...Sample Article: The Financial Crisis in Spain Summary Unemployment in Spain has reached 17.4 percent, according to figures released April 24 by the National Statistics Institute. Even without the global recession, Spain's economy likely would be going through a rough patch now due to the country's overheated housing market; with the recession, it is also suffering from a banking crisis and an industrial slump. Analysis Spain's unemployment rate rose from 13.9 percent in the fourth quarter of 2008 to 17.4 percent in the first quarter of 2009, increasing the ranks of the unemployed to more than 4 million, according to National Statistics Institute (INE) figures released on April 24. Spanish Economy Minister Elena Salgado said that the first quarter of 2009 will be the worst in terms of increasing unemployment. The International Monetary Fund (IMF) predicts that unemployment in Spain will reach 17.7 percent in 2009 and 19.3 percent in 2010, but the INE figures seem to indicate that unemployment could exceed 20 percent by the end of 2009. Of all the European countries, Spain has in many ways been one of the most gravely affected by the global economic crisis. Even without the global recession, Spain would most likely be undergoing a correction this year due to its extremely overheated housing market. But it is facing a severe housing market correction, an industrial slump, and a banking crisis caused by the housing correction and the recession's overall effects -- simultaneously...
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...Abstract How did the Subprime Crisis, a small problem of U.S. financial markets, affect the entire global banking system? The aim of this paper is to analyze the effect of the subprime crisis on the banking sector in Europe, with a close attention on the case of Spain. Spain is currently facing the worst crisis ever experienced in its financial history, so it would be interesting to analyze what is the real situation of the banking sector and what will be the reforms that could lead to a consolidation of the financial systems. The strengths and weaknesses of the financial sector will be analyzed in order to see the changes needed to maintain its competitive position. The first part of the paper will briefly explain the subprime crisis, origins and impact on the financial world as new form of contagion. In the second chapter the consequences of the subprime crisis in the Spanish banking sector will be described. The last chapter of the thesis will present an analysis of the reforms made, using legal intervention. It will be concluded with a general point of view regarding the present situation of the Spanish banking system, the potential results of the current measures and the perspectives of new reforms. Contents 1 | Introduction | | 2 | Introducing the Subprime Crisis i. The subprime crisis: origins and evolution ii. Implications of the mortgage bubble The Spanish Banking sector: Before and after i. The evolution of Spanish economy until the Subprime Crises...
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...Financial Crisis Will Not Deepen Further Financial crisis occurs when the value of financial institution or asset price drops quickly. (Investopedia US, 2013) Today the world financial system is undergoing economic recession. It is assumed to have begun in the year 2007-2008. After the great depression US economy suffered a short term recession in 2001 but came out with it adequately. It also wide stood dotcom bubble bust, attack by terrorists and accounting scandals. Federal government decreased it rate 11 times from 6.5 in 2000 to 1.7% from the year 2000 in order to increase its liquidity in the economy. A man with no job, no income and no asset was able to afford a house mortgage. This rate was decreased to 1% in June 2003. In 2004 country’s elite banks like Lehman brother, Goldman sacs, Merrill lynch, Morgan & Stanley were relaxed with the net capital requirement 30-40 times. (Sivakumar and Krishnaswami, 2012)But after saturation point problem started rising with the rising interest rates. In 2007 it turned out to be a bad new when federal fund rate reached 5.25% in 2006. Many banks got erupted and with shortage of money. Central banks in several countries like UK, Europe central, Sweden, Canada, Switzerland, china etc help in adding world economy but failed. This economic crisis also exploded the economies of Arab nations, Japan, UK, Ireland, Greece, China etc. The consequences faced by these countries in the meltdown were low GDP, high inflation, low deflation, volatile...
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...Regulation of Executive Compensation and its impact on the stability of the financial system | | Introduction In corporate circles, the financial crisis and its effect on companies is sometimes illustrated as a systematic phenomenon in which there is no individual responsibility. Public discussion, on the contrary often assigns the blame of the crisis to bankers or managers, and suggests conclusions of salary reductions or individual liability in terms of losses. In this paper the implications of executive compensation surrounding the financial crisis will be debated. Firstly, the types of executive compensation will be discussed and the implications of them. Secondly, how executive compensation contributed to the financial crisis will be conferred and thirdly the legal improvements and current process will be analysed. To aid understanding, articles and examples will be used to emphasise the various views of economists regarding executive compensation. Non-Regulation of Executive Compensation Executive Compensation can be described as the monetary bonus, or the non-monetary benefits which an executive receives for their work in an organisation. Executive Compensation can be a highly motivating incentive to work more efficiently, thus benefiting the organisation and keeping the executive content with his contribution and performance. However, this compensation can have adverse effects where the executive does not have the organisations best interest in mind, but...
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...and putting many people in unemployment environment. Depressed housing prices made many homes worth much less than the mortgage value therefore some owners chose just walk away instead of pay their mortgage. The housing sector is one of the most important chains in the economy. After the housing market crash, the economy could not run as usual because this chain had a big impact in the United States economy. Therefore the other fields and sectors ruined by the circumstances. Briefly, the domestic crisis started to change the consumer behaviors. People reduced their spending and that effected the volume of the import and export. As we know United States does import goods and services in many fields which means the country has foreign trade almost with the whole world. The consumer demand for any product, accept food and medicine went to down due to economic crisis. Unfortunately, this action started to give hard time to the suppliers from all around the world. So the economic crisis in the United...
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...As far as we know, there were more than five economic and financial crises during the recent 200 years. Society was suffering from such downturns, because each of them had its own characteristics and consequences which affected the whole economic world. In the next passages I would like to tell you about the history of financial crises and about the solutions made by governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin...
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... Financial crisis The financial crisis usually refers to disruptions in financial markets causing stress to the flow of credit to families and businesses and thus having a negative effect on the real economy of goods and services. The term is generally used to describe a variety of situations in which investors lose unexpectedly substantial amount of their investments, and financial institutions suddenly lose significant proportion of their value. Financial crises include, among others, stock market crashes, financial bubbles, currency crises and sovereign defaults. of the financial crisis Causes and Consequences Financial bubbles are usually associated with easy credit, excessive leverage, speculation, greed, fraud and corruption. Easy credit led to a lack of adequate market discipline, which in turn causes excessive and imprudent lending. Causes of financial crisis Description Risk/Consequence Leverage Borrowing to finance investment Bubble that leads to bankruptcy Asset-liability mismatch The disparity between a bank’s deposits and its long term assets leads to the inability of banks to renew short term debt they used to finance long term investments in mortgage securities Bank runs Regulatory failure Improper (insufficient/excessive) regulatory control: -Insufficient regulation: 1) Results in failure of making institutions‟ financial situation publicly known (lack of transparency) 2) Makes it possible for financial institutions to operate without having...
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...The European Economic Crisis A Paper Submitted to Webber International University In partial fulfilment for the Bachelor of Science Degree in Finance By: James Holt Date: November 26, 2013 Course: ENG112-1 Semester: Fall 2013 Instructor: Professor Nancy Davis Word Count: 2663 The European economy is in turmoil. The credit crunch in 2008 caused chaos throughout the global and European economic systems and highlighted the negligence of not only governments but also the financial systems in place. In the highly praised publication the Economist the author G. Tett writes “The European economy is in the midst of the deepest recession since the 1930s, with real GDP projected to shrink by some 4% in 2009, the sharpest contraction in the history of the European Union. Although signs of improvement have appeared recently, recovery remains uncertain and fragile” (Tett, 2013). A publication of this magnitude publishing this shows the utter chaos in the European Economy. The economy of all countries within the Euro has been greatly affected; it has also affected the surrounding countries around the Eurozone. The stronger European economies have recovered a great deal these include...
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...It is reasonable to say that the recent subprime mortgage crisis happened due to a complex combination of negligent practices by many of the multiple stakeholders directly involved in the real estate industry. That being said, the accounting profession, being the critical player that it was (and still is), played a critical role in the development of this economic crisis due to the practices that they used during the auditing process of key industry players in the market at that time. As a foundation to this argument, chapter one of the text states that, accounting is the process of identifying, measuring and communicating economic information about an organization for the purpose of making decisions and informed judgments. (Marshall-McManus-Viele). It is the accountants responsibility to identify and offer the relevant financial data necessary to make appropriate business decisions. In reading about cases such as the infamous New Century “mishap”, one gets the impression that the accounting methods used, completely misrepresented the current financial situation of the company which needed to show a strong financial situation in order to maintain it’s solid market position and continue to see a steady influx in transactions. After further review combined with KPMG’s involvement, they found themselves with inconsistencies that led to a more than significant hole in their numbers ultimately leading them to bankruptcy (along with other economic factors). Referring back...
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...happens while unemployment and bankruptcies rates go up (Andrews, 2009). Recessions crops up when there is a general drop in expenditure. It follows the rising of an economic bubble or an unpredictable supply shock. Governments respond to recessions through implementing expansionary macroeconomic strategies. They tend to raise the government’s expenditure, increase money supply and lessen the amount of tax paid by the citizens (Andrews, 2009). In 2007, a global financial predicament rapidly metamorphosed from the bursting of the property bubble in the United States to the most horrible recession ever witnessed on the planet. This paper will research on the causes of the 2008-2009 economic predicament and the policies executed by various key people liable for saving the U.S. economy. It will also explain the task, constitutional authority, and the policy view of some current holders of key positions that set policies for saving the U.S. economy. In 2007, a worldwide economic predicament spread its gloom on the financial outcomes of several nations (Simon, 2001). It ended with what was often termed as the worst recession (Simon, 2001). Its source that originated from the sub-prime segment of the United State real estate field as an isolated turmoil matured into a complete recession in 2007. The old well-known fact that the whole world sneezes when the United States seizes flu seemed to be justified (Baker, 2007). This is because vital economies like Japan and nations in the European...
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...| Research Paper Prospectus | Economics Capstone | 02/12/2012 | Since the U.S. banking crisis of 2007, more than 280 banks in the United States have failed and presently continue to do so. With the closures of these banks, jobs were lost; and the economy has suffered greatly. The banking crisis of 2007 has been considered the largest since the Great Depression. Many researchers, policymakers, economists, and other individuals blame the subprime mortgage market and its collapse for triggering the U.S crisis; many also wonder how such a relatively small market as subprime could cause so much trouble around in the U.S, especially financial institutions that did not get involved with subprime lending or with investment in subprime securities. This paper analyzes financial and economic circumstances associated with the United States financial turmoil that has led to the banking crisis. Section 1 analyzes the collapse of the subprime mortgage market in the United States and outlines factors associated with it. Section 2 outlines the economic factors that led to the banking crisis in 2007. Section 3 summarizes suggestions of research about how to remedy the current crisis and possibly avoid crises in the future. Section 4 will discuss the conclusion of the research. The first signs of the subprime mortgage market collapse in the United States were very high and unusual even for subprime market delinquency and foreclosure rates for mortgages originated in 2006 and 2007. Reinhart...
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...Based on analysis the operating and competitive characteristics of the balance sheets and some key financial ratios of five different industries, we can make a conclusion that A is the electric utility, B is the discount general merchandise retailer, C is the upscale apparel retailer, D is the Japanese automobile manufacturer, and E indicates the automated test equipment/systems company. According to the column A, the data indicates a highest property and equipment percentages (74.5%) and lowest sales/net property & equipment ratios (0.43) among all industries which means this particular industry requires a relative high cost for the property and equipment purchase and the sale prices is relatively lower. However, if we look at the net profit/net sales ratio, we found that this industry has the higher value (10.3%) compared to other industries, which indicates that the demand of this industry is pretty high and the economic crisis didn’t affect the overall customer purchase. Based on this analysis, the electric utility is the best choice, which needs a highest cost for the equipment and property set-up but the electricity is still an indispensable product and demands for it is hardly to be shrunk even during the economic crisis year. From column B, the percentage of receivables is 3.8% and the days of inventory is 4, which are the lowest values among other industries. These two numbers indicate that customers have strong purchase power to buy products quickly and this industry...
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...Case Study 1: Matsushita’s Culture Changes with Japan Japan suffered one of the worst economic hit in history when the economic bubble deflated steeply in the 1990s. Stock prices and real estate slumped enormously mostly due to domestic monetary policies. As a result, companies in Japan faced financial trouble which triggered the cultural change in Japan. Before the Economic crisis, employee and the company have a particularly close relationship. The company is involved in the live of the employee. For example, a lot of companies require their employee’s manager to sign before they can rent an apartment. On the other hand employees are also very loyal and obliged to their company. With the company’s guaranteed lifetime employment policy, few employees will fancy changing jobs. Moreover they work hard in response to the generous benefit by the company. However after the economic crisis, companies cannot afford to pay that many benefits to the employees so they finally had to lay them off, which they never did. This cultural change propagates to traditional value change eventually when employees see that loyalty does not guarantee anything. Since then, younger employees started to think more about individual as opposed to group. Japan is moving towards more individualism than collectivism after the economic bubble. Nonetheless, this is a good opportunity for Japan to adapt to the globalization world and be more competitive. The cultural change will lead to greater mobility...
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...Employment Sector Employment Working Paper No. 74 2011 Global economic crisis, gender and employment: The impact and policy response Naoko Otobe Employment Sector Copyright © International Labour Organization First published 2011 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: pubdroit@ilo.org. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country. Otobe, Naoko Global economic crisis, gender and employment : the impact and policy response / Naoko Otobe ; International Labour Office, Employment Sector. - Geneva: ILO, 2011 1 v. (Employment working paper) ISBN: 9789221241690; 9789221241706 (web pdf) ISSN 1999-2939 (print); ISSN 1999-2947 (web pdf) International Labour Office; Employment Sector women workers / men workers / employment / unemployment / gender equality / employment policy / social policy / economic recession / developed...
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...| Name: Abhisek Rathi Matriculation Number: 22030512 Submitted To: Prof. Dr. Frank Brand Submission Date: December 17, 2012 Contents Introduction 3 Stock Market Co-Movement 4 Causes 4 Data Analysis 6 Observations 9 Implications 10 References 12 Introduction The global financial crisis of 2008 was the biggest economic crisis faced by the world since the great depression of 1929. The crisis started to brew in the US in 2007 and many believed it would be largely limited to the shores of the US. However, the collapse of Lehman Brothers in 2008 was sufficient to trigger a worldwide stock market collapse, the effects of which are felt to this day. The worldwide collapse of stock market can be understood by considering the world as a single big marketplace. Analysing the co-movement of various financial markets has gained importance in the recent past both for policy makers, in terms of policy co-ordination, and portfolio managers, for portfolio diversification. For policy makers, high co-movement would facilitate transition in local currency areas resulting in potential efficiency gains from stock market merger activities. This, in turn, will result in greater financial stability across the regions. However, for portfolio managers, high correlation between international stock markets would reduce the benefits of portfolio diversification creating the need of searching other assets with lower correlation. The past few decades have seen a continuous increase...
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