Our Presentation 1

8/8/2019 Our Presentation 1

1/32


2/32

Causes and Consequences of Globally

Financial Recession


3/32

Presented By Fahad Abbas BmFahad Abbas BmFahad Abbas Bm---250782507825078

Ayesha Munawwar Mirza BmAyesha Munawwar Mirza BmAyesha Munawwar Mirza Bm---250672506725067

NoorNoorNoor---ususus---Saba BmSaba BmSaba Bm---250522505225052

Murad Suleman BmMurad Suleman BmMurad Suleman Bm---251752517525175


4/32

R

eason for Choosing This Topic The reason for choosing this topic is that it has a directThe reason for choosing this topic is that it has a directThe reason for choosing this topic is that it has a direct

relationship with the poverty, unemployment, literacy,relationship with the poverty, unemployment, literacy,relationship with the poverty, unemployment, literacy,

wealth distribution and also with the increased level ofwealth distribution and also with the increased level ofwealth distribution and also with the increased level ofterrorism in Pakistan.terrorism in Pakistan.terrorism in Pakistan.

Financial crisis in 2008Financial crisis in 2008Financial crisis in 2008---09 which are still on the go, they09 which are still on the go, they09 which are still on the go, theyactually started from the 20actually started from the 20actually started from the 20ththth century and they have beencentury and they have beencentury and they have beenincreasing since then. In the end of 20increasing since then. In the end of 20increasing since then. In the end of 20ththth century the U.Scentury the U.Scentury the U.Shousing prices after a multiyear started declininghousing prices after a multiyear started declininghousing prices after a multiyear started declining


5/32

What is an Economic Recession?

This occurs when there is a significant decline inThis occurs when there is a significant decline inThis occurs when there is a significant decline inthe economy which usually lasts for months.the economy which usually lasts for months.the economy which usually lasts for months.

This is visible in terms of consumer spending,This is visible in terms of consumer spending,This is visible in terms of consumer spending,employment, industrial production, real incomeemployment, industrial production, real incomeemployment, industrial production, real incomeand wholesale trade.and wholesale trade.and wholesale trade.

Experts say that an economic recession is normalExperts say that an economic recession is normalExperts say that an economic recession is normal

because it is part of the business cycle and thingsbecause it is part of the business cycle and thingsbecause it is part of the business cycle and thingsusually improve within 16 to 18 months.usually improve within 16 to 18 months.usually improve within 16 to 18 months.


6/32

Economic Recession History

There were three periods considered toThere were three periods considered toThere were three periods considered tobebebe recessions:recessions:recessions:

JanuaryJanuaryJanuary---July 1980andJuly 1981July 1980andJuly 1981July 1980andJuly 1981--- NovemberNovemberNovember1982: two years in total1982: two years in total1982: two years in total

July 1990July 1990July 1990--- March 1991: eight monthsMarch 1991: eight monthsMarch 1991: eight months

November 2001November 2001November 2001--- November 2002: twelve monthsNovember 2002: twelve monthsNovember 2002: twelve months


7/32

Early 1980s Recession

The Iranian Revolution sharply increased theThe Iranian Revolution sharply increased theThe Iranian Revolution sharply increased the

price of oil around the world in 1979, causingprice of oil around the world in 1979, causingprice of oil around the world in 1979, causingthe 1979 energy crisis.the 1979 energy crisis.the 1979 energy crisis.


8/32


Industrial production and manufacturingIndustrial production and manufacturingIndustrial production and manufacturing---tradetradetrade

sales decreased in early 1991. .sales decreased in early 1991. .sales decreased in early 1991. .


9/32


The collapse of the dotThe collapse of the dotThe collapse of the dot---com bubble, thecom bubble, thecom bubble, the

September 11th attacks, and accounting scandalsSeptember 11th attacks, and accounting scandalsSeptember 11th attacks, and accounting scandalscontributed to a relatively mild contraction in thecontributed to a relatively mild contraction in thecontributed to a relatively mild contraction in theNorth American economy.North American economy.North American economy.


10/32

Presented By

Ayesha Munawwar MirzaAyesha Munawwar MirzaAyesha Munawwar Mirza


11/32

Understanding the Causes of

Economic Recession:

It can be difficult to predict the causes ofIt can be difficult to predict the causes ofIt can be difficult to predict the causes ofeconomic recession.economic recession.economic recession.

Economists believe the Index of LeadingEconomists believe the Index of LeadingEconomists believe the Index of LeadingIndicators may be a useful tool for determiningIndicators may be a useful tool for determiningIndicators may be a useful tool for determiningRecession.Recession.Recession.


12/32

These are

Weekly hours worked by manufacturing workers on average

Average number of initial applications for unemployment

insurance claims

S&P 500-stock index

Spread between long and short interest rates

Amount of manufacturer orders for consumer goods and

materials

Speed of delivery of new merchandise to vendors fromsuppliers

New orders for capital goods unrelated to defense

Number of new building permits for residential buildings


13/32

Few of the significant symptoms of

an economic recession are Many businesses across all sectors suffer a serious decline inMany businesses across all sectors suffer a serious decline inMany businesses across all sectors suffer a serious decline in

sales turnover and their profits shrink.sales turnover and their profits shrink.sales turnover and their profits shrink.

Borrowers default on repayment of loans and credit cardBorrowers default on repayment of loans and credit cardBorrowers default on repayment of loans and credit cardliabilities.liabilities.liabilities.

Banking system breaks down as borrowers are not in a positionBanking system breaks down as borrowers are not in a positionBanking system breaks down as borrowers are not in a positionto repay loans.to repay loans.to repay loans.

The rate of job loss becomes far too alarming.The rate of job loss becomes far too alarming.The rate of job loss becomes far too alarming.


14/32

Prices of food, fuel and other essentialPrices of food, fuel and other essentialPrices of food, fuel and other essentialcommodities shoot up .commodities shoot up .commodities shoot up .

Companies offer voluntary retirement programsCompanies offer voluntary retirement programsCompanies offer voluntary retirement programsto reduce their workforce and cut wagesto reduce their workforce and cut wagesto reduce their workforce and cut wages

People foreclose their fixedPeople foreclose their fixedPeople foreclose their fixed---term deposits, andterm deposits, andterm deposits, andsell off other assets to meet their daysell off other assets to meet their daysell off other assets to meet their day---tototo---daydaydayexpenses.expenses.expenses.


15/32

Current Global Financial Crisis

TheWorld Economy is Mired in theWorstTheWorld Economy is Mired in theWorstTheWorld Economy is Mired in theWorstFinancial Crisis Since the Great Depression.Financial Crisis Since the Great Depression.Financial Crisis Since the Great Depression.

It All Start in U.S:It All Start in U.S:It All Start in U.S:---Boom in Housing Sector.Boom in Housing Sector.Boom in Housing Sector.

Collapse of banks & financial institutionsCollapse of banks & financial institutionsCollapse of banks & financial institutions

Freezing of LiquidityFreezing of LiquidityFreezing of LiquidityRipple Effect in all over the worldRipple Effect in all over the worldRipple Effect in all over the world

Fundamental mispricing in the capital marketsFundamental mispricing in the capital marketsFundamental mispricing in the capital markets


16/32

Continue.

contcontcont

Plus the failure to control poorunderwriting standards in themortgage markets means no downpayment, no verification of income,assets, and jobs, interest onlymortgages


17/32

Presented By

NoorNoorNoor---ususus---Saba BmSaba BmSaba Bm---250522505225052


18/32

IMF Expectations

World Economy is shrinking after WWWorld Economy is shrinking after WWWorld Economy is shrinking after WW---IIIIII

Economic Growth is expected to be 0.5%Economic Growth is expected to be 0.5%Economic Growth is expected to be 0.5%

Advanced Economies are expected to contract byAdvanced Economies are expected to contract byAdvanced Economies are expected to contract by2%.2%.2%.

Recession is likely to continue throughout 2009Recession is likely to continue throughout 2009Recession is likely to continue throughout 2009

and 2010.and 2010.and 2010.


19/32

How this started

Housing Sector of AmericaHousing Sector of AmericaHousing Sector of America

A combination of Low Interest Rates & LargeA combination of Low Interest Rates & LargeA combination of Low Interest Rates & Large

Inflows of Foreign Funds Created Easy CreditInflows of Foreign Funds Created Easy CreditInflows of Foreign Funds Created Easy CreditConditions for People to Take Home LoansConditions for People to Take Home LoansConditions for People to Take Home Loans

Created a BOOM in Housing SectorCreated a BOOM in Housing SectorCreated a BOOM in Housing Sector

This In turn Created Demand for Property &This In turn Created Demand for Property &This In turn Created Demand for Property &Fueled the Home PricesFueled the Home PricesFueled the Home Prices


20/32

The Greed Factor to Earn More & More ProfitThe Greed Factor to Earn More & More ProfitThe Greed Factor to Earn More & More ProfitWas Driving Every one During Period ofWas Driving Every one During Period ofWas Driving Every one During Period ofHousing Market.Housing Market.Housing Market.

Lending to SubLending to SubLending to Sub---Prime MarketPrime MarketPrime Market

NINJA (No Income, No Job, No Assets)NINJA (No Income, No Job, No Assets)NINJA (No Income, No Job, No Assets)


21/32

Housing BubbleWas Burst Eventually.Housing BubbleWas Burst Eventually.Housing BubbleWas Burst Eventually.

Over Building of Houses During The BoomOver Building of Houses During The BoomOver Building of Houses During The BoomPeriod Finally Led to Surplus Inventory ofPeriod Finally Led to Surplus Inventory ofPeriod Finally Led to Surplus Inventory ofHomes.Homes.Homes.

Caused Decline in The Prices of HousesCaused Decline in The Prices of HousesCaused Decline in The Prices of Houses

From Summer 2006From Summer 2006From Summer 2006As a Result People Began to Default.As a Result People Began to Default.As a Result People Began to Default.

Provided an Incentive toWalkway Then to PayProvided an Incentive toWalkway Then to PayProvided an Incentive toWalkway Then to Paythe Mortgage.the Mortgage.the Mortgage.

Foreclosures Increased and During 2007 1.3Foreclosures Increased and During 2007 1.3Foreclosures Increased and During 2007 1.3Million of U.S Housing Properties were SubjectMillion of U.S Housing Properties were SubjectMillion of U.S Housing Properties were Subjectto Foreclosures.to Foreclosures.to Foreclosures.


22/32

Supply of Housing

Inventor Further

increased to suchExtent Nearly 4

Million Unsold Homes

were for Sale Including

2.9 Million That WereVacant.


23/32

How Housing Crash Caused Global

Economic Depression?MBS (Mortgage Based Securities)MBS (Mortgage Based Securities)MBS (Mortgage Based Securities)

CDOS (Collateralized Debt Obligations).CDOS (Collateralized Debt Obligations).CDOS (Collateralized Debt Obligations).

Big American & European Banks Bought TheseBig American & European Banks Bought TheseBig American & European Banks Bought TheseSubSubSub---Prime loan Portfolios From OriginalPrime loan Portfolios From OriginalPrime loan Portfolios From OriginalLenders.Lenders.Lenders.

The ProblemWhichWas to RemainWithin TheThe ProblemWhichWas to RemainWithin TheThe ProblemWhichWas to RemainWithin TheConfines of U.S.A Propagated intoWorldsConfines of U.S.A Propagated intoWorldsConfines of U.S.A Propagated intoWorldsFinancial Market.Financial Market.Financial Market.


24/32

Presented By

Murad SulemanMurad SulemanMurad Suleman


25/32

The Problem etWorsened as MBS,Which by thatThe Problem etWorsened as MBS,Which by thatThe Problem etWorsened as MBS,Which by that

Time Had Become Part of CDOS of MajorTime Had Become Part of CDOS of MajorTime Had Become Part of CDOS of MajorAmerican & European Banks Lost their Value.American & European Banks Lost their Value.American & European Banks Lost their Value.

Falling Prices of CDOS dented the BanksFalling Prices of CDOS dented the BanksFalling Prices of CDOS dented the BanksInvestment Portfolios and Destroyed BanksInvestment Portfolios and Destroyed BanksInvestment Portfolios and Destroyed BanksCapital.Capital.Capital.

Inter bank Lending was StoppedInter bank Lending was StoppedInter bank Lending was Stopped


26/32

Estimated Loss was $Estimated Loss was $Estimated Loss was $512512512Billion in SubBillion in SubBillion in Sub---PrimePrimePrime

Largest Hits Take ByLargest Hits Take ByLargest Hits Take By CITI GROUP((($55.1Billion)

Merrill Lynch (Merrill Lynch (Merrill Lynch ($52.2 Billion)))

U.S Based Firms Suffered an Over allU.S Based Firms Suffered an Over allU.S Based Firms Suffered an Over all $260billion.billion.billion.

While European Firms Suffered (While European Firms Suffered (While European Firms Suffered ($227 Billion)))

((($24 Million) By Asian Banks.) By Asian Banks.) By Asian Banks.

Lehman BrothersLehman BrothersLehman Brothers---File Bankruptcy.File Bankruptcy.File Bankruptcy.

Freddie Mac & Fannie MaeWere NationalizedFreddie Mac & Fannie MaeWere NationalizedFreddie Mac & Fannie MaeWere NationalizedBy U.SBy U.SBy U.S


27/32

Banks Stopped Capital FinanceBanks Stopped Capital FinanceBanks Stopped Capital Finance

160,000 People Lost There Jobs In U.S160,000 People Lost There Jobs In U.S160,000 People Lost There Jobs In U.S

It Results Declining in Spending.It Results Declining in Spending.It Results Declining in Spending.

Thus American Imports are Decline.Thus American Imports are Decline.Thus American Imports are Decline.


28/32

How it Effected China

Depends upon Exports to United States.Depends upon Exports to United States.Depends upon Exports to United States.

The Effect on ChinaWill be Felt by Number ofThe Effect on ChinaWill be Felt by Number ofThe Effect on ChinaWill be Felt by Number ofNeighboring CountriesWhich are MajorNeighboring CountriesWhich are MajorNeighboring CountriesWhich are MajorSuppliers of Parts and Components.Suppliers of Parts and Components.Suppliers of Parts and Components.


29/32

Effected Other Countries

Europe's Biggest Economy Shrinking by 2.5%Europe's Biggest Economy Shrinking by 2.5%Europe's Biggest Economy Shrinking by 2.5%

Britain Suffer With G.D.P Contracting 2.8%Britain Suffer With G.D.P Contracting 2.8%Britain Suffer With G.D.P Contracting 2.8%

Ice landWhichWon the UNs Best Country to LiveIce landWhichWon the UNs Best Country to LiveIce landWhichWon the UNs Best Country to Livein Award Just Last Year Witnessed The Collapse andin Award Just Last Year Witnessed The Collapse andin Award Just Last Year Witnessed The Collapse and

Nationalized Major banks.Nationalized Major banks.Nationalized Major banks. Unemployment is expected to reach 11% This Year. AsUnemployment is expected to reach 11% This Year. AsUnemployment is expected to reach 11% This Year. As

Compared to 0.8% last year .Compared to 0.8% last year .Compared to 0.8% last year .


30/32

Decreased in the Demand of Oil

Oil Prices are considered as a Barometer of theOil Prices are considered as a Barometer of theOil Prices are considered as a Barometer of theWorld Economy.World Economy.World Economy.

Oil Prices Which Peaked atOil Prices Which Peaked atOil Prices Which Peaked at $147.30 Barrel inBarrel inBarrel inJulyJulyJuly200820082008 Fell belowFell belowFell below $35 at the End ofat the End ofat the End of 200820082008...

This Slow Down the Economies of MiddleThis Slow Down the Economies of MiddleThis Slow Down the Economies of MiddleEastern Countries EspeciallyEastern Countries EspeciallyEastern Countries Especially

U.A.E,QATAR,BAHRAIN,KUWAIT & SAUDIU.A.E,QATAR,BAHRAIN,KUWAIT & SAUDIU.A.E,QATAR,BAHRAIN,KUWAIT & SAUDIARABIAARABIAARABIA


31/32

How it Effected Pakistan

The Industrial Sector of Pakistan EspeciallyThe Industrial Sector of Pakistan EspeciallyThe Industrial Sector of Pakistan EspeciallyTextile and Leather Goods Largely Affected.Textile and Leather Goods Largely Affected.Textile and Leather Goods Largely Affected.

RemittancesRemittancesRemittances Pakistani economy is Facing some otherPakistani economy is Facing some otherPakistani economy is Facing some other

Problems That are Peculiar to it and not Part ofProblems That are Peculiar to it and not Part ofProblems That are Peculiar to it and not Part ofGlobal Financial Melt down. These IncludeGlobal Financial Melt down. These IncludeGlobal Financial Melt down. These Include

Terrorism, Law & Order Situation ,Energy CrisisTerrorism, Law & Order Situation ,Energy CrisisTerrorism, Law & Order Situation ,Energy Crisisand Political Instability.and Political Instability.and Political Instability.


32/32

Our Presentation 1

Documents

Transcript of Our Presentation 1