Presentation Global financial crisis
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Transcript of Presentation Global financial crisis
EFFECT OF SUBPRIME CRISIS & EURO ZONE CRISIS ON WORLD ECONOMY
Name: Nilesh Saha Section: B
Impact Of Global Financial Crisis
Impact on Stock Markets Globally
Losses to Investors
Freeze in Inter Bank Credit
Increasing Unemployment
Decline in Businesses Globally
Bailouts
INTRODUCTION
“Subprime" refers to loans that do not meet Fannie Mae or Freddie Mac guidelines
This is generally due to one or a combination of factors, including credit status of the borrower, income and job history, and income to mortgage payment ratio
The crisis represents the other side of a phase when a low rate of interest, rising home prices and mortgage securitization brought huge gains
Some termed it as the beginning of “the second great depression” because of the enormous dislocation
Borrowers are considered as subprime because of poor credit history & limited income and Lenders considered as subprime because of greater risks & high returns
CAUSES OF SUBPRIME CRISIS
Beginning in the mid-1990s, government regulations began to erode the conventional lending standards.
Fannie Mae and Freddie Mac hold a huge share of American mortgages
The Fed’s manipulation of interest rates during 2002-2006
An SEC Rule change adopted in April 2004 led to highly leverage lending practices by investment banks and their quick demise when default rates increased.
Doubling of the Debt/Income Ratio of Households since the mid-1980s
PROCESS OF SUBPRIME CREDIT CRISIS
Economic Environment Low interest rates
Property bubble Deterioration of
financing standards Sluggish regulation
Financial innovation
Lack of transparency
Burst of property bubble
Reaction of financial institutions
Excessive financing – search for yield
Spreading risks via
securitization where the
original risk can not be
seenTightening credit conditions
Problems in fulfilling subprime mortgage obligations
SUBPRIME CRISIS & ITS SPREADING IN THE GLOBAL FINANCIAL SYSTEM
Financing possibilities have
narrowed
Cost of financing has increased
Problems in fulfilling subprime mortgage obligations
Losses of financial intermediaries and investors
Reassessing risks, and risk-taking (banks, funds, investors)
Increase in counter-party risk, losses of confidence
Impact on financial markets and real economy
Impact Of SUBPRIME CRISIS
Stock Market
Capital Market & Asset Market
Financial Institutions
Home Owners
Rate of Unemployment
Minorities
Liquidity & solvency Crisis
INTRODUCTION
The term indicates the financial woes caused due to overspending by come European countries
This is also known as Euro Zone sovereign debt crisis
When a nation lives beyond its means by borrowing heavily and spending freely, there comes a point when it cannot manage its financial situation
The euro's value has decreased over the past few years due to the European Debt Crisis.
The Euro Debt Crisis began in 2008 with the crash of Iceland’s banking system, which spread to Greece
Spain, Portugal, and the other nations later followed Greece
COUNTRIES
STATISTICS
France Debt/G.D.P: 81.7%Unemployment. Oct 2011: 9.8%S&P Rating: AAA
Germany Debt/G.D.P: 83.2%Unemployment. Oct 2011: 5.5%S&P Rating: AAA
Greece Debt/G.D.P: 142.8%Unemployment. July 2011: 18.3%S&P Rating: CC
Italy Debt/G.D.P: 119%Unemployment. Oct 2011: 8.5%S&P Rating: A
Portugal Debt/G.D.P: 93%Unemployment. Oct 2011: 12.9%S&P Rating: BBB-
Spain Debt/G.D.P: 60.1%Unemployment. Oct 2011: 22.8%S&P Rating: AA
CAUSES OF EURO ZONE CRISIS
Slow economic growth of the euro zone countries
Stress on banks around the world led to shrinking credit availability
Increase in Government spending & Declined in tax revenues
Falling in Demand lead to decrease in Imports & Exports
Housing bubbles burst in UK , Ireland, Spain as well as US
Austerity has become part of the problem instead of the solution
Impact of EUROZONE CRISIS
Interest Rate Policy
Fiscal Policy
Rate of Unemployment
Financial Market
Credit Policy & Debt Crisis
GDP Growth
THANK YOU
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