Presented By

Apurva Belapurkar (2K181122)

Sharayu Bhosale (2K181124)
Dnyanada Deshpande
(2K181071)
INTRODUCTION
 Financial crises and accompanying economic
recessions have occurred throughout history.
Periodic crises appear to be part of financial systems
of dominant or global powers.
 The United States is the epicentre of the current
financial crisis. Enjoying a unipolar moment following
the collapse of the Soviet Union and the failure of
Communism, the United States was confident that
economic liberalization and the proliferation of
computer and communications technologies would
contribute to ever-increasing global economic growth
and prosperity.
 Globalization contributed to the extraordinary
accumulation of wealth by a relatively few
 Financial globalization contributed to the unprecedented
growth and prosperity around the world.
 China and India became significant economic powers, and
the industrialized countries grew even richer.
 Closely integrated into the financial system are banks and
investment firms. When the financial system is in crisis,
banks reduce lending, companies often face bankruptcy,
and unemployment rises. Ultimately, as we saw in the
financial crisis of 2008–2009, many banks fail.
 The financial crisis triggered a global economic recession
that resulted in more than $4.1 trillion in losses,
unemployment rates that climbed to more than 10 percent
in the United States and higher elsewhere, and increased
poverty. Stock markets around the world crashed.
 Consumers reduced their spending, manufacturing
declined, global trade diminished, and countries adopted
protectionist measures, many turning their attention
inward to focus on problems caused by the financial crisis.
Given the central importance of finance to virtually all
aspects of globalization, issues such as trade, the
environment, crime, disease, inequality, migration, ethnic
conflicts, human rights, and promoting democracy are
affected.

 Furthermore, the financial crisis weakened some countries

more than others, thereby engendering significant shifts of
power among countries, especially between the United
States and China.
REASONS FOR THE
CRISIS
 REASONS FOR THE CRISIS
Housing price increase during 2000-2005, followed by a levelling off
and price decline.

Increase in the default and foreclosure rates beginning in the second half
of 2006 due to the Fed’s manipulation of interest rates during 2002-2006

 Collapse of major investment banks in 2008.  Collapse of stock prices

in 2008.
 IMPACT ON MARKETS
The global financial crisis affected virtually all areas, including
the process of globalization. Housing prices crashed;
foreclosures became commonplace; unemployment reached
10 percent in the United States and higher levels in Europe
and elsewhere; manufacturing declined sharply, especially in
the automotive industry; students were faced with higher
costs as colleges suffered financial losses; finding jobs after
college became more challenging; and a global recession
created widespread hardships. On the other hand, many
developing countries that took a prudent approach to finance
and saved money were not as badly damaged. In fact,
countries that did not fully embrace financial liberalization
were less affected than those that gave in to American
pressure to fully engage in financial globalization. We also saw
FORECLOSURES
 People could no longer afford to purchase homes, which meant
that homebuilders were forced to abandon construction projects.
 This resulted in a fall of demand of goods required in
construction.
 All of the industries that produced these products generally
experienced declining sales.
DECLINE IN MANUFACTURING
 Manufacturing, already in decline, fell dramatically.
 This especially was the case in the automotive industry, with
General Motors and Chrysler declaring bankruptcy after closing
many factories and dealerships, despite unprecedented financial
support from the U.S. government.
GLOBAL POWER SHIFT
Another major impact of the global financial crisis
is a global power shift.

Although most countries were negatively affected

by the financial crisis and global recession, some
emerged stronger than others.

 Brazil, Russia, India, and China, also known as the

BRIC countries, enhanced their power vis-à-vis the
United States, Western Europe, and Japan. HOW DID
INDIA MAKE IT THR
 EFFECTS OF
ECONOMIC CRISIS
2008 ON THE
GLOBAL ECONOMY
 The historic meltdown of the global capital
markets, and sharp economic downturn, is
systemic in nature, and is conditioned by the
contradictions, and vulnerabilities, of the current
level of economic organization, with the world
economy unable to develop further in the old
manner.

 The global systemic crisis, which itself has built up

over decades, will n ot be overcome until the
vulnerabilities/ and contradictions that caused it
are resolved effectively
 While the crisis felt more acutely in some regions, it
was a global systemic crisis. The initial epicenter of the
crisis was in the United States, but the crisis was a
world crisis which affected the whole world system and
disrupted the production process. The crisis was felt
much stronger in the USA, and also in countries which
are heavily integrated within the US economic and
strategic sphere.

 The crisis was global in nature, and affected all

countries that are part of the world economy, but not
necessarily at the same time and to the same extent.
How and when it affected each country varied. Collapse
of several large international banks, corporate
collapses and industrial shutdowns occured unevenly
The crisis produced a handful of winners and help to
reinforce global powerful monopolies controlling nearly all
production, commerce and finance in the world economy.
The importance of medium and small-size business
declined still further. The world economy became
increasingly monopolized, and numerous corporate
takeovers took place. Most small-size enterprises were
unable to survive.

 After contracting during the crisis, energy consumption

resumed its growth. The global revival will need cheap
energy, produced in greater quantities than before.
 There were already indications that the crisis will
possibly encourage more internally centered economic
growth in China, India, Russia and the rest of the
emerging economies, strengthening domestic markets,
but hence reducing their contribution to world trade
during the crisis

 As a result of the deepening of the global economic

crisis, social inequality increased, but inequality of
incomes between workers in the developed economies
and the emerging economies lessened.
 The crisis was destined to bring about fundamental
changes in the world economic system. In order to
develop further, the world economy needs qualitative
changes. There are limits to reform in the current global
economic system, but at no other time in the last half-
century have those limits seemed more flexible.

 As a result of the serious collapse in global markets, and

also because of the relative strength of their banking
sector, it is quite possible that the emerging economies
will increasingly shape the future of global finance just as
they are already shaping the direction of global trade
IMPACT ON INDIAN ECONOMY
 The immediate impact of the US financial crisis has been
felt when India’s stock market started falling. On 10
October, Rs. 250,000 crores was wiped out on a single day
bourses of the India’s share market.

 The Sensex lost 1000 points on that day before regaining

200 points, an intraday loss of 200 points. This huge
withdrawal from the India’s stock market was mainly by
Foreign Institutional Investors (FIIs), and participatory
notes.
 IMPACT ON INDIA’S TRADE
The trade deficit is reaching at alarming proportions. Because
of worker’s remittances. NRI deposits, FII investment and so
on, the current deficit is at around $10 billion. But if the
remittances dry up and FII takes flight, then we may head for
another 1991 crisis like situation.

 IMPACT ON INDIA’S EXPORTS

With the US and several European countries slipping under
the full blown recession, Indian exports have run into difficult
times, since October. Manufacturing sectors like leather,
textile, gems and jewellery have been hit hard because of the
slump in the demand in the US and Europe. Indian exports fell
by 9.9 per cent in November 2008, when the impact of
o IMPACT ON INDIA’S HANDLOOM SECTOR, JEWELRY
EXPORT AND TOURISM
 Again reduction in demand in the OECD countries
affected the Indian gems and jewellery industry, handloom
and tourism sectors.
 Around 50,000 artisans employed in jewellery industry
have lost their jobs as a result of the global economic
meltdown.
 Further, the crisis had affected the Rs. 3000 crores
handloom industry and volume of handloom exports
dropped by 4.6 per cent in 2007-08, creating widespread
unemployment in this sector .
o EXCHANGE RATE DEPRECIATION
With the outflow of FIIs, India’s rupee depreciated
o IT-BPO sector
The overall Indian IT-BPO revenue aggregate is expected to
grow by over 33 per cent and reach $64 billion by the end of
current fiscal year (FY200). Over the same period, direct
employment to reach nearly 2 million, an increase of about
375000 professionals over the previous year. IT sectors derives
about 75 percent of their revenues from US and IT-ITES
(Information Technology Enabled Services) contributes about
5.5 percent towards India’s total export. So the meltdown in
the US will definitely impact IT sector. Further, if Fortune 500
companies slash their IT budgets, Indian firms could adversely
be affected.

o FII and FDI

The contagious financial meltdown eroded a large chunk of
money from the Indian stock market, which will definitely
GOVERNMENT MEASURES
 THE FEDERAL RESERVE
• The FEDERAL RESERVE (Fed) has been extremely active in making sure
that the financial system continues to function properly during the credit
crisis.
• The Fed lowered its key federal fund rates to provide additional liquidity
to the financial system, expanded the range of collateral it would willing
to accept in return for loans, and provided direct lines of credit to a
broader variety of financial institutions
• When Bear Stearns was on the verge of bankruptcy the Fed also
guaranteed a large portion of Bear Stearns' liabilities in order to facilitate
a takeover by JPMorgan.
 THE "BAILOUT PLAN"

• Faced with the possibility of a systemic collapse of the financial

system, the Treasury proposed a $700 billion plan that would involve
the government's purchase of impaired assets from the balance
sheets of banks  Initially refused, the Treasury subsequently revised
its proposal, and spurred by rapidly worsening financial market
conditions, the House voted to pass the bill on October 3, 2008
• Similar plans have been implemented globally as part of efforts to
stabilize financial systems and stimulate economic activity.
HOW EFFECTIVE WERE THESE MEASURES
• Following the stock market crash of 1929, policy makers committed a trio of errors.
They tightened monetary policy, restricted fiscal spending and failed to enhance
confidence in the banking system.
• It is widely believed that these mistakes exacerbated the effects of the depression that
followed.

• Policymakers have learned from these mistakes, and those lessons were put to good
use during the credit crisis of 2008, during which the Fed provided enormous amounts
of liquidity to the financial system.
• The government also increased its spending, thereby providing fiscal stimulus to the
economy.
• Finally, the government took extraordinary measures to secure confidence in the
financial system through a variety of guarantees, insurance programs, loans and direct
investments.
THE GOVERNMENT RESCUES PROMINENT
FINANCIAL FIRMS
• The executive branch of the government has also been closely involved in
maintaining stability in the financial system.
• The Federal Housing Finance Agency (FHFA,) in conjunction with the
Treasury Department, placed Fannie Mae and Freddie Mac under
conservatorship as part of a four-part plan to strengthen the housing
agencies.
• Following the rescue of Fannie Mae and Freddie Mac, the government chose
not to rescue Lehman Brothers, instead allowing it to file for bankruptcy on
September 15.
THANK YOU