...Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually as a consequence the unemployment...
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...Tom Fernandez Professor James Terry HIST-102-H1 25 April 2013 The 2003-2007 real estate boom which led to the eventual 2008 meltdown of the U.S. financial markets unfortunately was not contained to the big banks and investment firms based mostly in New York City. By the time bailouts were implemented by the United States government, the effects of the financial crisis were exported to Europe. States similar, but not limited to Portugal, Ireland, Italy, Greece, and Spain (PIIGS) have each been in the media spotlight in recent years as attempts to rescue their respective financial markets are implemented. Unfortunately, many efforts made by Eurozone member states and other international actors have failed in alleviating the financial stresses of the region. Considering this, then, is there really a permanent solution that can not only relieve financial markets but also prevent the crises from spreading? To date, the European Unions’ collective response up to this point has been insufficient in order to curb the further slide into Europe’s second recession. I contend, then, that Europe and the Euro would greatly benefit from following many if not all of Germany’s internal budgetary constraints in order to fix the overall problem of debt and spending. One of original intentions of the euro when it was established in 1992 was to limit the amount of budget deficit a sovereign member state could have. Furthermore, the euro was designed to prevent a “bailout” should a state be...
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...In the immediate aftermath of the financial meltdown in 2008, the global crisis has made an important shift. By then not the private banking sector, from where the financial crisis originally emerged from, but sovereign states face the risk of default. In order to analyse the multifaceted character of the European sovereign debt crisis, this essay focuses on its systemic causes. Contrary to the argument of popular Northern European politicians and journalists that blame the inability of Southern European states to manage deficit spending, the Eurozone crisis is firstly determined by imbalances in the European Monetary Union, and secondly by imbalances in the global political economy. This paper argues that the vast amount of sovereign debt is therefore not the result of weak Southern European nations, but of inherent structural illnesses that ultimately led to the current crisis. This essay is divided into two sections. The first section examines the problems of the design of the European Monetary Union. In regard to the theory of an ‘Optimum Currency Area’ by Robert Mundell, it analyses the extent to which the EMU has failed to meet the criteria of optimised efficiency. In the absence of an adjustment mechanism for unequal development in Euro member states, the dominance of Germany as leading export nation created severe inequalities. The second section then focuses on the role of the global political economy and imbalances that were created in the ‘era of financialisation’ following...
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...LESSON 7. THE FIRST WORLD WAR AND THE INTERWAR CRISIS THE FIRST WORLD WAR The 1st WW was debated between two opposing blocks: The Allies: France, UK and the Russian Empire (with the collaboration of Italy, Japan, Belgium and the USA) And the Central Powers: Germany and Austria-‐Hungary (together with the Ottoman Empire and Bulgaria) It was a global war centred in Europe that began on 28th July 1914 and lasted until 11th November 1918, the moment the Allies obtained the victory. By the end of the war the map of Europe was redrawn with several independent nations restored or created, and as a result of the Paris Peace Conference that ended the First World War (the Treaty of Versailles), an intergovernmental organisation was founded with the aim of preventing any repetition of such a terrible conflict (the League of Nations). PROBLEM: This aim failed and, as a result, the renewed European nationalism (together with the German feeling of humiliation) contributed to the rise of fascism that gave birth to the Second World War some years later (1939). The First World War represented the break with the 19th century and a dramatic change...
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...real-world economics review, issue no. 58 The Eurozone crisis: Looking through the financial fog with Keynesian glasses Jorge Buzaglo [Sweden] Copyright: Jorge Buzaglo, 2011 You may post comments on this paper at http://rwer.wordpress.com/2011/12/12/rwer-issue-58-jorge-buzaglo/ It is easy to become confused about what is really happening to the European economies. The media are totally focused on financial surface phenomena. Attention is given only to the developments in the financial markets, in particular the growing difficulties of the so called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) for keeping on financing their government spending by increasing debt — as reflected by increasing spreads in interest rates (e.g. compared with German rates). However, looking just below the surface one discovers that the Eurozone is suffering from a kind of disequilibrium that is similar to the type of imbalance existing in the trade relationship between the US and China. The origin of the US-China imbalance can be found in the huge expansion of credit and debt in the US (a Minsky-type process), which financed a large consumption and import boom — including a boom in imports from China in particular. The vast import boom caused in turn a large US trade deficit and a growing external debt. External debts cannot grow indefinitely; at some point markets judge them unsustainable. With a de facto fixed exchange rate between the dollar and the yuan, the only way available...
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...Greece – Crisis and Solutions Paper International Economics Greece - Crisis and Solutions June 25, 2013 Content 1. Introduction………………………………………………………………………………………………………2 2. Greece joining the Eurozone…...............................................................................3 3. Budget structure that lead to the crisis…………………………………………………………………6 4. Supporting and rescue measures…………………………………………………………………………9 5. Conclusion……………………………………………………………………………………………………….11 6. References……………………………………………............................................................13 1 1. Introduction In the last years the severe debt crisis of Greece has posed a large challenge to the member states of the Eurozone. It is threatening the stability of the European Monetary Union (EMU). After having piled up over 300 Billion Euros of debt, in 2010 the market mistrust in Greece dramatically increased, especially as the newly elected government revealed the incorrectness of the financial statistics of previous years. Finally, on the 23rd of April 2010, Greece was threatened by national bankruptcy and requested help of the other Eurozone members and the International Monetary Fund. Although Greece is one of the smaller economies of the Eurozone, its daring default has great effects on the whole community. Now then, what happen if Greece “Grexit”? The Pros are that a return to the old currency like the Drachma would have the effect of depreciate in value, it would become more competitively in...
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...Amid a challenging external environment, Germany’s current account surplus grew distinctly in 2012 to 7% of gross domestic product (GDP), which was only slightly below its previous record high in 2007. On the export side, this rise was attributable to the German economy’s ability to hold its own in markets outside Europe despite the significant slowdown in the pace of growth in 2012. This is partially due to the attractive product range offered by German exporters, although the euro’s lower external value also played a role during the period under review. Germany’s strong export performance vis-à-vis non-euro-area countries greatly outweighed the weak demand that its enterprises faced in the euro area. The import side, too, contributed considerably to widening the current account surplus. In particular, the uncertainties emanating from the crisis in the euro area prompted German firms to hold back on their domestic investment, which adversely affected imports. While noticeable progress has been made in terms of correcting the current account imbalances within Europe, the 2012 surplus underlines the fact that, owing to the greater uncertainty it has engendered, the crisis has also hampered efforts to reduce the overall German current account surplus. The increased desire for safe investments has played a role in this. Safe haven effects helped to boost the net inflow of investment income over and above the structural surplus which is generally generated thanks to Germany’s high...
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...REVIEW ESSAY QUESTION Introduction As the well-known 2008 Global Financial Crisis swept through the world, Australian and Canadian financial institutions performed relatively well, with operating stability in financial industry, and no emerge of any banks that are on the verge of bankruptcy or need government rescue. In this paper, in order to retrospect the intrinsic reasons, I will firstly explore the common features of the banking systems in Australia and Canada. Then I will compare their banking systems in structure and regulation with United States. Finally, the different ways mortgage lending is conducted in these three countries will be emphasized. Common features The common features of the banking systems of Australia and Canada are embodied in the high concentrated banking system along with intensive supervision and sound regulation. It is the common features that contribute to the resilient performance in these two countries’ banks through the global financial crisis. Generally speaking, the whole banking sector in either Canada or Australia is monopolized by a few large-scaled national banks. In Australia, there are mainly four banks, Commonwealth Bank, Westpac Banking Corporation, Australia and New Zealand Banking Group and National Australia Bank, which dominate Australian banking market. They are individually and collectively huge compared with the size of banking system and their total assets are vast compared with GDP. These four banks occupy 75% of...
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...Carlo Panico and Francesco Purificato POLITICAL ECONOMY RESEARCH INSTITUTE The Debt Crisis and the European Central Bank’s Role of Lender of Last Resort Gordon Hall 418 North Pleasant Street Amherst, MA 01002 January 2013 Phone: 413.545.6355 Fax: 413.577.0261 peri@econs.umass.edu www.peri.umass.edu WORKINGPAPER SERIES Number 306 The debt crisis and the European Central Bank’s role of lender of last resort by Carlo Panico and Francesco Purificato 1. The debate on the role of the central bank in the European debt crisis reveals the increasing difficulty of the authorities to apply sensible solutions. De Grauwe and Ji express this opinion by noticing that unfounded fears ‘have been widely advertised in Germany and have contributed to creating a view in that country that the German taxpayer is likely to become the victim of a money machine that rewards the profligacy of Southern European countries’ (De Grauwe and Ji, 2012, p. 1). These fears ‘have become powerful political forces that make it difficult for the governments to find rational solutions to the euro crisis’ (De Grauwe and Ji, 2012, p. 13). In order to appraise this opinion we discuss how the European Central Bank (ECB) and the Eurosystem have been intervening in favour of the Government sector. We start by noticing that central banks can play the role of lenders of last resort in favour of the banking and of the Government sector and that “moral hazard” problems emerge in both cases. Yet, they have only been mentioned...
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...E SSAY COLLECT ION Crisis in the Eurozone Transatlantic Perspectives ESSAY COLLECTION Crisis in the Eurozone Transatlantic Perspectives This publication is a part of CFR’s International Institutions and Global Governance (IIGG) program and has been made possible by the generous support of the Robina Foundation. The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher dedicated to being a resource for its members, government officials, business executives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries. Founded in 1921, CFR carries out its mission by maintaining a diverse membership, with special programs to promote interest and develop expertise in the next generation of foreign policy leaders; convening meetings at its headquarters in New York and in Washington, DC, and other cities where senior government officials, members of Congress, global leaders, and prominent thinkers come together with CFR members to discuss and debate major international issues; supporting a Studies Program that fosters independent research, enabling CFR scholars to produce articles, reports, and books and hold roundtables that analyze foreign policy issues and make concrete policy recommendations; publishing Foreign Affairs, the preeminent journal...
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...everyone a little economics”. The global financial crisis has questioned the efficacy of the existing institutional framework and forced us to rethink on how our financial systems are regulated. It has also posed an important question whether the root cause of this global crisis has been the highly praised ‘Open Market Approach’. The inter linkages in the global economy has ensured that no country remains isolated and unhindered by the crisis. With the economic crisis looming over the people at large, unemployment seems to be at all time high and the whole world having a pessimistic view of the future, capitalism seems to be at loss of reason for this crisis, let alone a find solution for it. There was a time when being a capitalist economy was a matter of pride and people were excited to be part of the “free” economy but somewhere down the line the excitement seemed to have vanished. What was thought to be an epitome of equality, turned out to be the cause of inequality. In an article by Joseph E. Stiglitz “Of the 1%, By the 1%, For the 1%”, 1 percent of the people in USA take nearly a quarter of the nation’s income. He further adds that the top 1% of Americans control nearly 40% of the country’s income. The income disparity along the inactiveness by the government to improve the global crisis has led to the eroded faith among the people towards Capitalism. This paper aims at understanding the various factors that led to the current crisis, its cause and impact on the world economy...
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...How will the Euro crisis affect the economy of China? Table of Contents Introduction...…………………………………………………………………… 2 The formation and evolution of the Euro zone crisis….…………………………3 The serious relationship in trading and investment filed between China and Europe ………………………………………………………….………………………..9 The influence of Euro zone crisis on China economy……..……………………10 Conclusion………………………………………………………………………15 Bibliography………….…………………………………………………………16 How will the Euro crisis affect the economy of China? Many economists now are analyzing the Euro zone crisis. As the biggest trading partner to China, how the Euro zone crisis affects China’s economy cannot be ignored. No matter the decision makers of the enterprises or the decision making department of the government, all need foresight to evaluate the risk and influence of the crisis and prepare the answer before that happens. This paper will provide some analysis and strategic thinking about the influence of the Euro zone crisis on China. Introduction: On August 25th, 2011, the president of France, Nicolas Sarkozy, came to visit China. According to the market prediction, the purpose of his visit was come to further persuade China to purchase European bonds, to support the recovery of Euro zone. The official media of the Chinese government reported that, the chairman Hu at that time expressed two points about China’s attitudes to President Sarkozy. First of all, China cared about the influence...
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...* Critical Analysis on Costs and Benefits of the Financial Sector Within the UK. * * * * * * * * * * * * * * * * * Introduction The international financial crisis has drawn an international attention in financial regulation and policies made by governments have become increasingly prominent. In particular, strengthening financial regulation in London as an international financial centre requires huge efforts. London has been able to an international financial centre continuously, mainly due to a large number talent are familiar with the financial industry London has a unique advantage in language and location (Re, 2005). In addition to banking sectors, insurance, trust, securities and asset management business also developed. However DeMartino (2000) highlighted the current global economic depression and international financial crisis, along with UK Treasury published paper “The reform of the financial markets” referred to as “the worst crisis in 60 years”. In contrast, Frieden (2000) described the analysis of the causes of the British government's international financial crisis, and make policy recommendations on how to strengthen financial regulation. UK Financial Regulation Authorities According to Green (2011) Britain's “2009 Banking Act” was taken effect in which compared with the previous various banking laws, this law shows characteristics such as authorizing the Bank...
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... The Eurozone Debt Crisis Most of the people know how it feels to owe money, even if it is only to a mortgage company, or to a four-year college loan provider. But it is a different matter for an entire nation to be deeply buried in debt and unable to repay it. When a country drowns in debt, the government of that country usually seeks austerity as the major remedy of overcoming its debt crisis. Austerity promotes slow growth, and this actually makes the situation even worse due to the fact that world economy has become more open and integrated. In today’s world, there is no nation that exists in economic isolation. Every countries almost all the economic aspects- its education, health service, industries, service sectors, levels of income, and employment is integrated to the economies of its adjacent countries. This linkage plays a very important role in the global movement of goods and services, labor, investment funds, and technology. That is, when a country defaults on paying its debt, it not only affects the country in default, but also initiates a global economic crisis. In my research paper, I will tell the tale of eurozone debt crisis, which has created a global hysteria in the current world economy. In the research that follows, I will start with a brief history of the eurozone, how did eurozone face the debt crisis, and what might be ahead for the global economy, amid the ongoing European financial crisis. Eurozone is a term designated...
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...... 3 Body ...................................................................................................................................................... 3 Conclusion ............................................................................................................................................ 9 Reference .................................................................................................................................................... 11 2 1344493 1. Introduction Corporate Governance has become a fundamental problem for each corporation recently. The bankruptcy of Lehman Brothers – the fourth largest investment bank in US and the largest bankruptcy in US history has started the US financial crisis and spread all over the world. Since then, the corporate governance failures have exposed massively and Barclays is one of the obvious examples with Libor manipulation scandal in June 2012. The Chairman of the Treasury Select Committee, Andrew Tyrie MP, gave his comment that the extremely weak board governance and internal compliance in a long time resulted in the wrong actions by individuals with intention of personal benefit. Obviously, the corporate governance in general and in the case of Barclays should be considered carefully. 2. Body Overall, the Guardian.com has demonstrated the problems of Barclays after the Libor scandal. The...
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