...__________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually as a consequence the unemployment because labor markets are globally rigid, the currency is in devaluation...
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...The Great depression In the 1920’s the stock market seemed to be the pot of gold at the end of the rainbow for many investors. While using credit or their life savings it slipped people’s minds that stocks were and are no guarantee of return on investment. In March of 1929 the first mini-crash hit the stock market. But it wasn’t until October 24 of that year that the first big crash happened. The day known as “Black Thursday” saw almost 13 million shares being sold, but through the bedlam bankers investing their own money calmed the situation and people started buying again. However by Tuesday the 29th the stocks had crashed again as over 16million shares were sold. This was the start of what would be known as the great depression. From 1929 until 1939 America suffered the greatest economic crisis the country had ever seen and is perhaps the worst even to this day. During that 10 years unemployment reached nearly 24 percent. Amazing and horrifying considering the average rate is about 4 or 5 percent. In the beginning there was no minimum wage, no unemployment benefits and no welfare. It is estimated that the average wage was around .05 to .20 cents an hour for those lucky enough to have steady work. With gas around .15c per gallon, eggs .18c a dozen, and bread .08c a loaf feeding your family was possible but was definitely not extravagant. The economy slowly saw improvement until 1937 when another recession hit. It wasn’t until the outbreak of World War II in 1939 that the...
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...(Keating). The 2008 economic crisis didn’t occur suddenly. Signs started to appear in 2004, with the steadily increase in housing prices, when “subprime lending” was generally practiced. Subprime lending is the practice of lending loans to people who may have difficulty maintaining the repayment schedule which sometimes reflects setbacks, such as unemployment, divorce, medical emergencies, and more. Banks would usually lend out loans for an interest rate 100% or more for the values of their houses. Most realtors thought that the prices would have returned to a maintainable level, however, they failed to realize the amount of unreliable loaners (Amadeo). Many people began to lose their trust in the banks and their government, and started to criticizing the Community Reinvestment Act. The Community Reinvestment Act encourages citizens to put more of their money into banks in order to help surrounding communities grow (Community Reinvestment...
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...bankruptcy? Why did a house that used to cost $200,000.00 just sell for $40,000.00? Why are foreclosures at the highest rate in US history? Maybe the question to ask is what has caused all of this? There are so many questions to be answered when it comes to the economic conditions in the United States. How did it get into the current condition? What were the signs of slipping into the crisis (economic indicators)? Whose actions were responsible? Was the responsible party also guilty of unethical behavior (big issue) or was it accidental. How long will it take for the economy to get back to being productive? In the past, America has been a very productive, successful country. There have been other recessions and a depression that have affected the U.S. but for some reason this current crisis was started by a completely different chain of events. What was the chain of events that triggered this current catastrophe? There are so many questions that need to be answered for the people of America and this student is now on a mission to give the United States and the world an explanation about the crisis and possible solutions to getting out of the crises. After this catastrophe started in the United States, the rest of the countries in the world suffered the same fate. This is because the...
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...there are many different opinions on how to correct and prevent these recessions from happening we are going to look at the facts that lead to these crisis’ in the U.S. economy. The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. NBER (National Bureau of Economic Research) states that a recession is a period between a peak and a trough, which does not necessarily always consist of two consecutive quarters of decline in real GDP but a significant decline in economic activity that spreads across the economy and can last from a few months to more than a year. [1] The first recession we are going to explore is The Great Depression which many say started as a recession. Although the economy began to decline in the middle of 1929 and continued to fall until the first few months of 1933, Black Tuesday, (October 29, 1929) was the day the stock market crashed and what many people affiliate to the beginning of the Great Depression. Stock prices plummeted, and since many banks had also invested large portions of their clients' savings in the stock market, they were forced to close when the stock market crashed. People saw banks closing which caused another panic across the country because people where afraid they would lose their own savings, so they rushed to banks that were still open to withdraw...
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...usually effected with a big change, up or down, in GDP. Negative GDP growth plays a role in determining a recession, a period when real GDP falls for six months. “Real GDP does not always grow smoothly—sometimes it collapses suddenly, and the result is an economic downturn.” (O’Sullivan, 2014, p. 302). Sometimes this economic downturn can lead to a depression, a severe recession. Moderate contraction and expansion cycles are part of the normal economic system. Throughout history there have been many fluctuations in the GDP of the United States caused for various reasons such as drastic changes in the stock market, oil prices, world events, and wars. Some fluctuations have had more wide-spread, lasting effects than others. The Great Depression was the time from 1929 to 1933 when the real GDP took a nosedive, creating the “most severe disruptions to ordinary economic life in the United States during the twentieth century.” (O’Sullivan, 2014, p. 303). The effects of the Great Depression were felt throughout the world. In 1933, the United States GDP was sitting at -45.32%. The country was still with the grip of the Depression. Many things contributed to that dark time in our history...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin American countries defaulted. The following period (1835–1866) was relatively tranquil. But a lending boom developed in this period, which soon resulted in a new series of default episodes. The global crisis of 1873 started with the collapse of a property boom in Germany and Austria, then spread through the continent and affected the US as European investors dumped...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...Global Financial Crisis: The 2007–2012 global financial crisis, also known as the Global Financial Crisis (GFC), late-2000s financial crisis or the second "Great Recession", is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a significant decline in economic activity, leading to a severeglobal economic recession in 2008.[2] The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.[3][4] The bursting of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[5][6] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[7] Governments and central banks responded with unprecedented fiscal stimulus...
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...RESEARCH QUESTION: How far was the Wall Street Crash the main cause for the Great Depression? A. Plan of the Investigation 1 B. Summary of Evidence 1 C. Evaluation of Sources 3 D. Analysis 5 E. Conclusion 7 F. Bibliography 8 A. Plan of the investigation The investigation considers the extent to which the Wall Street Crash was the main cause for the Great Depression that hit the Unites States throughout the 1930s, whose effects were spread worldwide. For this purpose the investigation assesses the significance of the crash in the stock market in relation to other factors that were also relevant. Through the selection and summary of relevant written sources, the investigation examines the 1920’s the domestic and international problems during the “prosperous” years that triggered the crisis. In order to reach a conclusion two of the sources: The Great Depression by Lionel Robbins and The Great Depression and The New Deal by Robert F. Himmelberg are evaluated for their origin, purpose, values and limitations. Word count: 120 B. Summary of evidence By the time the United States entered the First World War in 1917, the USA was the world’s biggest economic power[1]. Its role in providing extra equipment and a supply of fresh soldiers was instrumental in the final Allied victory[2]. The artificial prosperity of the war years was followed by an inevitable collapse[3]...
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...The economic and financial crisis from 2008 to 2009 was considered to be the worst financial crisis since the Great Depression. There are many predictors of the economic and financial crisis. One predictor is the decline in investment expenditures. Investment expenditures reflect the level of aggregate demand for capital goods. Another indicator of financial crisis could be weak exports and excessive imports. Loss of competitiveness and external market are reliable predictors to a crisis, business failure, and decrease in loans. There was a rise in home foreclosures. The value of the homes began to decline and homeowners stopped paying their loans. The banks started to take the homes away and sold them elsewhere. Companies thought the prices for homes would continue to increase, however that didn’t happen. From the first quarter of 2006 to the third quarter of 2008, the percentage of mortgages in foreclosure tripled, from 1 percent to 3...
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...Financial Crisis: impacts, solutions and predictions in GCC countries. Since the end of 2007 and the beginning of 2008, the world has been suffering from the global financial crisis. It is believed to be the worst financial crisis in 60 years at least since the Great Depression in 1930s, due to the speed, scope, and scale of its impact. The huge difference distinguishes the contemporary crisis from the others is that the other crises were concerned with economic inflation and the current one is concerned with economic deflation. The global financial crisis has started in America, then crossed the Atlantic before going global. It began in the mortgage markets of the United States and erupted through financial markets (Savona, Kirton, Oldani 3). Many factors have contributed to the economy's recession, where signs of housing bubble problem were seen at the end of 2007. Caused by low interest rates beginning on January 3, 2001, and ignored by regulatory agencies, Americans borrowed excessively for home mortgages and this phase lasted to 2004. After that, from June 30, 2004, interest rates started to rise which led to the mortgage being unbearable and eventually subprime. This phase was marked by the increasing foreclosures and it extended from 2005 to 2007. This lead us to the conclusion that global financial crisis occurred due to easy monetary policies along with tax cuts and to failure of regulatory arrangements (Desai 1-3). This was the origin of the global financial crisis in the...
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...Global Financial Crisis: Likely Impact on Bangladesh [Abstract: The current financial crisis that originated in the United States and quickly spread to Europe and Asia could be a global crisis soon. Reckless lending by banks and financial institutions and slack regulatory system were at the root of the crisis, which is perhaps the gravest since the Great Depression of the 1930s. Amid a severe credit crunch, the rich economies have entered into a deep recession. IMF economists predict the global economic growth to fall from 5.6% in 2007 to 3.9% in 2008, and to 3.0% next year. Billions of dollars pumped by the rich and the emerging economies to bail out the distressed banks or to boost their economies have failed to stop the rot. Bangladesh is apparently immune from the crisis, its economy not being very tightly linked with the rest of the world. It has been enjoying a relatively healthy growth of exports, industrial activity and remittances. Yet, a prolonged recession in the rich countries may cause a slowdown in exports, inflows of remittances, foreign aid and FDI, thereby hurting GDP growth. IMF has said that GDP growth in Bangladesh this year will be lower – 5.5% instead of the officially projected 6.5%, if the global recession lingers. Bangladesh policy makers will need to stay alert to the possibility of the economy being hit by the global slump and adopt appropriate mitigating measures.] Introduction The United States economy is now experiencing a severe credit...
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...In 2008, the U.S. Economy experienced a drop in the stock market so fast and unexpected that it has been called the “Great Recession” (Santucci, 2011) and the “Crash of 2008” (Crash of 2008, 2010). Many things contributed to the recession, but the main cause was sub-prime lending by banks. Basically banks were lending money to people to buy homes that they couldn't afford. Due to the sub-prime mortgages going belly-up, along with the spiraling effects of bank failures such as the automotive industry needing to borrow billions of dollars, the U.S. Economy experienced is worst economic situations since the Great Depression. The causes of the recession date back many years, and as far back as 1980. This is when bank deregulation begins (Crash of 2008, 2010), which means less qualifications are needed to give out a loan. This recession could have been foreseen by some since in 1987, there was a stock market crash that occurred after the banking deregulation began (Crash of 2008, 2010). As we get closer to the Crash of 2008, we find that there are more and more subtle signs. One of the biggest early signs was in 2001 when the annual issue of US mortgage backed bonds increased from $500- $2,000 billion (Crash of 2008, 2010). Also, with the U.S. Backing more bonds at such a high rate and causing the interest rates at an all time low, from 2001 to the third quarter in 2006, the average house value was raised by 80% (Crash of 2008, 2010). After this time, the housing market experienced...
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