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Global Financial Crisis: A Comprehensive Overview

Explore the phases of the 2008 crisis in the US and Europe, from Bear Sterns to ECB interventions, with key events and economic impacts dissected. Understand the complexities of the crisis and the measures taken to stabilize economies.

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Global Financial Crisis: A Comprehensive Overview

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  1. Phase 1 - 2008 in the US March Bear Sterns bought by J. P. Morgan September Merril Lynch sold to Bank of America Fannie Mae difficulties with 5 trn USD mortages Freddie Mac September 15 Lehman Brothers goes for Chapter 11 October TARP Troubled Assets Relief Program, 700 bn USD

  2. Phase 2 –In Europe: late 2009 september 2012 Remember: ECB established 1 June 1998 Euro 1 January 1999, notes in 2002 17 countries + Kosovo and Montenegro 2009-2010 Increase in D/Y in all the world Large asymmetries among euro-zone economies some countries with very high D/Y and Current Account Deficits May 2010 August 2011 ECB buys sovereign bonds February 2012

  3. Phase 2 –In Europe: how much? 9 may 2010 European Financial Stability Facility-EFSF has the possibility to issue bonds and raise money, limit 440 bn 10 may 2010 European Financial Stabilisation Mechanism-EFSM EU countries confer money which is then used to help countries in difficulties, 60 bn Both should be substituted by European Stability Mechanism decided september 2012

  4. Phase 2 –In Europe: how much? Long Term Refinancing Operation- LTRO ECB refinances Euro banks 21 December 2011 489 bn + 29 February 2012 529 bn for 3 years 26 July 2012 Draghi: BCE will do whatever it takes to save the euro

  5. Phase 1 - In the US: 2007 -2009 I want home! Wall street bank Local bank Bush Obama 650 bn $ Freddie Mac Fannie Mae save us!! But Lehman Bros

  6. Phase 2 - In Europe: late 2009 september 2012 Toxic bond Wall street/city/EU banks saving banks EU-IMF-ECB Sell PIIGS Bonds and buy German Bund “flight to quality”! Break the euro EFSF/EFSM Fiscal austerity PIIGS

  7. The national accounting in an indebted open economy Y = C + I + (X-M) (Y - C) – I = (X-M) S – I = X – M (S – I) + (T – G) = X – M

  8. The national accounting in an indebted open economy Current Account + Capital Account = Changes in reserves = 0 [(X-M) - iD] + ΔD = 0 (X-M) = iD - ΔD (S – I) + (T – G) = iD - ΔD

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