GLOBAL FINANCIAL CRISIS

Vasudha Lalit - 9 Chetan Shringarpure 8

Spanning the financial storm

Spanning the Global Financial Crisis
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Background Timeline Peak Responses Global Impact Proposals on Table Conclusion

Background
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The American housing dream Banking Dichotomy Shadow Banking De-regulation Liquidity rise

Causes
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Huge foreign capital inflows Nothing of value to spend on Growth of the Housing Bubble a.k.a subprime lending Accelerating liquidity
Foreign capital  MBS and CDO  Predatory Lending

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Ethical and moral failures Regulation vs Innovation

Timeline

An Interactive timeline at Reuters : http://widerimage.reuters.com/timesofcrisis/

Peak – ’08 The Year of Collapse
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Collapse of Investment Banking Lehman Brothers goes down Shadow Banking Implodes Ripple effect Recession

Responses : Regulatory Actions

Immediate :
 Stimulus

– Learning from the Japanese depressions  Re-capitalization of Banks  “Nationalization of Losses”  Assisting affected homeowners  Near closure of MBS and CDO

Long-term
 Overhaul

of the financial markets and oversight  Adoption of tighter policies around capital requirements  Global consideration for national financial policies

Global Impact

Banks and Financial Institutions collapsed particularly those with exposure to sub-prime Recession of near “Great Depression” magnitude The United States Is Grappling with the Financial Core of the Crisis Asia Is Struggling to Rebalance Growth from External to Domestic Sources Europe Is Searching for a Coherent Policy Response The CIS Economies Are Suffering a Triple Blow Other Advanced Economies Are Dealing with Adverse Terms-of-Trade Shocks Latin America and the Caribbean Face Growing Pressures Middle Eastern Economies Are Buffering Global Shocks Hard-Won Economic Gains in Africa Are Being Threatened

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S o u rce : h ttp :// w w w . i fo rg / e xte rn a l p u b s/ ft/ w e o / 2 0 0 9 / 0 1 / p d f/ c2 . p d f m . /

Emerging Economies

Proposals on table

Ben Bernanke - Policies on how to close troubled financial institutions Paul Krugman - Regulate institutions that act like banks, like the banks A Michael Spence & Gordon Brown - Build early warning system to detect systemic risk Penalize growing “too big” Alan Greenspan - Mandate higher capital requirements as banks grow bigger Simon Johnson – Break up institutions that are too big

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Conclusion
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Forgive ? Forget ? Both ? What’s coming down next ( Dubai ? ) Bubble deflation policies – A mandate ?

Thanks