In 2008, the world's beginning of the financial and economic crisis that emerged in the form of a strong reduction of the main economic indicators in most advanced economies, later grew into a global recession economy.
The emergence of the crisis is associated with a number of factors: the general cyclical economic development; overheating of the credit market and who appeared his consequence of the mortgage crisis; high commodity prices (including oil); overheating of the stock market.
The predecessor of the 2008 financial crisis was the US mortgage crisis, which in early 2007 affected the subprime mortgage. Second wave of mortgage crisis occurred in 2008, spreading to the standard segment, where the loans issued by banks, government refinanced mortgage corporations. Due to a 20% fall in property prices, American homeowners are poorer by nearly five trillion dollars.
Causes of the Crisis
In order to understand the causes of the global crisis of 2008, it is necessary to understand its characteristics.
The crisis of 2008, as the crises of the past years, originated in the financial sector, and specifically, that its roots lie solely in the stock market, and it is for this reason that the real economy was virtually untouched. This crisis is not unique and has many similarities with the crises of the past, but with all that has certain characteristics.
Consider the geopolitical features of the global crisis of 2008. To do this, compare it with the crisis of 1997 - 1999 years.
It is known that the crisis 1997 - 1999's, began to emerge in the corporate sector in South-East Asia, and from there spread to Russia, Mexico and other countries. The crisis of the time affected many countries, but not all, and in this regard has been recognized internationally, but not the world, because they do not have such coverage as the crisis of 2008. In addition to all the crisis of 1997 divided the world into two parts: countries in which the then current situation helped lift and serve as an additional impetus for the development, and the country experienced a severe economic downturn. In 1997 - 1999 years has created a situation whereby organized flow of capital from troubled countries to more prosperous.
This point is the main difference between today's global crisis from all others - namely, its source is in the developed countries such as the US and global capital have nowhere to run, as it was in 1997. Today's crisis has engulfed almost all countries of the world, and hardly any of them will come out unscathed, but due to the specificity of the effects described above, it is less predictable than the effects of past crises.
The crisis, which occurred today not only in the history of mankind, and has long been known that the modern economy is driven by inflation and financial bubbles burst, the latter can sometimes be quite unpleasant consequences. It is this unpleasant consequence is the crisis of 2008.
Each burst of the financial bubble has its positive and negative sides. Due to the fact of a bubble becomes possible large concentration of capital in a particular area, according to which is most intensive development of this industry, which is impossible under normal conditions. The problem is that any positive or negative consequences entail bubble burst depends on the industries in which the explosion occurred. Therefore, the second circumstance that distinguishes the 2008 crisis from its predecessors is that the financial bubble inflated in one of the oldest and most conservative sectors - in the area of housing, which is a fundamental aspect of life and brings nothing new. The housing market in most countries of the world already has been sufficiently formed and functioned well, so the blow-up of the market to even larger very unproductive. Because of this investment in the mortgage market are not a step forward, but rather a step back, why invest money in real estate, which in its way is a burden rather than an asset does not meet the best of today. Accordingly, the housing bubble inflated 2008 and its collapse phenomenon can be considered destructive (negative).
Also characteristic of the current economic crisis was its predictability. It was not unexpected. However, the economic system and the various governments were not ready for it. Actions taken and funds were not sufficient to deal with the crisis. At that time in the economic theory of the government are trying to treat the symptoms, not the disease. Disease is a separation from the production of the financial sector; fiat money real assets that have intrinsic value; The lack of standards in the monetary and credit relations.
Another feature of the present crisis is a military-political component. Energy and raw materials form the basis of development and higher living standards. However, it is energy and raw resources are limited and strongly affect the dynamics of world prices. Therefore, control of a strategic goal of welfare states, the condition for maintaining a high standard of living. But effective control is impossible without a military component. And the military power to a great extent determined by the availability and effective management of the resource base. Thus, the military and geostrategical tasks directly associated with the need to ensure a high quality of life and richness, and on the other hand, a certain degree set by this level.
Separation of "financial" value of the real cost of production and stock base of the economy, the deployment of inflation of prices for energy and other resources, the struggle for a number of military and strategic monopoly determine inefficiency of modern architecture of the global financial system, a highly speculative nature of the stock market and the construction of his the principle of a large financial "pyramid".
These characteristics determine the unfolding global financial crisis.
Thus, there are following main factors of the present crisis:
1. General cyclical economic development.
2. Overheating of the credit market.
3. High commodity prices. In the 2000s there was a boom of consumption, accompanied by a steady rise in prices for raw materials. And in 2008, the prices of many commodities, especially oil and food (agflation) reached a level that began to cause significant economic damage. In January 2008, oil prices exceeded $ 100 per barrel. July 11, 2008 the price of WTI crude oil reached a record in the history of $ 147.27 per barrel; then began to decline - to $ 61 on October 24 of the same year and to $ 51 in November.
Virtually all goods - from oil and precious metals to food in the last year rose to record levels, leading to higher inflation and slowing global growth. In the III quarter of 2008 there was a collapse, but analysts believe it is natural correction in the long-term upward trend.
Reduced demand for cars: in August 2008, car sales in Europe declined by 16%, which was a consequence of the significant monthly decline in demand for cars from 1999. In the United States in September 2008, car sales were down 26% compared with the same month last year, as widening credit crisis has affected the purchasing power of Americans, raising doubts about the emergency stabilization of the world's largest car market. Such a disastrous situation with sales of cars no one expected.
4. Overheating of the stock market.
Overproduction and consumption boom, succeeding rising prices and a sharp drop in demand. The growing number of virtual financial instruments that do not have a real basis (derivatives). The dependence of the world economy from one reserve currency - the dollar. Low interest rates on loans. Together, these factors complement the picture and are interrelated causes of the global financial crisis of 2008.
The Consequences of the Crisis
The impact of the crisis on the financial sector became apparent in February 2007, when the world's largest banks (in 2008), "HSBC BBC" was forced to write off mortgage-backed securities worth a total of 10.5 billion dollars, provided that including subprime; it is considered to be the first major losses caused by the subprime crisis. According to another view, the first victim of the crisis was the mortgage company New Century Financial Corporation, a similar fate befell the company American Home Mortgage Investment Corp. Company stopped issuing loans, reduced its staff, and its shares have fallen significantly in price. Gradually the crisis hit and the banking sector as a whole, including Deutsche Bank, which had securities in US mortgage companies. During 2007, at least 100 companies dealing in mortgages paused or stopped their activities, or have been sold. Top management companies finansovgo sector was also affected by the crisis: the end of 2007 with a break of one week CEOs of banks "Merrill Lynch" and "Citigroup" signed letters of resignation. The subsequent economic downturn has led to the fact that many financial companies have been forced to conduct or merger, or to declare an interest in finding merger partners.
The key wealth changes are represented in graphs below:
In 2007, the crisis caused panic in financial markets, many investors prefer to sell risky mortgage bonds and volatile equities and invest in products that serve as a means of preserving capital. Commodity futures speculation in the financial markets after the collapse of the financial derivative securities led to the beginning of the commodity super cycle, and, as a consequence, the global food crisis and rising oil prices. Financial investors have received through speculation collateral and mortgage bonds profit trillions of dollars invested some of this money in food and commodity prices.
Because of defaults on mortgages and need insurance against such losses in the future, profit 8533 depository institutions insured by the Federal Deposit Insurance Corporation, fell from 35.2 trillion in the fourth quarter of 2006 to 646 million in the fourth quarter 2007, i.e. by 98%. Performance of banks and savings and loan associations in the fourth quarter of 2007 were the worst for the entire period from 1990 In 2007, insured depository institutions have made a profit of about $ 100 billion, 31% less compared to the record levels of 2006 . (145 billion dollars). Since the first quarter 2007 to first quarter 2008, their profits fell by 46% - from 35.6 billion to 19.3 billion, respectively.
The Bailout Plan of the Government
Measures to resolve the crisis have been taken immediately after the recognition of the crisis in August 2007. However, a significant volatility in global financial markets has attracted public attention to the crisis in September 2008, after which the various government agencies, regulatory authorities and policy leaders have begun to implement additional, more comprehensive measures to resolve the crisis.
Currently, the cost of various US government agencies to purchase the loans, the purchase of assets, collateral and direct expenses totaled more than a few trillion dollars. A full list of the financial obligations of the US government and investments related to the crisis can be found in the summary table of emergency financing "CNN en".
The US Federal Reserve, together with the central banks around the world has implemented a number of measures to resolve the crisis. As stated in the beginning of 2008, Fed chairman Ben Bernanke, "The response to the crisis the Fed can generally be divided into two components: the attempt to maintain liquidity and market activity, and the use of instruments of monetary policy to achieve macroeconomic objectives." Among the Fed's actions:
Reduction from 18 September 2007 to 30 April 2008 in six stages of the target federal funds rate from 5.25% to 2%, and the refinancing rate - from 5.75% to 2.25%. In December 2008, the target federal funds rate was lowered to 0-0.25% (25 basis points).
Implementation together with other central banks open market operations to ensure the liquidity of banks belonging to the Federal Reserve. In fact, we are talking about issuing state bonds secured short-term loans to member banks of the Fed. In addition, the rate was reduced by short-term loans provided by the Federal Reserve to these banks.
The establishment of a number of programs to provide loans directly to banks and non-bank credit organizations in the provision of certain types of mortgages of varying quality, including the program of the Federal Reserve System Release of securities backed by assets (Eng. Term Asset-Backed Securities Loan Facility, TALF) and the temporary loan auction (Eng. Term Auction Facility, TAF).
Repurchase program of mortgage securities in companies with state participation to reduce mortgage interest rates with financing of 600 billion dollars (November 2008).
Optional redemption of mortgage securities in companies with state participation in the amount of $ 750 billion, according to the decision of the Federal Committee for Open Market, adopted in March 2009. The total cost of the repurchased mortgage securities this year was 1.25 trillion. In addition, it was decided to increase the amount of debt redemption fund government organizations up to $ 100 dollars Millard, thereby increasing the total amount to 200 billion dollars. Also, committee members decided to buy back in 2009, long-term treasury bonds worth up to 300 billion US dollars to improve market conditions for private lending.
Ben Bernanke argues that the Fed's balance sheet increase, entailing the creation of "electronic money" is essential "because our economy has weakened and inflation is low. When the economic situation starts to improve, it's time to terminate programs concessional lending, increase interest rates, reduce the money supply and to do everything possible to ensure that the economic recovery was not accompanied by an increase in the rate of inflation".
February 13, 2008, US President George W. Bush signed a bill under which the state allocated 168 billion US dollars to stimulate the economy, primarily through repayment of taxes paid on the property. Refunds were initiated on 28 April 2008 in the form of checks will be mailed directly to taxpayers. At the same time unexpectedly rose sharply the price of gasoline and food prices, which has led many experts to question the effectiveness of the measures, as is likely, tax refunds are not stimulated the economy and offset the increase in prices. February 17, 2009, President Barack Obama signed a law "On the Recovery and Reinvestment Act of the US economy," which provided for a reduction of the tax burden as the population and the increase in the size of government spending to 787 billion US dollars, of which more than 75 billion were used to fund the program assist homeowners in financial difficulties, t. n. Plan to ensure the availability and stability of homeownership (Homeowners Affordability and Stability Plan).
Losses from the mortgage crisis, more and more highly valued: in April 2008, the International Monetary Fund have potential value of total global losses of financial institutions in approximately $ 1 billion. In the IMF, published a year later, the total worldwide losses of banks and other financial institutions are estimated at over $ 4 billion.
Attempts by the US government to ensure the stability of the global financial system has led to a new and significant financial cost, the value of which in November 2008 was US $ 7 trillion. At the same time, it should not take them as direct costs as well as investments, loans and loan guarantees. In many cases, the government redeemed financial assets such as commercial paper, mortgage-backed securities, or other securities secured by collateral, in order to increase the liquidity of the markets in which the business activity fell sharply. As the economic situation continued to deteriorate, the US government had decided to grant extradition in the case of the provision of loans and mortgages to borrowers from groups previously unacceptably high risk.
According to an article in the magazine "The Economist" in May 2009, "Western governments have spent huge sums to provide emergency financial assistance to banks; Now they will have to pay for this increase in taxes necessary to pay the interest on the arisen because of this debt. In countries (such as the UK or the USA) with the deficit of the trade balance as well as the budget, this increase will be necessary for the payment of interest on loans to foreign investors. Possible political consequences of such a forced reduction in consumption of the government put the temptation to violate their obligations, quietly letting the currency depreciate. A growing number of investors aware of the existence of this danger ".
The crisis forced to question the soundness of the traditional approach to solving the economic problems of Alan Greenspan, who served as chairman of the Federal Reserve System from 1986 to January 2006, Senator Chris Dodd argues that Greenspan's policies contributed to the development of the crisis caused by the perfect storm.
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