Global Financial Crisis

Financial crisis 2008

By Bünyamin Güler

CONTENT INTRODUCTION GREAT DEPRECION (1929-1933) PRIME AND SUB-PRIME CREDITS CAUSES OF RECENT WORLD FİNANCIAL CRİSES EFFECTS OF CRİSES EFFECTS TO USA EFFECTS TO OTHER COUNTRIES EFFECTS TO BUSINESS SECTORS EFFECTS TO GLOBAL MONEY MARKET EFFECTS TO CONSUMERS

PREDICTIONS ABOUT CRISES CONSEQUENS OF CRISES POSIBLE SOLUTIONS OF CRISES (ITS ALSO DISCUSION PART)

INTRODUCTION

GREAT DEPRECION

GREAT DEPRECION The stock market crash in October devastated the U.S . Next three years changed America and Americans forever. From 1929 to 1933; 6.000 banks went out of business. 9 million savings account vanished. 85.000 business went bankrupt. 15 million people were unemployed. 400.000 family farms were repossessed by the bank. 2.600 schools were closed. Admissions to mental hospitals went up 300%. 2 million man became homeless. Suicides went up by 30%. Drought in the Great Plains caused crops to die. Huge dust storms.

GREAT DEPRECION

1941,the great depression unfortunately ended with the U.S entry into WW2.Factories that made cars, clothes and other consumer goods changed to war production.15 million American joined to army and new job opportunities for woman.

PRIME AND SUB-PRIME CREDITS Differences in Prime and Sub prime mortgages INTEREST: Nonprime loans have a higher interest rate than prime loans. PENALTY: Prime loans are much less likely to have a prepayment penalty than their sub prime counterparts. APPROVAL: It is more difficult for home buyers to get approved for prime mortgages, especially if they have minimal income and/or a mediocre credit history. DECEPTION: A sub prime mortgage lender is more likely to charge unreasonable fees or try to deceive borrowers into paying more interest than they need to.

DETERMİND PROBLEM:SUB PRİME

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NO COMMENTS…

CAUSES OF RECENT WORLD FİNANCIAL CRİSES

 Boom and bust in the housing market  Speculation  High-risk mortgage loans and lending practices  Securitization practices  Government policies  Policies of central banks  Financial institution debt levels and incentives  Credit default swaps

EFFECTS OF CRİSES

 EFFECTS TO U.S.A  EFFECTS TO OTHER COUNTRIES  EFFECTS TO BUSINESS SECTORS  EFFECTS TO GLOBAL MONEY MARKET  EFFECTS TO CONSUMERS

EFFECTS TO U.S.A U.S.A Thousands of workers are fired and unemployment rate is still increasing. Value of houses are going downward. Big discounts on the stores. Investment banks closed. Trade Inflation Economic governance Return of volatility

EFFECTS TO COUNTRIES  Most British banks raise their money for loans from the deposits of their customers  On September 15, 2008 China cut its interest rate for the first time since 2002  On November 9, 2008 the 2008 Chinese economic stimulus plan is a RMB¥ 4 trillion ($586 billion) stimulus package announced by the central government of the People's Republic of China in its biggest move to stop the global financial crisis from hitting the world's fourth largest economy.  Indonesia reduced its overnight repo rate, at which commercial banks can borrow overnight funds from the central bank, by two percentage points to 10.25 percent.

EFFECTS TO COUNTRIES  The Reserve Bank of India added almost $1.32 billion, through a refinance operation, its biggest in at least a month.  The Reserve Bank of Australia injected nearly $1.5 billion into the banking system, nearly three times as much as the market's estimated requirement.  Developed economies are somewhat linked together, and with increasing globalization, if something effects one of the biggest world economies, it tends to affect everyone to a certain extent, especially if they are a major trade partner.  In Taiwan, the central bank on September 16, 2008 said it would cut its required reserve ratios for the first time in eight years. The central bank added $3.59 billion into the foreign-currency interbank market the same day.

EFFECTS TO COUNTRIES  Bank of Japan pumped $29.3 billion into the financial system on September 17, 2008 and the Reserve Bank of Australia added $3.45 billion the same day.  The European Central Bank injected $99.8 billion in a one-day money-market auction.  The Bank of England pumped in $36 billion.  Altogether, central banks throughout the world added more than $200 billion from the beginning of the week to September 17.

EFFECTS TO BUSINESS SECTORS NAME OF COMPANY

NUMBER

DATE

Citigroup Inc

52.000

17 Nowemb.

JPMorgan Chase

9.200

1 Dece.

Commerzbank

9.000

1 Sept.

GMAC LLC

5.000

3 Sept.l

HSBC

1.100

26 Sept.

UBS

2.000

3 Octo.

Barclays PLC

3.000

10 Octo.

National City Corp

4.000

21 Octo.

Goldman Sachs

3.300

23 Octo.

Credit Suisse

500

28 Octo.

American Express

7.000

30 Octo.

DBS Group

900

7 Nowemb.

Fidelity Investments

1.700

14 Nowemb

HSBC

500

18 Nowemb.

Bank of New York Mellon

1.800

20 Nowemb.

Credit Suisse

650

2 Octo.

HSBC

500

2 Octo

Credit Suisse

5.300

4 Octo

Nomura Holding

1.000

4 Octo.

Total

108.450

EFFECTS TO BUSINESS SECTORS

 HYUNDAİ is going to decrease the production.  TOYOTA has already decreased the production. Toyota closed three car factory.  HONDA is going to fire it’s labors in U.K and in Japan.  GENERAL MOTORS is going to fire 31 thousand workers till 2013.  SUZUKİ is also going to fire 1.200 workers in Hungary.  AT&T,American monster company is going to decrees the 4% of the work force which means 12.000.They are going to start this bad operation whit the beginning of the new year 2009.

EFFECTS TO BUSINESS SECTORS

 HEWLETT PACKARD is going to do big regulation on its company based in North America. They are going to fire 24.600 labor.  BRİTİSH TELECOM announced that they are going to fire 10.000 workers.  DHL is going to fire 9.500 workers.  ARCELOR MITTAL, steel company is going to fire 9.000 workers.  ADOBE SYSTEMS, fired 600 workers.  CREDİT SUİSSE announced that they are going to fire 5.300 workers from the part of investment.

EFFECTS TO BUSINESS SECTORS

 NOMURA the Japan company is going to fire 1000 thousand workers in London.  TELEKOM ITALIA is going to fire 4.000 workers till 2013.  DUPONT is going to fire 2.500 workers.

EFFECTS TO GLOBAL MONEY MARKET Daily Q.VIX

VIX: Chicago Board Options BarOHLC; Q.VIX; Last Trade Exchange Volatility Index i.e. 12.11.2008; 61,52; 67,19; 61,52; 66,46 Index of Investors Fear!

02.01.1990 - 12.11.2008 (GMT) Price

Highest Level Ever Seen: 90

84

80 76 72

Today: 67

68 64

Default of Russia

9 / 11

Iraq War II

60 56

Far East Crisis

52 48

First Signs of the Crisis

44

40 36 32 28 24 20 16 12

1990

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2007

2008 [Delayed]

EFFECTS TO GLOBAL MONEY MARKET 03.05.2006 - 13.11.2008 (UTC) Yield

4,8 4,6 4,4 4,2

November 2007: 4% p.a.

4 3,8

3 Months US Treasury Bill

3,6

Another Sign of Fear?

3,2

3,4

3 2,8 2,6 2,4 2,2

Today: 0,15% p.a.

2 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4

October 2008: 0,03% p.a.

0,2 .1234

16 01 16 03 17 01 16 01 18 02 16

Q2 2006

Q3 2006

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01 16

Q4 2006

Q1 2007

Q3 2007

Q2 2007

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Q4 2007

Q3 2008

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Q2 2008

03

Q4 2008

EFFECTS TO GLOBAL MONEY MARKET Currency Analysis 25.12.2006 - 24.11.2008 (GMT) Value USD

IPP; QTRYUSD=R; Bid(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 86,8592 IPP; QBRLUSD=R; Bid(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 92,2947 IPP; QXAU=; Bid(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 112,0384 IPP; QEUR=; Bid(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 94,7269 IPP; QGBP=; Bid(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 76,2663 IPP; QCLc1; Last Trade(Last); Specified Date; 01.01.2007; 100,0; 13.11.2008; 91,5315

220 210

200 190 180 170 160 150 140 130 120 110

100 90 80 .1234 01 16

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Q1 2007

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Q2 2007

01 16

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Q3 2007

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Q4 2007

01 18 03 17 01 16 01 16 02 16 01 16

Q1 2008

Q2 2008

01 18 01 16 01 16

Q3 2008

03 17

Q4 2008

[Delayed]

EFFECTS TO CONSUMERS U.S.A  The formerly unsinkable American consumer is taking on water, hit by high prices for food and energy, rising unemployment and fewer assets to sell or refinance.  And with the household sector accounting for about three-quarters of the U.S. gross domestic product, an end to American shoppers' remarkable run will have a big and self-reinforcing effect.  Excluding gasoline, U.S. retail sales dropped at an annual 2.2 percent rate in the first quarter.

EFFECTS TO CONSUMERS

 It looks as if we are heading for a transition in the United States to a slightly less consumption-oriented economy with a higher rate of savings and investment. That may be a good thing in the long run, but will be painful while it is happening.

PREDICTIONS ABOUT CRISES

 House prices will continue to fall (median house price) another 2030%.  Unemployment will dramatically increase. Current unemployment is around 6.1%. I foresee this to increase to 10-15%.  Prices will fall as consumers tighten their belts (consumers provide 2/3 of economic growth in USA).  Gold will rally probably breaking the 1000 ceiling.  Oil will continue to drop and stabilize around 60-80 dollars a barrel.

PREDICTIONS ABOUT CRISES

 Companies in Power, Infrastructure, Environmental, Alternative Energy, discount stores, etc will do well over the next 24 months.  Companies in Defense, financial, airlines, travel, luxury goods, "mall stores", etc will not do well over the next 24 months.  Taxes will increase.  Other commodity prices will fall dramatically (Steel, Copper, Grain, Corn, etc).

CONSEQUENS OF CRISES

 UNENPLOYMENT  INFLATION  INSECURITY  FEAR OF INVESTMENT  EVERY CURRENCY LOSE IN VALUE AGAINST DOLLAR  HAUS PRICES GOES DOWNWARD  BIG DISCOUNTS IN STORES

POSSIBLE SOLUTIONS Which solution do you think it’s best to solve this crisis? Bringing the troops home, cut military spending. Stop borrowing, Reduce U.S debt. Begin a major program of investment in infrastructure–a trillion dollars worth–that will begin to provide jobs by the end of next year. A new monetary order. Tax cut for lower class people, hike tax for richer. More economic stimulus package to boost the consumer spending. Shut down Enron-type companies like AIG. Stop funding some troubling small regional banks. Put Ben and Paulson to jail and reform Fed. A huge global rate cut.

POSSIBLE SOLUTIONS  Injecting billions more dollar to aid the credit market.  Encouraging people to save more and spend less to build up capital, until they feel ready to start spend again.  Don’t invest speculatively, stabilize the stock market. We don’t need spectators. We need activists who will try to come up with innovative economic solutions.  Stop building the house, up the inventory, get housing market stabilized.  A super big salary reduction for wall street CEO.  Create more market, and business for more jobs.  Start printing money, inflate us out of this crisis  Officially announce the new currency.  Stop lying  Other

THANK YOU FOR YOUR ATTENTION

By Bünyamin Güler

RESOURCES

 http://en.wikipedia.org/wiki/Economic_crisis_of_2008  http://en.wikipedia.org/wiki/Global_financial_crisis_of_2008  http://www.hurriyet.com.tr/ekonomi/10506705.asp?gid=229  http://www.imf.org/external/index.htm  http://www.wto.org/  http://www.vestel.com.tr/global/index.html  http://www.pdfcoke.com/