Palacio, Sarah Jane B.

BSAT-4D
SYSTEM THINKING

OVER LEVERAGE
-Excessive debt
+ -whe a business or firm is
carrying too much debt
+
and is unable to pay
interest payments from
loans and other expenses
GLOBAL FINANCIAL BANK CRISIS
CRISIS
-Insolvency or bankruptcy
-Period of extreme
stress in global -when a person or entity
financial market and cannot able to repay its
banking system debt to creditor and when
the liabilities are much
greater than its assets

- GOVERNMENT ECONOMIC
+
CONTROL DECLINE
-The government -Recession of
should exercise strict advancement and
control of money inflation of
laundering and
inside ruining.
economy

Note:
The more the Global Financial Crisis the more the Overleverage.
The more the Overleverage the more the Bank Crisis.
The more the Bank Crisis the more the tendency of Economic Decline.
The more the Economic Decline the more the Government Control is needed.
The more the Government Control the less the Global Financial Crisis.
Rule:
There is one(1) negative relationship therefore, the causal loop is Balancing.
 +
HOUSING BUBBLE
-Ran up housing prices
fueled by demand, +
expeculation and high level
of investment which causes
home prices to became
unsustainable
-bubble occurs when
particular investment are bid HIGH INTEREST RATE IN
GLOBAL FINANCIAL
up to prices that are far too COLLATERAL
CRISIS
high to be sustainable in the
-Period of extreme long run. -.Collateral debt
stress in global obligation which initially
financial market and offer higher interest rate
banking system than the legal rate of
government securities.
R
+ +
SUBPRIME MORTGAGE
ECONOMIC DECLINE CRISIS
-Rising unemployment -Result of too much
-lower industrial output borrowing and flawed
due to business failure financial modelling,
and low consumer largely based on the
spending assumption that home
prices only go up.
+

Note:

The more the Global Financial Crisis the more the Housing Bubble.

The more the Housing Bubble the more or the High Interest rate in Collateral.

The more or the Higher Interest Rate in Collateral the more the Subprime Mortgage Crisis.

The more the Subprime Mortgage Crisis the more the Economic decline.

Rule:

There is zero(0) negative relationship therefore, the causal loop is Reinforcing

 Possible Solution to avoid financial crisis from happening in the Philippines

Global financial crisis refers to the period of extreme stress in global financial markets and
banking system. Financial crisis do not end overnight, but it takes some time until all effects
disappear.
The crisis that originated from the US subprime mortgage market escalated into a global
phenomenon. Like their neighboring countries in Asia, Philippine financial markets were not
spared from the ripple effects of the crisis. The Philippine equity market came under
considerable stress in 2008 amid a deteriorating global economic outlook. So to prevent this
financial crisis from happening in the Philippines, I have gathered a few recommendation and
solutions that might help in correcting the mistakes that are allowed for the financial crisis.
First, we have a government fiscal policies. Government fiscal spending and stimulus packages
are very important during recession periods. However, public spending should focus on
infrastructure and construction activities that can lead to economic growth. Excessive spending
on bailouts, unemployment benefits, and subsidy programs in order to increase spending will not
have a long term impact. Short term objectives and spending will only worsen future growth.
Government should not take excessive risk and leverage.
Next is the market regulation and supervision. Governments and Central Banks must be active in
supervising and monitoring the activities of financial firms locally and international. Efforts in
the short run must be directed to clean the balance sheet of financial firms from toxic assets.
Credit lines should be provided for companies with good practices. A better process of
monitoring the tax reports of financial companies is needed. It must be noted that, for many
governments, the current financial system is very complicated to understand and control. Hence
the expertise of financial specialists and central banks must be considered to formulate new
policies and regulations.
Then a new measures and regulations must be adopted to insure that the financial market
mechanism will not permit for future collapses. Investment companies should be punished for
conducting unfair practices (Tax Evasion) and financial practices must be consistent globally.
And lastly, priorities for making sure this will never happens is making banks considerably safer,
making banks balance sheets far more transparent. Getting markets to work far better in
monitoring banks and giving the right signals when the banks become more risky and when the
probability of failure increases.