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The Global Financial Crisis

International Political Economy Presentation
by

Group Three

on 7 November 2012

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Transcript of The Global Financial Crisis

photo credit Nasa / Goddard Space Flight Center / Reto Stöckli By
Eugene, Natalia
Jessica & Rikke The
Global
Financial
Crisis 2008 Global Financial Crisis The Chinese
Reaction Case study 2 The American
Reaction Case study 1 The theoretical aspect Conclusion Discussion Introduction The End The news of
September 15 2008 Theory Alternative
approaches China vs. USA Conclusion Predictability
Avoidability
The financialisation of
the economy the culprit? No! Then it was Obama's turn TARP?
- Troubled Asset
Relief Program Monday September 15: Liberal solution Friday September 19:
Proposed TARP Tuesday September 23:
TARP of $700 billion "My turn, Bush" Neoliberal
approach Alternative solutions China vs. USA Obama's strategy Create aditional measures to stabilise financial system + freeing up credit
Buying toxic bank assets
Expand federal consumer loan program
Remains of TARP Did governments react like Liberalism predicted? References Caren, B & Lambert, L 2009, "Obama vows to spend stimulus money wisely", Reuters, viewed 31.10.2012, <http://uk.reuters.com/article/2009/02/20/obama-economy-idUKN2044566820090220>

Goldman, R & Tapper, J 2009, "Obama Pushes Economic Plan, Saying It Can't Wait", ABC News, viewed 31.12.2012, <http://abcnews.go.com/Business/Business/story?id=6568008&page=1#.UJJnA8WyeSp>

M.C.K. 2012, 'America's bank bailouts: They did not have to be so unfair', The Economist, 31.10.2012, viewed 31.10.2012, <http://www.economist.com/blogs/freeexchange/2012/10/americas-bank-bailouts>

Taylor, JB 2009, ‘The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong’, NBER Working Paper, no. 14631, the National Bureau of Economic Research, viewed 27.10.2012, <http://www.nber.org/papers/w14631>

Thornton, DL 2009, ‘What the LIBOR-OIS Spread Says’, Economic Synopses, no. 24, Federal Reserve Bank of St. Louis, viewed 27.10.12, <http://research.stlouisfed.org/publications/es/09/ES0924.pdf> - Worst financial crisis
- Liquidity crisis
- American housing market
- Collapse of large financial institutions,  bailout of banks, and downturns in stock markets
- Governments and Central Banks interventions
- Global recession and European sovereign-debt crisis U. S. MACROECONOMIC AND REAL STATE CONTEXT LOW INTEREST RATE SUBPRIME MORTGAGES BONDS from the financial market (CDO and MBS) THE SUBPRIME CRISIS
INTEREST RATES POSSIBLE CAUSES AND ARCHITECTS OF THE CRISIS Why did it happen? 1- GLOBAL IMBALANCES (USA and China)
2- Accommodative MONETARY POLICY from 2001
3- EXCESSIVE BORROWING and RISK TAKING by the household and Wall Street
4- World's high DEPENDENCY ON WALL STREET
5- BAD MANAGEMENT OF RISKS by the Credit-Rating Agencies
6- Government policy of ECONOMY DEREGULATION
7-HUMAN NATURAL GREED G GLOBAL FINANCIAL CRISIS securitized The crisis
prolonged + worsened x 4 "No" Chain reaction Flight of investors China: U.S.: 1. Yes
2. Amending that U.S.:

Bail out - with demands
Rating Agencies
Regulation & deregulation China:

A succesful solution already
perhaps global example

tailor it to own specific
situation 90% 1% Contents Subprime crisis
Architechts of
Financial deregulation Economic nationalism:
-Predictable? came about because of the lapse in domestic control of the economy, labour and capital formation

blame globalisation as they question the benefits of unrestricted free trade and are instead for the imposition of tariffs and other restrictions on the movement of labour, goods and capital

believe that the crisis occurred by allowing economic activity to become more important than political goals and objectives Economic nationalism:-Avoidable? lends itself to nationalism and a protectionist trade policy

nations come up against issues such as putting themselves in danger of international security when they don’t cooperate with other nations

become segregated from economic prosperity in the globalised world Keynesianism: Predictable? believe that productive activity is influenced by a host of factorssometimes behaves erratically, affecting production, employment and inflation

predicted that the private sector’s decisions would have led to inefficient macroeconomic outcomesrequire active policy responses by the public sector•monetary policy actions by the central bank

•fiscal policy actions by the government to stabilize output over the business cycle Keynesianism: Avoidable? advocate a mixed economy
private sector with a role of for government intervention during recessions
method has been effective for fixing crises for a few years, but has soon led to severe inflation which is one of the inherent dangers of the Keynesian system resurgence in Keynesian thought
many governments after the GFC offered Keynesian-like stimulus packages
created possibilities for scamming which could not be regulated, and didn’t actually help several of them from stagnating soon after Liberalism and Neo-liberalism: - Most recent economic systems, and thus have been blamed for the crisis, but could it have been predicted? Or avoided? World system is one of interdependence: positive sum game
Self-interest: engaged in production, exchange and consumption, economic growth will be beneficial for all
Trade based upon the goal of free trade
Money flowing in and out of most countries
Open markets growth and wealth will be enhanced, and firms will disseminate material wealth across the globe
State should not be an economic actor
brings politics, distorts benefits and adds costs Liberalism and Neo-liberalism: -Free trade, open markets, privatisation and deregulation, and the enhancement of the role of the private sector in society
-Certain bankers and corporations manipulating the system to achieve their own ends, which then led to or created the sub-prime crisis, which is seen as the root of the GFC
-The financialisation of the economy Increasing role of financial motives, markets, actors and institutions in the operation of the domestic and international economies
The financial sector has become more important than the “real” economy
Increased income inequality, unemployment and wage stagnation Liberalism and Neo-liberalism: -Free-market policy of US labour and product markets
more competitive than their more-regulated European counterparts

-Through globalisation and foreign investment, they claim that this economic growth leads to other social benefits
-Ideals have become so entrenched in the economic system that a new approach will not be indoctrinated Neo-liberalism nationalism: -Group Discussion
Would a combination of neo-liberalism and nationalism be an economic system worth considering in the future? More than of the gains in GDP in the past 4 years HOUSE PRICES Reactions in USA
and China Neoliberalism
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