Global Financial Crisis of 2008-09: Triggers, Trails, Travails, and Treatments †
Ganti Subrahmanyam *
The present world economy has, increasingly, been interconnected in terms of small units such as industries, regions and national economies as discontinuous systems. Changes in these systems have varied impact across the world economies. This paper tries to trace out various triggers, trails and travails of the present crisis, with a view to suggest solutions or treatments for the global financial crisis of 2008-09. For instance, one of the triggers identified is the prolonged implementation of low interest rate policy. This, coupled with the savings glut in the world economy has led to sub-prime lending in the US, as it was used to finance the US mortgage debts. The author indicates that some new lessons have been learnt from the current financial crisis, the most important of them being the need for retooling the finance and economics models. Further, globalization, along with its bestowed benefits, brings in increased frequency and spread of financial and economic crises.
Our system is depressive—manic; it runs to boom, or else to panic. In view of this it would be wise for government to stabilize.
– K Boulding
The Anatomy of Cyclical Change
The world economy is a large discontinuous system made up of many smaller units such as the national economies, regional economies and industries. As these smaller units go through their growth and decline phases, they create long wavelike cyclical patterns. Systems change as a matter of fact and when discontinuous systems change, the best way to characterize that change is to view it as happening in cycles. However, there is a ‘trap’ in viewing change as occurring in cycles. Cyclical change depicts repetitious happenings or reoccurrences. The most interesting fact, then, about these repetitious change patterns is that their actual manifestations will be different in different cycles over time. Every cycle has a mindset of its own. As the success pattern of a cycle ages, its mindset also recedes yielding place to a new one.
†
This is a revised version of the paper presented at a seminar on ‘Global Financial Crisis: Implications for India’, held on April 15, 2009, University of Hyderabad, Hyderabad. The paper has benefited immensely from the inaugural and keynote addresses delivered at the conference respectively by Dr. C Rangarajan and Dr. Y V Reddy, Former Governors, Reserve Bank of India.
For instance, the cycle of the 1930s was built on steel, trains and farms; that of 1970s on planes, plastics and electronics. The present cycle of the 21st century is build on computers, robots and satellites. Thus, each reoccurrence rests upon a different foundation in terms of its environment, values and safeguards. During a cycle’s climb era, innovation, entrepreneurship and development of new markets take precedence. During the cap era, drive for efficiency dominate. Then the rent-seeking activities try to get on the bandwagon for a share in the prosperity. There emerges the bureaucracy, the accountants, the financial speculators and the layers of lawyers to share the gains through their so-called ‘value-adding’ services. The success pattern tends to induce change, also in peoples’ values. Prosperity propels change of values. Then the downhill slide starts towards a trough. A new cycle starts up again on the stockpiles of new ideas, new technologies and new values accumulated during the downhill slide of the earlier cycle.
The Crises of 1929, 1987 and 2000
The Great Depression
The Great Depression of the 1930s originated from the Wall Street Crash of 1929 first by 13% on October 24 (Black Thursday) and then by
Related Documents: Economics and Financial Markets Essays
FINANICAL MARKETS Financial Markets Brenda Brown LaShunda Lewis FIN 100 June 9, 2013 Abstract Financial markets play an important role in contributing to the health and efficiency of an economy. The combination of well-developed financial markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of borrowers and lenders and therefore the overall economy. Running head: FINANICAL MARKETS Financial markets are - any…
MONEY AND BANKING CHAPTER ONE Why Study Money, Banking, and Financial Markets I. Why Study Financial Markets. A. The Bond Market and Interest Rates. 1. Financial Markets. Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage. 2. Security. (Financial instrument) claim on issuer’s future income or asset. 3. Asset. Any financial claim of property that is subject to ownership. 4. Bond. Is a debt security that promises to make…
known for some time, namely, that the interconnectedness of global economic activity renders macro-management by single governments redundant. Their function is now to regulate markets to ensure economically efficient solutions. This essay will argue that the 2008 financial crisis has brought to the forefront of global political consideration what some economists have known for some time. This is that 1) The global financial system is inherently flawed and cyclical recessions are a product of…
Financial Markets in Australia Financial market is a marketplace that creates products that offers a return to those who invest or save money for the uses of others who need additional funding. It is also a place for the participation of buyers and sellers in trading assets such as equities, bonds, currencies and derivatives. The four main financial markets that exist in economies are ‘the share or equity market’, ‘the debt market’, ‘the derivatives market’ and ‘the foreign exchange market’. Competitions…
For immediate release Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back…
rescue British financial institution Introduction This paper will begin with a brief background of the topic. In 2007---2008, the United States Suffered a severe “financial tsunami”,many of the largest financial institutions like “Lehman Brothers Holdings Inc.” have collapsed or been bought, And because of the connectivity of the global financial institutions, this “tsunami “quickly swept over the whole world, caused a broad impact on the global economy, world financial markets proceed the…
inhibited by the environment in which it operates. During 2003-2007, Nigeria attempted to implement an Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation,…
and Business MARKETS CONSUMPTION AND STRATEGY MMM7320 (2013-14) The 2007 Credit Crunch and the Future of Capitalism Assessment 1: Group Project Submission date: 7th of November 2013 Rafal Leja Hang Nguyen Hoang Thanh Yingying Tang Jiaying Ding Tian Zhao Boxiong Xue Executive Summary This report investigates the case study of the U.S. Credit Crunch in 2007- 2008 and the future of capitalism. The report discusses the causes and impacts of the financial credit crunch…
Examine the cause of the US Economic Crisis in 2008. In the financial crisis of 2007-2008, also known as the global financial crisis and the financial crisis of 2008, many economists believe that it is the most serious financial crisis since the Great Depression of the nineteen thirties. It threatened to large financial institutions to complete collapse, the bank bailout by the national government, and in the world of stock market decline. In many areas, the housing market also suffered, in the eviction…
LUBS 3865 FINANCIAL ANALYSIS SESSION 2 OVERVIEW OF FINANCIAL ANALYSIS Objectives To introduce the framework that will be use in the module to evaluate company performance Introduction The framework adopted for evaluating the performance of a company focuses on three interrelated aspects of a firm’s performance: 1. its strategic direction 2. its financial statement performance 3 its stock market performance An analysis of a company’s performance requires a thorough evaluation of these three…