Cuộc khủng hoảng tài chính năm 2008

VIET NAM NATIONAL UNIVERSITY OF HCM UNIVERSITY OF ECONOMIC AND LAW THE GLOBAL FINANCIAL CRISIS OF 2008 INTERNATIONAL FINANCE SCHOOL YEAR 2021-2022 MEMBERS Quỳnh Anh Tấn Lộc Bá Duy K194040529 K194040542 K194040534 Phương Thảo Thục Quyên Ngọc Hoàn K194040556 K194040555 K194040540 CLASS: K19404C GROUP: CONTENTS INTRODUCTION 01 01 EVOLUTION OF THE 2008 FINANCIAL CRISIS 02 02 THE REASONS 04 03 THE US GOVERNMENT'S POSTCRISIS ECONOMIC RECOVERY AND RECOVERY MEASURES 09 04 CHANGES IN MANAGEMENT REGULATIONS TO LIMIT SIMILAR CRISES IN THE FUTURE 11 05 THE IMPACTS 12 INTERNATIONAL FINANCE GROUP INTRODUCTION In 2008, world finance faced many difficulties With the starting point is the liquidity crisis in the US banking system This crisis led to the collapse of a series of major financial institutions, the nationalization of many credit institutions, and a decline in stock markets around the world Economists consider this crisis to be the worst financial crisis since the Great Depression of the 1930s The financial crisis broke out in the US and spread globally, leading to the simultaneous collapse of many giant financial institutions, and the stock market faltered The year 2008 saw unprecedented efforts of economies to cope with the crisis Here are some background facts about the 2008 financial crisis PAGE INTERNATIONAL FINANCE GROUP EVOLUTION OF THE 2008 FINANCIAL CRISIS The crisis can be considered to have begun on August 6, 2007 when American Home Mortgage, one of the largest mortgage lenders in the United States, filed for bankruptcy Then many US and European banks were in trouble and the government had to spend hundreds of billions of dollars in bailouts throughout 2007 And with America's fourth-largest investment banking event, Lehman Brothers declared bankruptcy on 1592008, triggering the crisis to spark and explode causing the worst financial crisis since the War 2nd world on a global scale The bankruptcy of Lehman Brothers shocked and accelerated events, it cost the US stock market up to 1.1 trillion dollars, causing panic throughout the financial institutions The US government had to spend $ 85 billion to help the world's largest insurance group AIG hold on when it appeared to be insolvent due to huge losses related to mortgage debt The other "big" banks are also not immune to misery, including Morgan Stanley, Goldman Sachs, Citigroup, etc After a month since this event, the US Congress had to approve a $700 billion bailout package, not only to save banks and other financial institutions, but also to pour money into manufacturers that are also on the verge of bankruptcy like General Motors and Chrysler Not only that, inter-bank transaction activities were almost paralyzed, tens of millions of people lost their houses, hundreds of millions of people lost their jobs and trillions of dollars of assets were "evaporated", making the global economy go crazy demand loss of $4.5 trillion in 2009 PAGE INTERNATIONAL FINANCE GROUP When the "great flood" spread to Europe, the stock market plummeted, leaving the Icelandic banking system on the brink of bankruptcy The European economies themselves, which already have many difficult problems, are now resonating with the US "financial storm", making Europe's economic problems even more serious Banks suffered heavy losses, the French banking system alone lost 12 billion euros within 12 months; several banks in the UK have declared bankruptcy due to mortgage lending; Fortis bank in the group of 20 largest European banks is on the verge of bankruptcy and has been acquired by European countries Governments in European countries all have their own interventions such as injecting more money into the credit system, reducing taxes, etc., but there are still no signs that the economic situation has improved In November 2008, the situation worsened Worse than the crisis, it has spread and impacted many emerging markets (Korea, China, Russia, Hungary, etc.) that few months ago China faces serious challenges in terms of environmental pollution, rising raw material prices, shrinking external markets and economic growth is at risk of a dangerous slowdown In addition, with the event that Japanese insurance group Yamato Life Insurance Co declaring bankruptcy after nearly 100 years of operation is considered a step marking the crisis that has "reached the faucet" to Asia Economic recession occurred when many developed countries including the US, UK, Euro zone countries, Japan, Taiwan, South Korea, Singapore announced their economies were in recession This is arguably the worst crisis since 1929 PAGE INTERNATIONAL FINANCE GROUP THE REASONS THE 2008 FINANCIAL CRISIS SUBPRIME DEBT The basic cause leading to the 2008 crisis was that the US real estate bubble had occurred When the real estate bubble formed, the CREDIT RATING COMPANIES financial market was also affected and influenced by each other, more specifically due to a number of reasons as follows: CREDIT DEFAULT SWAPS CRISIS OF CONFIDENCE BUY AND SELL SHORT PAGE INTERNATIONAL FINANCE GROUP SUBPRIME DEBT Trust companies provide untruthful information by creating attractive, lowrisk property security debentures This causes information asymmetry because banks and financial institutions deliberately withhold information and encapsulate it in securities called collateralized debentures (CDOs) and so bad loans have been lost become good, safe and attractive in the eyes of investors A loan with a higher-than-standard interest rate, granted to individuals who not qualify for standard loans These subjects have potential risks of inability to repay debts Because the expected property price is higher than the interest paid on the loan, borrowers and borrowers, along with trust banks, have confidence that when interest rates are higher, borrowers will not be able to repay their loans put real estate on a debt island, so the bank does not give loans even though they not consider whether they have the ability to repay the loan or not Thus, lending to unqualified people is a reckless act, which can cause the risk of bad debt formation The more substandard people get loans, the higher the bad debt, which means the financial risk increases CREDIT RATING COMPANIES PAGE INTERNATIONAL FINANCE GROUP CREDIT DEFAULT SWAPS At this time, the largest insurance company in the United States, AIG, issued CDS contracts to investors who purchased MBS securities for a premium Of course, later AIG was under a lot of pressure when the real estate bubble occurred because it was not able to recover the loss that MBS securities investors suffered Banks compete on loan levels as well as assets Complex transactions are created to eliminate risk and hide the slippage of real asset values When the market crashed, real estate prices plummeted, everyone lost money, debtors couldn't pay their debts, banks' bad debts increased, and there was a risk of bankruptcy cannot compensate the bank for the loss, so this is considered the DOMINO effect CRISIS OF CONFIDENCE PAGE INTERNATIONAL FINANCE GROUP BUY AND SELL SHORT Knowledgeable and experienced speculators predicted that the shares of corporations involved in subprime lending would fall, so they massively borrowed these stocks and sold them to make a profit The form of investors in stocks when it is high to sell when the price is low, investors buy back to pay is called short selling Negative rumors about falling prices are often closely related to short selling Rumors can cause stock price volatility relative to intrinsic value and thus reduce market efficiency In the long term, the deviation of a security's price from its intrinsic value can cause investors to make buying/selling decisions without a basis of accurate information In addition to the direct causes above, there are deeper causes that are: Due to the ambition to recover the economy after the recession in 2001 and the effects of the 9/11 terrorist attacks, the FED (US Federal Reserve) lowered the interbank interest rate Keeping interest rates low for a long period of time makes it easier to borrow money from banks, lowering costs in the economy as a whole, but it also devalues the currency, leading to inflation Due to the loose mechanism and policies of the US when allowing commercial banks to operate in a versatile and wideranging manner throughout the US, there are no barriers and no control over newly emerged financial instruments In addition, it is also freely allowed to speculate and sell short PAGE INTERNATIONAL FINANCE GROUP The US government's post-crisis economic recovery and recovery measures For the US Federal Reserve: As soon as the secondary housing credit crisis broke out, the Fed began to intervene by lowering interest rates and increasing MBS purchases Until the situation developed into a financial crisis in August 2007, the US Federal Reserve (Fed) continued to conduct monetary easing measures to increase liquidity for financial institutions Specifically, the interbank overnight lending rate has been reduced from 5.25% in installments to 2% in less than months (September 18, 2007 to April 30, 2008) This interest rate then continued to decrease and on December 16, 2008, it was only 0.25%, a rare near zero interest rate The Fed also conducts open market operations (buys back US government bonds that financial institutions have) and lowers the rediscount rate In mid-December 2008, the Fed announced plans to implement quantitative easing PAGE INTERNATIONAL FINANCE GROUP For the US Government: On February 13, 2008, President George W Bush signed the Economic Stimulus Act of 2008 under which the government will apply a combined stimulus program worth $168 billion mainly in the form of personal income tax refunds In the face of a severe financial crisis, the Bush administration submitted a $700 billion fiscal package to Congress After being elected US president in 2009 - Barack Obama - has launched a number of economic stimulus policies to recover from the crisis, specifically, the US will conduct stimulus by the following ways: Unprecedented infrastructure development project since the 1950s Upgrading the energy use system of US government agency offices towards energy saving Large investment in technology development, especially electronic health information, computer systems for high schools and broadband Internet development Additional funding for the Health Insurance Program An additional $50 billion will be provided in addition to the $20 billion already agreed to for the auto industry, on the condition that the industry undergoes substantial reform PAGE 10 INTERNATIONAL FINANCE GROUP Changes in management Changes in management regulations to limit similar regulations to limit similar crises in the future crises in the future The global financial crisis has taught us many lessons, as well as finding the right economic policies for each period so that the economy develops more stably of each country in particular and of the global economy demand in general Here are a few recommendations for regulatory changes to prevent similar crises in the future: Strengthen control of the monetary system, strengthen the capacity of monetary and financial regulatory agencies Effectively use monetary tools with flexible adjustments according to market movements such as exchange rates, interest rates, credit limits, etc Closely monitor money supply and increase credit; strictly review and control loans for real estate and securities business Strengthen government supervision over the financial system, banking and stock market Reviewing and sounding out the financial and banking system Review banks that lend a lot to the real estate sector and high-risk projects Check the credit quality of commercial banks, especially credit for risky areas Encourage businesses to save themselves (by cooperating, expanding to new markets, focusing on the domestic market, saving costs, and the State has measures to support: access to credit, support interest rates) capacity, providing information, etc.) It is necessary to provide large liquidity to governments to repay their debts to avoid disruptions and contagion in financial markets that prevent indebted countries from accessing markets, which can introduce liquidity risks become a country risk Strengthen information and public relations work Regularly follow up, update information at home and abroad to have a proper assessment of the situation, thereby having the most appropriate and timely policy response PAGE 11 INTERNATIONAL FINANCE GROUP The Impact of the September 2008 Economic Collapse U.S households lost on average nearly $5,800 in income due to reduced economic growth during the acute stage of the financial crisis from September 2008 through the end of Income – The financial crisis cost the U.S an estimated $648 billion due to slower economic growth, as measured by the difference between the Congressional Budget Office (CBO) economic forecast made in September 2008 and the actual performance of the economy from September 2008 through the end of 2009 That equates to an average of approximately $5,800 in lost income for each U.S household Stock Values – The U.S lost $7.4 trillion in stock wealth from July 2008 to March 2009, according to the Federal Reserve This is roughly $66,200 on average per U.S household 2009 Costs to the federal government due to its interventions to mitigate the financial crisis amounted to $2,050, on average, for each U.S household Also, the combined peak loss from declining stock and home values totaled nearly $100,000, on average per U.S household, during the July 2008 to March 2009 period This analysis highlights the importance of reducing the onset and severity of future financial crises, and the value of market reforms to achieve this goal Government Response – Federal government spending to mitigate the financial crisis through the Troubled Asset Relief Program (TARP) will result in a net cost to taxpayers of $73 billion according to the CBO This is approximately $2,050 per U.S household on average Jobs – 5.5 million more American jobs were lost due to slower economic growth during the financial crisis than what was predicted by the September 2008 CBO forecast Home Values – The U.S lost $3.4 trillion in real estate wealth from July 2008 to March 2009 according to the Federal Reserve This is roughly $30,300 per U.S household Further, 500,000 additional foreclosures began during the acute phase of the financial crisis than were expected, based on the September 2008 CBO forecast THE END PAGE 12 ... year 2008 saw unprecedented efforts of economies to cope with the crisis Here are some background facts about the 2008 financial crisis PAGE INTERNATIONAL FINANCE GROUP EVOLUTION OF THE 2008. .. crisis since 1929 PAGE INTERNATIONAL FINANCE GROUP THE REASONS THE 2008 FINANCIAL CRISIS SUBPRIME DEBT The basic cause leading to the 2008 crisis was that the US real estate bubble had occurred When... to 2% in less than months (September 18, 2007 to April 30, 2008) This interest rate then continued to decrease and on December 16, 2008, it was only 0.25%, a rare near zero interest rate The