Global Economic Crisis of 2008

7/27/2019 Global Economic Crisis of 2008

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GLOBAL ECONOMICSLOWDOWN


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IS ITHERE TOSTAY ?


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Slowdown

Unemployment

???

Economic Activity

Low Purchasing Power

Low Demand


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Tech bubble

US financial crisis

Euro Zone Crisis

Global Repercussions

The economies that survived

The big question!


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Started In home mortgage market subprime mortgages

Promise made by individuals to bank mortgage

Depository banks and investment banks

Changes bought by Financial service modernization act

1. Group of mortgages were bundled together and sold to investors

2. The federal government reduced the interest rate to help people purchase

houses.


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Financial institutions sold mortgage securities.

Drop in house prices

Banks had to shut down.


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Largest trade partner affected B.O.P negatively.

In 2008 , slower growth rate of 6.8 %

RBI tightened the interest rate policy 14 times since

February 2010.

BLACK MONDAY stock market crashed by over 1430 points.


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Bursting of the United States Housing Bubble - 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

Collapse of major investment banks in 2008

2008 collapse of stock prices

The liquidity and credit crunch that started in the sub-prime mortgage market

spread to all credit and financial markets as this was not just a sub-prime

problem: commercial real estate mortgages, credit cards, auto loans, student

loans etc


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Housing prices were relatively stable during the 1990s, but they began to rise

toward the end of the decade.

Between January 2002 and mid-year 2006, housing prices increased by a

whopping 87 percent.

The boom had turned to a bust, and the housing price declines continued

throughout 2007 and 2008.

Annual Existing House Price Change

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%


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The default rate fluctuated, within a narrow range, around 2 percent prior

to 2006.

The rate began increasing sharply during the second half of 2006

It reached 5.2 percent during the third quarter of 2008.

Default Rate

1979

1980

1981

1982

1984

1985

1986

1987

1989

1990

1991

1992

1994

1995

1996

1997

1999

2000

2001

2002

2004

2005

2006

2007

0%

1%

2%

3%

4%

5%

6%


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Between January 2002 and mid-year 2006, housing prices increased by a

whopping 87 percent.

The boom had turned to a bust, and the housing price declines continuedthroughout 2007 and 2008.

By the third quarter of 2008, housing prices were approximately 25 percent

below their 2006 peak.

Foreclosure Rate

1979

1980

1981

1982

1984

1985

1986

1987

1989

1990

1991

1992

1994

1995

1996

1997

1999

2000

2001

2002

2004

2005

2006

2007

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%


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As of mid-December of 2008, stock returns were down by 37 percent since

the beginning of the year.

This collapse eroded the wealth and endangered the retirement savings ofmany Americans.


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7 September 2008

US government seizes control of mortgage lenders Fannie Mae and Freddie

Mac

15 September 2008

Lehman Brothers files for bankruptcy. Merrill Lynch is

bought by Bank of America for US$50 billion

16 September 2008

American International Group (AIG), the USs biggest insurer, receives an

US$85 billion loan from the US Federal Reserve to stave off bankruptcy

28 September 2008

US bank, Washington Mutual, is seized by US regulators in the biggest US bank

failure in history


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The list of casualties kept on growing


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Lehman Brothers stock, 2007-2011 General Motors Corporation stock, 2007-2011

Citigroup, Inc. stock, 2007-2011 Fannie Mae stock, 2007-2011
http://en.wikipedia.org/wiki/File:Citigroup.svg


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RELIEF MEASURES TAKEN TO COMBAT

THE US FINANCIAL CRISIS

President Obama signed the American Recovery and ReinvestmentAct.

The Making Home Affordable Program is another measure to offernational financial relief.

The third important measure that has helped is the multibillion dollarplan to help small businesses.

The fourth measure came when President Obama signed the Helping

Families Save Their Homes Act and the Fraud Enforcement and Recovery act

into law.

The fifth important measure that has been taken to ease the financial

crisis was the signing into law of the Credit Card Accountability,

Responsibility, and Disclosure


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EU consists of 17countries

Portugal, Ireland,

Greece n Spainaffected


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Contradictory Monetary n Fiscal Policies


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Heavydebts

Recession

Inflation

Stagflation


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GREECE SHIPPING &

TOURISM

CAUSES

IRELAND-PROPERTY BUBBLE

SPAIN-HOUSING DEBT

CRISIS

PORTUGAL-REAL ESTATE

BUBBLE


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RESCUE OPERATIONS

Mobilization of credit

Introduction ofEUROBOND

Increase competitiveness

European Fiscal Compact


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Emerging and developing economies 71% of global

nominal GDP (07-12)

Previously advanced economies 29%

IMF


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FDI

Trade

Monetary and fiscal regulations

SEZ

Service sector growth Infrastructural

Domestically driven economies


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BRICS (Russia exception)

Improve global economic situations & financial

institutional reforms (more involved in global

affairs)

$75 billion boost IMF lending power (June 2012 )

Voting reforms

EAGLEs 2010


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EAGLEs 2010

Emerging and growth leading economies

Membership

Brazil South Korea China

Mexico Egypt Russia

India Taiwan Indonesia

Turkey


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Increase in unemployment ratefrom 5.7% to 10.1% in 2008

Increase in Inflation rate.

Decline in GDP.

Decrease in Capital Investment . Decline in Domestic Demand.

Decrease in stock prices .


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Ban in Short Selling of Shares.

Slowdown in International Travel.

Increase in Poverty.

Decline in prices of gold , oil .

Decrease in pollution by 3 % in 2009.

Decline in Shipping Volume by 50%. Political instability.

Changes in Policies.


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Its our life

It th


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Its the same

with

ECONOMY


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Its US (A)


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Its US


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Global Economic Crisis of 2008

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Transcript of Global Economic Crisis of 2008