Professional Documents
Culture Documents
• Timeline of Events
Appendixes
Universe of Expert
Step 1
Opinions and Articles
Selected 12 publications (e.g., Economist, FT, Wall Street Journal), 8 think tanks
and select sources from other media such as radio
Scanned all sources for coverage of the current global financial crisis between mid
2007 and October 2008
~100 articles and reports
from preferred sources Step 2
Read ~100 articles and shortlisted them according to the following criteria:
• Analytical insight
• Breadth of coverage
~50 Relevant Articles • Uniqueness of opinion
for analysis
Step 3
Summarized shortlisted articles and incorporated them into the slides that follow
which cover:
• Timeline of events (2007/08)
Synopsis
• Causes and Implications of the Global Financial Crisis
• Global Impact
• Future Outlook and Recommendations
• Timeline of Events
Appendixes
Two hedge Federal Morgan US S&P cuts Merrill has Lehman Russia,
funds of Reserve Stanley financial ratings of USD 5.7 Brothers Romania
Bear reduces suffers crisis Morgan Bn of write files for and Ukraine
Sterns the fed loss of affects Stanley, downs; bankruptcy close their
forced to fund rates USD UBS which Merrill sells stock
dump by half 3.7 Bn confirms Lynch and shares exchange
assets, percentage loss of Lehman for few days
due to point USD 18.4 Brothers due to crisis
losses. Bn
Bear Bank of
Stearns Government
Fed and America rescues Governments of many
funds file buys countries announce
for other banks by
central Merrill nationalizing bailouts for their
bankruptcy Lehman Lynch for financial institutions
Merrill banks JP Morgan Fannie Mae,
Brothers Lynch share and Fed USD 50 Freddie Mac
and HSBC reports ~USD 40 Reserve Bn; Bank and giving
shut some loss on Bn in take steps of China AIG an Iceland’s financial crisis
of their USD 8.4 special to rescue buys 20% emergency grows as all three of its
offices Bn write loans to Bear stake in loan of USD major banks are
down banks Stearns Rothschild 85 Bn nationalized
Alternative Viewpoints
Note: 1The entity that issues the security is also seeking the rating, and pays the rating agency for the rating
Source: ‘New Bank Capital Requirement Helped to Spread Credit Woes’, WSJ, Aug 30, 2008; ‘How to Start the Healing Now’, WSJ, Oct 01, 2008; ‘Rethinking Capital Regulation’, WSJ, Aug 23,
2008; ‘Economy lacked a trusted national leader’, Washington Post, Oct 15, 2008; ‘Wall Street: the dark theory’, Fortune, Sep 19, 2008; ‘Triple-A Failure’, New York Times, Apr 27, 2008
November 19, 2008 | Copyright © 2008 Grail Research, LLC — Confidential 7
Global Financial Crisis
Impact: Global Economic Slowdown
Impact on Stock Markets Globally Losses to Investors Freeze in Inter Bank Credit
World stock markets have taken a beating, Both institutional investors and individual Failure of banks fueled anxiety in international
leading to a loss in confidence amongst investors investors have suffered huge losses both in MBS banking markets leading to a freeze in inter-bank
who are stepping back in spite of several cuts in and related products, and in equities lending
lending rates by the banks • Banks alone are reported to have suffered
• E.g. DJIA fell below 10,000 mark (first time in USD 600 Bn of credit-related losses globally.
four years) plunging more than 800 points in According to IMF estimates, American and
a single day in October. The fall was mirrored European banks are predicted to loose USD
in stock markets, such as NASDAQ, NYSE, 10 trillion of assets
Nikkei 225, London’s FTSE, Germany’s DAX,
etc
Source: ‘The Giant Pool of Money’, NPR News and This American Life Episode, Sep 09, 2008; ‘Off a cliff’, Economist, Oct 10, 2008; ‘Market meltdown: Global problem, global cure’, Fortune, Oct
06, 2008; ‘Europe to U.S.: You messed up the rescue, too’, Fortune, Oct 13, 2008; ‘The end of the beginning’, Economist, Oct 16, 2008; ‘When fortune frowned’, Economist, Oct 09, 2008; ‘But will
it work’, Economist, Oct 16, 2008; ‘Yahoo expected to point to advert drop-off’, Financial Times, Oct 20, 2008; ‘India’s Jet Airways cuts 1,900 jobs’, Oct 16, 2008; ‘U.S. layoffs increase as
businesses confront crisis’, IHT, Oct 26, 2008
November 19, 2008 | Copyright © 2008 Grail Research, LLC — Confidential 8
Global Financial Crisis
Future Outlook
Consolidation and Restructuring Emerging Economies to Help Out Worsening financial crisis due to
of Banks – Changes are already Developed Nations – Cash rich the unraveling of Alt-A mortgages
evident with deals that are taking economies of world (developing nations – This is the segment of mortgage
place: and their Sovereign Wealth Funds) are loans given to prime borrowers but
• Bank of America taking over expected to bailout the developed without complete documentation.
Merrill Lynch nations from the current crisis. As stock From 2002 to 2007, Alt-A mortgages
• Bank of China acquiring 20% prices of the big banks from developed as a percentage of total mortgages
stake in private banks such as nations fall, they are expected to attract have risen from 2% to ~13%, and
Rothschild
investors from developing nations. experts say that the defaults on this
• Barclays acquiring Lehman
Some experts believe that China will category of mortgages will impact
Brothers
act as the savior of developed the financial market even more than
• BNP Paribas expected to take a
majority stake in the Belgian and economies facing the risk of recession sub-prime lending
Luxembourg operations of Fortis by buying their banks
NV
Source: ‘How to build a better bailout’, Fortune, Oct 06, 2008; ‘Why it's stimulus time again’, Fortune, Oct 14, 2008; ‘Financial sector in crisis’, FT, Sep 10, 2008; ‘A Return to 'Normality'?’, WSJ,
Sep 03, 2008; ‘Global breakdown: Winners and losers’, Fortune, Sep 30, 2008; ‘Market meltdown: Global problem, global cure’, Fortune, Oct 06, 2008; ‘A monetary malaise’, Economist, Oct 09,
2008; ‘Barclays: Wall Street's new gambler’, Fortune Oct 21, 2008
November 19, 2008 | Copyright © 2008 Grail Research, LLC — Confidential 9
Global Financial Crisis
Recommendations
Opinion leaders and governments have made various recommendations for how to manage
the current global financial crisis and stabilize the economy …
By Opinion Leaders
Some experts have suggested alternative bail-out plans, such as:
• Government Loans: Funds allocated for bailout can be used to provide loans (with mortgage securities as collateral) rather than
buying the securities outright. This avoids the complexity of pricing the securities and enables interest from the loans to be returned
to taxpayers or used for their benefit
• Reverse Auction: The government (one buyer) can invite lowest bids from many sellers for different categories of securities
• Issue T-Bonds Now: The US Treasury should borrow money to pay for the bailout now by issuing 5-year and 10-year notes, since
interest rates and the cost of funding the bailout will rise as the economy begins to recover
Some experts have also indicated that the real solution is to stabilize employment and hence cash flow. They believe that though
the government is infusing liquidity into the market, households can still default on various debt instruments and hence the problem
will still remain unsolved
Paulson’s suggestions for the US financial market include: European governments reportedly believe that rather than
• Fed should be the highest authority regulating all financial institutions and a new buying toxic assets, the government should focus to
authority should look after consumer protection issues recapitalize the banks directly in exchange for some control
• The Securities and Exchange Commission should be merged with the of operations of the banks
Commodity Futures Trading Commission. Thus by tightening the regulatory
gaps, banks will follow the Basel II guidelines (which it claims could have
mitigated the credit crisis, if followed earlier)
• Large investors, such as insurance companies, should be brought under the
federal regulations, by allowing them to opt for federal chartering and oversight
(instead of state chartering)
Source: ‘The $700 Billion Question: How Much Is That Exotic Security?’, Knowledge@Wharton, Oct 01, 2008; ‘How to build a better bailout’, Fortune, Oct 06, 2008; ‘Why it's stimulus time again’,
Fortune, Oct 14, 2008; ‘Financial sector in crisis’, FT, Sep 10, 2008; ‘A Return to 'Normality'?’, WSJ, Sep 03, 2008; ‘Europe to U.S.: You messed up the rescue, too’, Fortune, Oct 13, 2008;
‘Keeping U.S. Financial Markets Competitive And Orderly’, Forbes, Mar 31, 2008
November 19, 2008 | Copyright © 2008 Grail Research, LLC — Confidential 10
Table of Contents
Appendixes
Netherlands Denmark
92.6 Bn 0.9 Bn
Belgium Iceland
22.1 Bn 2 Bn1
0.7 Bn Russia
216.4 Bn
Canada 23.5 Bn
21.6 Bn
Switzerland
59.3 Bn
US
725 Bn
544.8 Bn
Starting with the US financial sector, the crisis soon spread across the globe and into other markets
Chile beyond just financial services
0.85 Bn
In response to the crisis, governments around the world have infused capital to bail out and stabilize
many private banks such as Fortis Bank, Royal Bank of Scotland, etc, and companies in other sectors
Note: All figures are in USD; Bailout announcements updated on Dec 1, 2008; Figures only include capital allocated for institutions in the form of equity or
debt; 1Loans provided by Institutions such as IMF and World Bank or other countries.
November 05, 2008 | Copyright © 2008 Grail Research, LLC — Confidential 12
Global Financial Crisis
Appendix B: Relevant Opinion Articles and Radio Shows
Date Title Source Links
17-Oct-07 Think the credit crunch is over? Think again Fortune http://money.cnn.com/2007/10/17/news/economy/eavis_creditcrunch.fortune/index.htm
23-Aug-08 Central banks and financial crises Wall Street Journal http://online.wsj.com/public/resources/documents/Fed-Buiter081608.pdf?mod=relevancy
17-Sep-08 Wharton Faculty Debate the Impact of the Financial Crisis Knowledge@Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=2053
23-Sep-08 "Constructing a Financial Perfect Storm" by Jagadeesh Gokhale Cato Institute http://www.cato.org/dailypodcast/podcast-archive.php?podcast_id=745
01-Oct-08 The $700 Billion Question: How Much Is That Exotic Security? Knowledge@Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=2064
01-Oct-08 How to Start the Healing Now Wall Street Journal http://online.wsj.com/article/SB122282734447293049.html
02-Oct-08 Blocked pipes - When banks find it hard to borrow, so do the rest of us Economist http://www.economist.com/displaystory.cfm?story_id=12342237
13-Oct-08 Europe to U.S.: You messed up the rescue, too Fortune http://money.cnn.com/2008/10/13/news/international/gumbel_eurobank.fortune/index.htm
15-Oct-08 Analysis: Economy lacked a trusted national leader Washington Post http://www.washingtonpost.com/ac2/wp-dyn/emailafriend?contentId=AR2008101500432&sent=no
http://money.cnn.com/2008/10/10/news/economy/fox_great_depression.fortune/index.htm?postversi
13-Oct-08 We can beat this crisis Fortune
on=2008101307
Journals/
Publications
Think Tanks
Radio Stations