CROSS COMPARISION ANALYSIS OF FINANCIAL CRISIS

Presented By:Shubham KhandelwalWg Cdr Siddhartha SaxenaSumanya SahooVineet GuptaJatin UnarkatKomal Chaudhary

FINANCIAL CRISIS 1929: Great Depression 1987: Black Monday in Stock Market 1992-93: Black Wednesday- Speculative

Attacks on European Exchange Rate Mechanism

2007-08: Global Financial Crisis. 2015 Greece Crisis 2016: Japan Debt Crisis 2016: Britain Exit

CAUSES BEHIND CRISIS Leverage Liquidity Too big to Fail Conflicts of Interest Taxes and Subsidies Governance

SHORT MOVIE

1929-GREAT DEPRESSION Credit boom Buying on the margin Irrational exuberance Mismatch between production and

consumption Agricultural recession Weaknesses in the banking system

1987: BLACK MONDAY IN STOCK MARKET  Program Trading  Overvaluation  Illiquidity Market Psychology

1992-93: BLACK WEDNESDAY- SPECULATIVE ATTACKS ON EUROPEAN EXCHANGE RATE MECHANISM EU wanted to reduce exchange rate variability Economic Effect : -German reunification shock Political explanations: -Speculative Attacks

2007-08: GLOBAL FINANCIAL CRISIS Great Moderation Housing bubble Bad loans Bad loans repacked and resold Housing Bubble Burst Banks short of liquidity

2015 GREECE CRISIS GDP growth Government debt Budget compliance Data credibility Government spending Current account balance

2016: JAPAN DEBT CRISIS Spending is greater than Revenue Taxes is used in Interest Payment and

other expanses Japanese demographic situation Debt Securities

2016: BRITAIN EXIT Control immigration Make Britain great again Reject the Brussels bureaucrats Reject what the establishment wants Lower prices

IMPACT OF ECONOMIC CRISIS High Unemployment In 1933, which could be considered the worst year

during the Great Depression (which lasted from 1929-1941), more than 11 million people were unemployed. In 2008 Global unemployment increased by 8.4 million in 2008 (7.4 percent) and global job losses hit 50 million in 2009

Staggering Debt On June 30, 2015, Greece became the first developed

country  to fail to make an IMF loan repayment. At that time, debt levels had reached €323bn or some €30,000 per capita.

IMPACT OF ECONOMIC CRISIS Collapsed Stock Market

From April 1931 to July 8, 1932 Dow closed at 41.22—its lowest level of the 20th century, concluding an 89 percent loss rate for all of the market's stocks. In 1987 In the United States, the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session, a loss that remains the largest one-day stock market decline in historyThe U.S. lost $7.4 trillion in stock wealth from July 2008 to March 2009, according to the Federal Reserve.

Collapse of Investment BankingIn 2008, the entire investment banking industry was in casualty. Lehman Brothers went bankrupt. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of doing so and had to be rescued.

IMPACT OF ECONOMIC CRISISo Decrease in Wealth – Personal & Corporate Less Liquidity -

Moderate Growth for subsequent years

Slow growth of business

LEARNINGS FROM ECONOMIC CRISIS Simple is Beautiful

Credit default swaps collapsed. Hedge funds imploded. Complex derivatives blew up. Banking stocks plunged or got wiped out. The cleverest finance Ph.D.s in 2008 went to the wall.It's an argument for investing in simple assets or simple strategies

LEARNINGS FROM ECONOMIC CRISIS Financial regulation and supervision

Unregulated financial innovation, such as mortgage-backed securities and credit default swaps, caused the bursting housing bubble to be spread globally.  Financial sector regulation that did not keep pace with the evolution of the financial sector over the previous decade.

LEARNINGS FROM ECONOMIC CRISIS Coordinated action among the major

countries is needed to deal with a global financial and economic crisis

The financial crisis was indeed global in scale and demanded an equivalent policy response. Beginning in early October 2008, a series of coordinated discussions and actions took place among major industrial countries. Key emerging markets like China, India, and Brazil were also brought into the discussion. The IMF recommended countries immediately inject fiscal stimulus of 2 per cent of GDP, advice that was endorsed by the G20 and acted upon by many countries. 

LEARNINGS FROM ECONOMIC CRISIS Exchange Rate Mechanism

If you do enter any exchange rate mechanism, or indeed if you enter, become part of a single currency, you have to go in at the right time and at the right exchange rate. And if you don’t then you store up economic problems. In addition, if you are part of any exchange rate mechanism, the Government loses the ability to use exchange rate management to help the economy. It loses that flexibility, and that’s clearly what was lost during 1990-1992.

LEARNINGS FROM ECONOMIC CRISIS Consumer Credit

Collapse of consumer credit and installment loans The 1920s represented boom in durable consumer goods and consumers were able to purchase an item but pay over time. Most Americans defaulted and over time banks and business lost a substaintial amount of money.

CROSS COMPARISION Between 1929 and 1932, worldwide GDP fell

by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession.

The Great Depression international trade plunged by more than 50%. Unemployment in the U.S. rose to 25% and in some countries rose as high as 33%.

Farming communities and rural areas suffered as crop prices fell by approximately 60%.

CROSS COMPARISION Change in economic indicators 1929–32

UnitedStates

Great Britain

France Germany

Industrial Production

-46% -23% -24% -41%

WholesalePrice

-32% -33% -34% -29%

ForeignTrade

-70% -60% -54% -61%

Unemployment

+607% +129% +214% +232%

CROSS COMPARISION Britain has been a member of the European Union

(or its predecessor, the European Economic Community) since 1973. But a series of crises have shaken British confidence in the EU. The European Central Bank’s disastrous handling of the post-2008 recession caused sky-high unemployment in Greece and Spain. The Syrian refugee crisis tested Europe’s open-borders policy.

In 2014, Conservative Prime Minister David Cameron was worried about gains by the far-right United Kingdom Independence Party. So to mollify anti-immigration voters in hisparty, he promised a referendum on British exit from the European Union if he won the 2015 election

CROSS COMPARISION A Brexit could also quickly spawn, err, a

“Scexit.” Nicola Sturgeon, the first minister of Scotland, has said that if Britain votes to leave the European Union, she will hold a new referendum in which Scots could vote to exit Britain — and then rejoin the union as an independent nation.

Scotland’s voters rejected such a measure by nearly 10 points in 2014, but analysts say a Brexit could change that because the Scots overwhelmingly support European Union membership

% 1929-39 1987 1992 2008Change in GDP -45.32 7.56 5.00 -0.92

Inflation -10.30 3.66 3.03 -0.33Unemployment

Rate 22 7 8 7.3

Bank lending -50 -8.2 -3.8 -8.7TAX 67 27 31 34

Stock Market loss

90 28 52

*Board of Governors of Federal Reserve System

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