Global financial crisis and its consequences

Benjamin Perraut Benoit Giraud Lucas fournet

Outline 1 – Introduction  

2 – Causes of the Financial crisis

3 – The crisis and its spread

4 – Consequences  

5 –Conclusion

1 – Introduction• Since summer, 2007, the international financial system

crosses one of the gravest crises since 1929. The first signal is launched on July 17th by an American financial institution, Bear Stearns, who announces then the strong loss of value of its funds because of subprimes. However, the major event of this crisis which makes it tip over in crisis systematism is the bankruptcy of the investment bank Lehman Brothers, on September 14th, 2008.

• This short summary illustrates the fragility of an internationalized financial system, where the effect of contagion is strong.

2 – Causes of the Financial crisis

2 - The crisis and its spread• Securization :

The main reason for the spread of the crisis is securitization.

The perceived benefits of securitization.

2 - The crisis and its spread

The reasons for the amplification of the crisis:

• Moral hazard• Opaque securitization• Buying on credit

3 – Consequences of the crisis

• Destruction of many jobs, companies go bankrupt, decline of purchasing power…etc.

• An increase in aversion to risk • Consumption in the United States • Bank behavior • The fragility of the dollar

Conclusion

• increase of the unemployment,

• non repayment of bank loan,

• lack of liquidity for the companies

•In Amercia the Federal Reserve decided to spend $1.2 trillion on purchasing various

financial assets and making emergency loans.

•Strong government commitment to rescue the banks and the financial system

•Regulation of the financial market : problem of conflict of interests

Inside Job

By Charles H. Ferguson

2010