Global By:Wanida & Yew
Global Financial Crisis The late-2000s financial crisisoften called the Credit Crunch, the Global Financial Crisis (GFC) is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It was caused by a liquidity shortfall in the US banking system and has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world.
Sub-prime & Hamburger Crisis Onset of the global credit crunch August 2007 starting point for big financial landslides. So how was credit crunch starting and working?
Before the Beginning : • The Federal Reserve lowered the Federal funds rate11 times - from 6.5% in 2000 to 1.75% in 2001. • It’s creating a flood of liquidity in the economy. • These borrowers wanted to realize their life's dream of get a home.
2.Easy credit and the upward of home prices made investments in higher subprime mortgages. But the banker still not enough. They decided to repackage the loans into collateralized debt obligations and pass on the debt to another financial market. 3. A big secondary market for originating and distributing subprime loans developed. The Beginning of the End: The trouble started when the interest rates started rising and home ownership reached a saturation point.
During the last quarter of 2005, home prices started to fall, 40% decline in the U.S. Home Construction. • Many subprime borrowers now could not withstand the higher interest rates and they started defaulting on their loans. • Start at 2007, Every month, one subprime lender or another was filing for bankruptcy. • Declines Begin • August 2007: The Landslide Begins: • The interbank market froze completely, Northern Rock, a British bank, had to approach the Bank of England for emergency funding • due to a liquidity problem. By that time, central banks and governments around the world had started coming together to prevent further financial catastrophe.
Effect Real Economy • More NPL No Loan = Credit crunch • No Loan Reduce cost= Releaseworkers • Unemployed No money = No business transaction • Company loss profit =Release workers • Other countries can’t export Sunk cost = Company loss profit Release workers
Why it effect worldwide? • Effect to Foreign investor, who invested in US financial institution and Fund. • Effect to Exporter countries that export to US. • Slow economic grow
The Great Depression TheGreat Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations. It was the longest, most widespread, and deepest depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline.
Dotcom Bubble From around 1995 until 2000 the western countries experienced a phenomenon called the “dot-com bubble”. Basically, the internet was becoming more and more important and a lot of internet based companies entered the stock exchange. Initially, there was a great success, but after it's peak in 2001 it all collapsed.
Hamburger Crisis The US subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backing said mortgages. Approximately 80% of U.S. mortgages issued to subprime borrowers were adjustable-rate mortgages. After U.S. house sales prices peaked in mid-2006 and began their steep decline forthwith, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates, mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe.