GLOBAL FINANCIAL

CRISIS

Vasudha Lalit - 9
Chetan Shringarpure -
8

Spanning the financial storm

Spanning the Global Financial
Crisis
 Background
 Timeline
 Peak
 Responses
 Global Impact
 Proposals on Table
 Conclusion
Background
 The American housing dream
 Banking Dichotomy
 Shadow Banking
 De-regulation
 Liquidity rise
Causes
 Huge foreign capital inflows
 Nothing of value to spend on
 Growth of the Housing Bubble a.k.a sub-
prime lending
 Accelerating liquidity
 Foreign capital
 MBS and CDO
 Predatory Lending

 Ethical and moral failures

 Regulation vs Innovation

Timeline

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

Peak – ’08 The Year of
Collapse
 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

S o u rce :
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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
Conclusion
 Forgive ? Forget ? Both ?
 What’s coming down next ( Dubai ? )
 Bubble deflation policies – A mandate ?

Thanks