1929 Wall Street Crash

2010 European sovereign debt crisis

Causes
It stems from regional disparities within the single-currency zone and from the basic contradiction at the heart of the euro experiment:Euro member countries each have their own fiscal policies but are subject to a common monetary policy set by the ECB. Reasons leading to spread:

The huge government deficits run by European economies like Greece has reduced confidence in them. These economies are largely financed by markets, hence their banks do not hold sufficient assets on their balance sheets to buffer against future crises. Countries affected by it Ireland, UK, Portugal, Italy, Ireland,Greece and Spain
How were they tackled

A loan agreement was reached between Greece, the other Eurozone countries, and the International Monetary Fund. The deal consists of an immediate 45 billion in low interest

loans to be provided in 2010, with more funds available later. A total of 110 billion has been agreed.
Financial crisis of 20072010, Causes It was a liquidity crisis caused by the bursting of United States housing bubble and overvaluation of assets in general. What led to its spread Low interest rates and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing construction boom and encouraging debt-financed consumption. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Where all it spread to EU, US and Asia How was it tackled

US government enacted two large fiscal stimulus packages, totaling nearly $1 trillion. There was also the largest liquidity injection into the credit market when US Federal Reserve, the European Central Bank and other central banks purchased US$2.5 trillion.US government also bailed out a number of financial firms.
Bursting of dot-com bubble Causes It was a speculative bubble in which many companies saw a phenomenal increase in their stock prices, simply if they added an e- prefix or a .com suffix to their names. How did it spread

The customer base built by the dot com companies was massive and people having implicit faith in the power of technology bought more and more shares anticipating future increase in the value of stocks.
Where did it spread to United Sates of America How was it tackled

Many dot-coms filed for bankruptcy, many ran out of capital and were acquired or liquidated. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. 1998 Russian Financial Crisis Causes

It was triggered by the Asian financial crisis which led to the decline of commodity prices.

Why did it spread At that time Russia didnt float the ruble freely, it didnt employ a coherent set of economic reforms which led to a severe erosion in investor confidence and a chain-reaction leading to huge sell-off of ruble and Russian assets. Where did it spread to Russia, Estonia, Latvia, Lithuania, Belarus, Kazakhstan, Moldova, Ukraine and Uzbekistan How was it tackled The ruble-dollar trading band was expanded, ruble-denominated debt was structured in a manner to be announced at a later date and a temporary 90-day moratorium was imposed on the payment of some bank obligations. However the recovery was mostly due to the fact that the international oil prices rose again. 1997 Asian Financial Crisis Causes The extremely high Foreign debt-to-GDP ratios in the ASEAN countries. What led to its spread The economies of Southeast Asia maintained high interest rates attractive to foreign investors looking for high rates of return leading to massive capital inflows into these economies which was unmatched with the marginal or no growth of total factor productivity. Where it spread to Indonesia, South Korea, Thailand, Hong Kong, Laos, Malaysia, Philippines, China, Taiwan, Singapore, Brunei, India and Vietnam How was it tackled

The IMF created a series of bailouts for the most affected economies to enable affected nations to avoid default, tying the packages to reforms that were intended to make the restored Asian currency, banking, and financial systems as much like those of the United States and Europe as possible. 1994 Economic Crisis in Mexico Causes Sudden devaluation of Mexican Peso What led to its spread Increased curent account deficit and low confidence among the investor who had bought the tesobonos, caused them to sell them rapidly resulting in a run on the Central Bank.
Where did it spread to Mexico, Brazil, Argentina, Chile, Paraguay and Uruguay How was it tackled

US along with other international organisations granted Mexico a loan of $50 billion Latin American Debt Crisis Causes The Latin American countries borrowed huge sums of money from international creditors for infrastructure programs. However they reached a point where their foreign debt surpassed their earning power. Why did it spread The Latin American countries has soaring economies in the 1970s and hence the international creditors happily continued giving them loans. As interest rates increased dramatically after the oil crisis, these countries were further put into an inconvenient position. Where did it spread to Brazil, Mexico, Argentina, Chile, Venezuela, Colombia, Peru, Ecuador, Cuba, Uruguay, Panama, El Salvador, Dominican Republic, Bolivia, Guatemala, Honduras, Nicaragua, Costa Rica and Paraguay 1973 Oil Crisis Causes

Organization of Arab Petroleum Exporting Countries imposed an oil embargo in response to US supplying military assistance to Israel during the Yom Kippur War. Why did it spread The industrial nations especially US and members of European Economic Community were heavy importers of oil. When the embargo was imposed it lead to quadrupling of oil prices, crippling these economies due to oil-shortage. Where did it spread to US, UK, Netherlands, Germany, Switzerland, Norway, Sweden, Japan, Portugal, Rhodesia, South Africa and France How was it tackled The end of the Yom-Kippur war ended the oil crisis. Wall Street Crash of 1929 Cause It was caused due to the speculation that the markets would continue to support permanently high stock values. Why did it spread A large number of people were investing in the stock markets based on speculation. A significant number were also borrowing money for buying them and due to the absence of the lender of the last resort led to the bursting of the bubble. (b) All the crises that have occurred have their roots in bad management of economy by the governments. Predatory lending, unsruplous practices, bad credit management and nonfeasible investment practices by major banks as well as speculation have been major reasons. It was only in the case of Oil Crisis that the reason was an embargo. Often all the above major reasons come together and cause a crisis as was the case with the Financial Crisis of 2007-2010 but in a few cases like dot-com bubble the only rationale was excessive speculation. A few financial crises have had their roots in previously occurring crises. For eg the Eastern Europe Sovereign Crisis has its roots in the Financial Crisis of 2007-2010, the Latin American Crisis had its roots in Oil Crisis of 1973 and the Great Depression was caused by the Wall Street Crash of 1929.

Eastern Europe Crisis Triggering Greece is at the epicenter of this crisis as its fiscal deficit, public debt and current account deficits as a percentage of GDP are all high. Reasons behind its spread
It stems from regional disparities within the single-currency zone and from the basic contradiction at the heart of the euro experiment: Euro member countries each have their own fiscal policies but are subject to a common monetary policy set by the ECB. Also many European nations like Greece are living above their means which is essentially detrimental to the economy. This has also greatly reduced the confidence invested in them. Consequences This has led to a substantial decrease in customer confidence, hence the rating of Greek bonds was reduced to junk status by Standard & Poors. It has caused the widening of bond-yield spreads and risk insurance between the affected countries and other EU members, particularly Germany. Also, in Spain the housing bubble was burst and unemployment is on the rise. Means used to tackle The Grek parliament passed the Economic Protection Bill which is expected to save 4.8 billion. Greece, other EU countries and IMF reached a loan agreement according to which 110 billion loan was granted to Greece. Lessons Learnt Information and transparency of the government is essential. The government should take care not to run impossibly high fiscal deficits as they are detrimental in the lond run. There should be greater cooperation among EU member states so that their deficits and surpluses can be distributed prudently. Financial Crisis of 2007-2010 Triggered by The burst of the housing bubble in US. Reasons behind its spread There were two primary reasons behind its spread: bad macroeconomic policies and improper financial sector supervision and regulation. The globalisation of trade, finance and labour had tied the countries to such an extent as they were never before, hence this lack of decoupling led to its shocks being felt across the world. Consequences Several major financial institutions failed or were subject to government takeover: Northern Rock, Lehman Brothers, Merrill Lynch, Freddie Mae, Freddie Mac, Washington Mutual, Wachoviaand AIG. There was a massive decrease in wealth, consumption, lending capacity and employment. US and EU economies faced major economic slowdowns and their growth trajectory even went into negative. It resulted in large reductions in market value of equities, commodities and stock indexes.

The 2010 European Sovereign Debt Crisis is also a fallout of this. Means used to tackle

US government enacted two large fiscal stimulus packages, totaling nearly $1 trillion. There was also the largest liquidity injection into the credit market when US Federal Reserve, the European Central Bank and other central banks purchased US$2.5 trillion.US government also bailed out a number of financial firms. The US Federal Reserve also became the lender of only resort for a significant portion of the economy and sometimes buyer of the last resort.
Lessons Learnt Always believe in the fundamentals while investing and when one must be skepticle is something is too good to be true; it probably isnt. There should be the institution of sound macroeconomic policies, financial sector supervision and regulation, financial engineering and the global activities of large international firms. Policymakers need to think about how financial markets deal with innovation. Monetary policies should always be consistent with long-term stability and prosperity. Bursting of dot-com bubble Triggered by The dramatic shooting-off of stock prices of Internet based companies. Reasons for spread

A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements. This inherent belief in the muscle of these dot-com companies led a huge number of customers to invest in them. Consequences The Stock Market Crash of 2000-2002 caused the loss of $5 trillion in the market value of companies from March 2000 to October 2002. Due to the immense customer base, it also resulted in individual loss of wealth. Means used to tackle Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors or domain name investors. The U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors.
Lessons Learnt

Fundamentals dont lie. The fundamentals of Dot-com bubble were horrible, most new public companies were not profitable and had no intention of ever making a

profit. The customer mustnt invest when prices are overvalued and fundamentals are poor.
1997 Asian Financial Crisis Triggered by The collapse of the Thai Bahat due to the governments decision to free-float it. Reasons behind its spread The economies of Southeast Asia maintained high interest rates which made it attractive to foreign investors resulting in large inflow of capital, raising the asset prices. However there was no or little increase in total factor productivity. Thailand, Indonesia and South Korea had large

private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. Consequences Most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt. Means used to tackle The IMF created a series of bailouts for the most affected economies to enable affected nations to avoid default, tying the packages to reforms that were intended to make the restored Asian currency, banking, and financial systems as much like those of the United States and Europe as possible. Lessons learnt Its not prudent to run a current account deficit without a budget deficit. Foreign exchange reserves are important. The composition of capital inflows does matter Inevitably countries will have to raise the interest rates and lower exchange rates

http://www.hks.harvard.edu/fs/frankel/tenlessonslearnedfromasiancrisisworldbank.pdf http://en.wikipedia.org/wiki/2010_European_sovereign_debt_crisis#Possible_spread_beyond_Greec e http://www.yahind.com/trivedi/global_financial_crisis.pdf

http://www.inginvestment.com/idc/groups/public/documents/market_commentary/042191.pd f?title=Greek%20Woes%20Drag%20Down%20Markets&sub=Economy%20Commentary http://www.bloomberg.com/news/2010-06-04/mukherjee-says-wider-european-crisis-wouldbe-harmful-to-india-s-economy.html

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