Professional Documents
Culture Documents
Week 7 Class
Global Financial Crisis 2007-2009
Global Financial Crisis (GFC)
In August 2007:
Collapse of several high profile banks, emergency bailouts
of others, fraud investigations
It brought down the global stock market which lost an
approximate $32 trillion in value from its peak
Destroyed confidence
Massive fiscal/monetary stimulus and institutional bailouts
What happened?
Why?
Excessive production
Low interest rate (note foreign currency surplus of countries
such as China were invested in US market)
Overvaluation of properties
Borrowers stretching themselves
Profit seeking financial institutions preyed on
unsophisticated/poor borrowers
Figure 4
Why this crisis requires close scrutiny?
Human misery
Negative behaviour of profit seeking mortgage lending
institutions at the expense of ill-informed poorly educated
individuals
Inappropriate relaxation of regulation: decades of de-
regulation since the days of Margaret Thatcher
Risk appetite of banks danger of bank failure and
consequences on system: a moral hazard issue
If banks mismanage and know they will be rescued
reinforces reckless behaviour
Executive behaviour?
7. Interest rates
Rise of interest rates were moderate. Refer to interest rates
raised sky high during the AFC and the consequential
pain
Judgments on the GFCs impact on Asia: recovery