arose after banks traded too many mortgages
to support the requirement for mortgage-backed securities marketed over
the secondary market. When home prices dropped in 2006, it caused non-
payments. The danger increases into common assets, fixed income assets,
and businesses who retained these products. 
As the subprime mortgage market failed, many banks discovered
themselves in significant danger, because a major section of their properties
had taken the kind of subprime loans created from subprime loans together
with fewer unsafe forms of customer balance.
The consequent 2007 banking crisis and the 2008 financial crisis made the
most awful recession since the Great Depression.
The credit crisis resulting from the exploding of the housing bubble is an
important cause of the Great Recession in the United States. A housing
bubble is defined as “a short-term situation caused by baseless assumption
in the housing market that indicates to a quick expansion in real property
prices” and when the bubble explodes, the consequence is a rapid fall in
home prices.
The government policies and regulations were basic cause of the financial
crisis. Two laws released the financial system. They granted banks to invest
in housing-related spinoffs. They allowed banks to use deposits to invest in
derivative.
The 2008 financial crisis was stoppable, but it was affected by General
breakdowns in financial government and management. Remarkable
disasters of business authority and danger organisation. Mixture of
unnecessary stealing, unsafe assets, and shortage of clarity by financial
institutions. Bad planning and unpredictable legal action by government and
important politicians.
A general failure in responsibility and integrity at all levels. Break down bank
loan offering requirements. Deregulating of non-prescription products,
particularly status non-payment trades. The disappointments of credit score
organisations to properly cost threat.
Selfishness and the lack of rules ripped through the financial system down
with investors trust in the system.

Effects of Great Recession 2008:

The global financial crisis of 2008 followed in bankruptcy for many credit
features. This is because they have got borrowed out so much money and
loans without saving up investment for hard times. Also, many businesses
that had invested in true property also went insolvent.
There were also great rates of joblessness because purchasers could not
offer to purchase most supplies. This in turning impacted construction costs
and as an alternative of making losses, businesses started making less and
let go of most of their employees.

Ended the great recession (2008):

The Great Recession started in December 2007 and ended in June 2009,
which becomes the longest recession since World War II. President Obama
realized that this was an extreme crisis that needed a supreme policy
response. Working with Parliament, the government held many big acts
within its first few months. Mostly we passed the American Recovery.
Ultimately the recession ended in 2009 because of an arrangement of
financial and budgetary procedures that come up as of Council and the State
Reservation. The situation was difficult to identify which of these statements
had the greatest considerable impact and a lot of economic experts
disagree, and many did say that the government could have done more. But
investigations appear that the recession might have got remained much
harsher without these intercessions.

Difference between both crisis:

The 1929 stock market crash and the subsequent ‘Great Depression’ was the
biggest economic crisis that the world has experienced. The depth and
length of the crisis and the suffering that it caused is legendary. Therefore,
when the global financial crisis struck in 2007, many rushed to proclaim that
we were about to experience another depression on a similar scale, or at
least what some have termed a ‘great recession’
It is frequently said that the early months of the 2008 crash set the US
economy on a trail of collapse weirdly like that of 1929. The most recent
financial crisis in 2008 was the worst recession, but on the other hand 1930
crisis were quite apparent and different from 2008 one as it affected the
whole financial system on a global scale, from larger states to modest ones.
The 1929 crisis impacted to the USA and 2008 crisis affected the European
areas more. The other difference is between 1929 and 1932, worldwide
gross domestic product (GDP) dropped by an approximate 15%. By
comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during
the Great Recession.

Similarity between both crisis:

The 2008 economic crisis has similarities to the 1929 stock market crash.
Both concerned careless assumption, weak trust, and at one extreme level
debt in property markets, such as the housing market in 2008 and the stock
market in 1929.
The causes of the Great Depression and the Recession were similar such as
job losses and stock markets. Both the Great Depression and the recession
pushed people into a deep depression. During both times a lot of things
changed for people. One more major similarity is that they both faced job
losses. One more similarity is the variation between 1927 and 1928 is like
that between 2007 and 2008.
Both crises were led by a speedy increase of real property prices and by
growing household obligation, as land owners became even more assets and
mortgages turn into more risk slowly. In both crises, 1929-1933 and 2007-
2009, a weak banking system performed a vital role in causing and delaying
the financial instability.
Massive financial declines come with both. Also, the conclusions and
remedies were the same. Both disasters were put down at the ends of
marketplace collapse. To appropriate for the purported marketplace
collapse linked with the Great Depression, Roosevelt came up with the New
Deal.  In brief, the recommendation was a huge boost in the range and scale
of the government’s move and participation in the financial system.
This type of unpleasant reaction has also resulted the Great Recession,
helping in an excess of government policies, especially those that impact
stocks and economic institutions. After all, the officials told us that banks
affected the Great Recession.

Conclusion:
To conclude we can roughly say that various groups, banks or companies
engaged and caused of financial crisis, and it is however extremely difficult
to answer the questions of responsibility in this point. What it’s all about
that these banks, organizations and people made crisis that amount tens of
millions, and it includes people savings, their jobs and their homes. They
made trillions of dollars of treasure failure and it required over 700 billion
just to save the banking system in the US. While there were competitors
concerned from the worldwide, the financial crisis made several nations to
the point of bankruptcy.