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What were the causes of the 2008-2010 financial crisis and global recession?
The financial crisis is considered by many economists to be the worst one since the Great Depression of the 1930s. As a result of it, large financial establishments have collapsed, many banks have had to be bailed out by the national governments, and there has been a decline in the stock markets. Additionally, the housing market has also been affected negatively and unemployment has risen dramatically. The bursting of the US house bubble caused the real estate pricing to plunge, thus damaging the financial establishments worldwide. This collapse in the economic activity has lead to the beginning of the 2008- 2010 global recession.
In Europe, the introduction of the euro conducted an excess of borrowing from Ireland, Portugal, Spain, Italy and Greece as they had never come across such low interest rates in government loans. Instead of taking advantage of this and obtaining long-term loans which expired after 20-30 years, they preferred to take much shorter ones with the help of investment banks. Accordingly, this meant that when the loans would have to be repaid, a liquidity crisis would appear before bankruptcy. For instance, in Greece, as an alternative of organizing the countries budgets, they decided to make large recruitments in the public sector, such as overspending on armaments and excessively constructing houses.
There are overall many different causes that have lead to the financial crisis and the global recession, but there are three which I believe have factually caused the most damage so far. Initially, the bankruptcy of the developing countries has had a huge impact on the whole economy due to the banking failures and decline in domestic lending. Secondly, credit rating agencies have caused critical damage due to the false evaluations given to borrowers in order to obtain low interest rates. Finally, complex financial products were not controlled by the government, so bogus information could be given about the worth of borrowers leading to the damage in the economy.
One of the issues with developing countries, especially Real-Estate Markets, is the fact that the more people purchase goods and services, more money will be borrowed. Therefore, this made the borrowing of money trouble free. Eventually, in view of the fact that the prices of domestic goods increased, borrowing of loans rose, even though they could not be paid back by the borrower in the long run. Consequently, these assets created an asset-bubble effect which eventually burst, destroying the financial institutions all over the world. Furthermore, the falling house prices and the rising interest rates lead to high numbers of people who could not repay their mortgages. As a result, this affected the banks to act drastically as they held the assets corrupted by mortgages which were taken by many. For this reason, the shares of the banks started to decline and then finally collapsed in 2008. This also affected the government in a disparaging way because if the government was not going to bail out the banks, the economy would collapse.
Additionally, credit rating agencies are also another problem resulting in what is known as the “worldwide credit crisis”. These agencies gave false evaluations, credit ratings to the issuers, to pay back loans and the possibility of default hence causing corruption. The decisions of the credit rating agencies highly depended on how risky a borrower was, so the less risky the borrower was the lower interest had to be paid. In view of that, if credit rating agencies had connections with the banks and the companies they were rating giving them triple A’s at most times, this threatened the financial stability of the countries ensuing subornment. As stated by, David LevyFormer Senior MD, Moody's, “If they didn't like the results they got they could just go with another agency that was willing to give them a higher rating,” indicating that the issuers would do anything in order for them to be considered low risk borrowers. This resulted in this recession.
Moreover, two of the complex financial products which played a main role in the financial crisis and the recession of 2008 are; CDS (Credit Default Swaps) and CDO (Collateralized Debt Obligations). In the middle of 2007, the size of the mortgage market was much less than the CDS market so, when the defaults were clarified, banks were not able to abide with the losses made. Besides, since these were not regulated by the government, no one knew the actual value of these contracts, demonstrating the severe consequences that would occur if something went wrong. Similarly, the CDO ratings displayed inaccurate information on the credit ratings of borrowers, causing high risk mortgage investments. So, when the crisis began in 2008, the losses of banks were intolerable, meaning that they had to borrow from each other escalating the problem.
The financial crisis resulted to be a global recession due to contagion. For example, the countries are divided into developed, developing, undeveloped and underdeveloped, which shows that once one of the underdeveloped or developing countries fail this will become an ongoing cycle of disaster. For instance, Greece which is one of the weaker economies, in Southern Europe has been corrupted, thus affecting the stronger ones, in Northern Europe. For this reason, the stronger economies are trying to keep Greece in the EU in order for the consequences of the collapse in the economy and the impact on other countries to be as gentle as possible. Theoretically, even though the EU is split up into 27 member states and different economies, it still makes it a Union. In reality however, it is not as the economies, wages and growth are not equal between the countries.
The worst thing is the manipulation caused by those who control the markets as they opened the ‘EU tap’ and gave out loans, creating uncontrolled booms in stocks, real estate and the economy itself. However, when they decided to close the ‘EU tap’, the result was liquidity problems. Subsequently businesses suffered huge losses and unemployment increased, so demand was reduced causing the economy to go in recession and finally go bankrupt. As a final point, we know that the countries are split up economically, not politically so the power of currencies is different, making it mathematically obvious that failure would occur at some point in the future.
To conclude, the three causes of the financial crisis and global recession of 2008-2010 mentioned are; the bankruptcy of developing countries due to failure of banks and domestic lending. In addition, the credit rating agencies gave false evaluations about the worth of borrowers in order money to be loaned to them. Lastly, the complex financial products suggested false information about the value of borrowers obscuring the risk of mortgage investments. Due to all these reasons the markets and banks failed leading to the economic crisis and recession which has lasted up to today.
Referencing
http://en.wikipedia.org/wiki/European_Union
http://www.economywatch.com/investment/financial-products.htmlhttp://www.bbc.co.uk/news/business-18083864
http://www.bbc.co.uk/news/business-17142170
http://www.law.berkeley.edu/files/RAShortWhitePaperJH090908KTrev-1.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1267625
http://en.wikipedia.org/wiki/2007%E2%80%932012_global_financial_crisis
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#High-risk_mortgage_loans_and_lending.2Fborrowing_practices
http://econ.tu.ac.th/archan/rangsun/ec%20460/ec%20460%20readings/Global%20Issues/Global%20Financial%20Crisis%202007-2009/Academic%20Works%20By%20Instituion/UNDP/Financial%20Crisis%20of%202008%20and%20LDCs.pdf
http://siteresources.worldbank.org/INTMOROCCOINFRENCH/Resources/MD_Brief8.pdf
http://en.wikipedia.org/wiki/2007%E2%80%932012_global_financial_crisis By Maria Christina Litina
The distressing events of the September 11th, 2001 Attacks
“One of the most horrific events in the history of the nation took place a thousand feet above lower Manhattan, and it took the lives of people who were staring down at safety, civilization at its peak, but they didn’t have any way to get there,” James Glanz, a New York Times reporter, explained.
Eleven years have solemnly passed since this event, and with each year comes further reflection concerning the actions of 9/11. The civilians of New York and America as a whole have never experienced such hostile foreign attacks directed towards their homeland for almost 200 years.
Dating back to 2001, those who were there in the flesh and came out the other end, have a lengthy story or two to tell. With the two planes that directly impacted the North and South towers, charging into them at speeds of 500/600 MPH, an incomprehensible reign of terror was evoked in the hearts of millions, both worldwide and in the States.
A UK witness of the attack who was on an airplane, who had meant to be in New York for only two hours, ended up staying for nine days, had this to say: “Thirty seconds to a minute later the pilot made an announcement. He said there had been a terrorist attack and that we must disembark. I was tired and did not appreciate that what I was looking at was the Twin Towers. I thought they were chimneys and some of us commented how surprising it was to see that level of pollution in New York. As I watched I saw a plane fly into the tower that was not smoking. There was an explosion and a fireball.”
Nineteen of al-Qaeda’s followers had hijacked four jets. The South and North towers of the World Trade Center were targeted, and after a time frame of two hours, crumbled to the ground. The Pentagon in Arlington, Virginia was then hit by another airliner. A further jet intended to take out the States capitol building, landed in Shanksville, Pennsylvania, as a result of the hostages’ group effort to overtake the terrorists in charge of the hijacking. Out of the 3000 civilians killed, 227 of them were on board the four planes.
“I mean it was like a cruise missile with wings, went right there and slammed into the Pentagon," eyewitness Mike Walter said of the plane that hit the Pentagon.
"Huge explosion, great ball of fire, smoke started billowing out, and then it was just chaos on the highway as people either tried to move around the traffic and go down either forward or backwards," Walter explained.
Although the US Air Forces were scrambled 129 times in an attempt to intercept these planes, it was apparent that there was no military voice at the time, and miscommunication came out of this scenario, with President Bush struggling to make a swift initial response.
The finger was pointed at Osama Bin Laden who eventually took credit for the hostile attacks, as a way to counter US involvement in Israel, Saudi Arabia, and Iraqi affairs. Ultimately, the United States strongly responded to this event when they launched their “War on Terror” campaign, challenging the establishment of Bin Laden’s Taliban, who were set up in Afghanistan. After years of cohesive efforts to track down this individual, he was found and killed in May 2011.
We hear of inspirational stories from the survivors of this event, which leave many people in disbelief. Their stories shine light on the vulnerable and powerless conditions of this attack. A survivor, named Randy Scott, who was on the 84th floor of the south tower, took action after the plane had collided into the tower, and sent a message which traveled down to a street near the tower and was received by a nearby victim of the attack, reading "84th floor ... West Office ...12 people trapped."
The honorable and noteworthy heroics that people such as Randy Scott performed on that day provided further insight on what really went on in those towers. Minutes before his death, he must have broken a window with a desk, which allowed him to put a blood smudge on the note, later identified as his own through a DNA test. We hear stories like these that are heartbreaking, but open up the possibility of certain conspiracies to take shape with regard to how the actual building collapsed.
Linking the United States government to the terrorist attacks of 9/11 is taking a big leap; however, there have been internal problems with federal bureaus such as the CIA. For example, dating back to 1973, Chile’s military coup had many negative impacts on Chile and people suffered as a result. Augusto Pinochet was one name that popped up in events linked to the overthrow in power of Allende’s government. The raid of the presidential palace “Le Moneda” by activists and Chilean armed forces sparked the beginning of a period of oppression, which saw 3,000 people killed. U.S involvement was later identified with their supplying material support to this specific coup.
Later found and released in 2000 by the CIA itself, a document was issued specifying the CIA had supported the junta (the military which overthrew Allende’s government). They had even held relations with the Chilean DINA intelligence, who were responsible for running Pinochet’s “Operation Condor”, who were held responsible for the assassinations of several political heads, not only in Chile, but other nations in Latin America.
Careful analysis of this particular event is still being studied to this day; however, we are indebted to the post-9/11 victims and the traumatic series of events that they have had to overcome. There are many events that clearly conflict with the “standards” of human rights and what is to be expected of the human race in general, but this catches the eye and stands out amongst the rest.
Morgan Mitchell
GREECE
In the past two years, since Troika descended upon Greek politics, we have witnessed Greece undergo, and in fact continue to undergo, its most extensive and definitely most substantial political and economic overhaul since the civil war (1946-1948).
The sovereign debt crisis, which resulted in Greece owing approximately 300 billion Euro, which represents 160% of its Gross Domestic Product, has led to unprecedented fiscal policies to reduce the public debt to 120% of the GDP by 2016. To do this the Government has had to cut its costs, reduce pensions and increase taxation. Since the Greek Government doesn’t control the Euro and cannot devalue this currency, it has had to implement an internal devaluation in order to increase productivity by imposing salary cuts across the board in the public sector and deregulating the private labour market. A complementary productivity increasing measure is the deregulation of the business environment primarily through opening up “closed professions” and privatizing state owned enterprises.
The internal devaluation measures have caused widespread recession. Greece has lost over 30% of its Gross National Product which is now only 200 billion Euro. Without consumer demand due to the salary reductions, businesses have been rapidly going out of business and unemployment has jumped in the private sector from 8% to over 25%, mostly amongst the young people aged 18-25 where unemployment is at over 50%.
These changes haven’t been completed yet. There is a lot of resistance to structural reforms, mainly in the public sector and tax evasion is still rampant. The privatization program has not yet really started.
But it’s easy to talk about numbers and to forget that people are THE numbers. We can talk about austerity and unemployment, but its people who can’t pay their bills, who do not have access to health and social security services and who are unemployed. It’s the young people who are out of work and will not be able to find work any time in the foreseeable future.
At the time of writing this article, Greece seems to be in limbo. No-one can predict whether it will succeed or how long it will take to get out of the recession and start developing again. This deep crisis is also a crisis of values. Greeks have to look hard at themselves and assess their own role in bringing about this crisis. It’s an opportunity to correct attitudes which simply are wrong, like tax evasion and re-invent the State on principles of merit and efficiency.
This makes change urgent. The politics have changed since the people do not seem to trust any one single political party to govern and have forced a coalition between three parties. At the same time, desperation and partly ignorance push many to political extremes. For the first time, the collapse of the social state services have made room for political extremism and undemocratic political parties and movements.
Change will come, one way or the other. In all probability it will be our burden, the children and teenagers of today to bring about real change. We have not been “infected” by the wrong attitudes and values which led the older generations to make the mistakes which we are all paying for.
It’s up to us.
JASON PELECANOS
The Headline Review
The top stories that caught our attention
and the news that shaped the months of September and October.
“Ending Its Summer Melt, Arctic Sea Ice Sets a New Low That Leads to Warnings” –nytimes.com
Date of publication: 19 Sep 2012
Article by: Justin Gillis
http://www.nytimes.com/2012/09/20/science/earth/arctic-sea-ice-stops-melting-but-new-record-low-is-set.html?_r=0 1
“Manchester police shootings: families pay tribute to fallen officers” –guardian.co.uk
Date of publication: 20 Sep 2012
Article by: Helen Carter
http://www.guardian.co.uk/uk/2012/sep/20/manchester-police-shootings-families-tribute 2
“Thirteen killed in Pakistan protests against anti-Islam film” –telegraph.co.uk
Date of publication: 21 Sep 2012
Article by: Rob Crilly
http://www.telegraph.co.uk/news/worldnews/asia/pakistan/9557463/Thirteen-killed-in-Pakistan-protests-against-anti-Islam-film.html 3
“iPhone 5 launch draws Apple fans worldwide” –news.yahoo.com
Date of publication: Sep 22, 2012
Article by: Kelvin Chan
http://news.yahoo.com/iphone-5-launch-draws-apple-fans-worldwide-093617161--finance.html 4
“Second Mona Lisa Unveiled for First Time in 40 Years” –abcnews.go.com
Date of publication: Sept 27, 2012
Article by: Matthew Rosenbaum
http://abcnews.go.com/blogs/headlines/2012/09/second-mona-lisa-unveiled-for-first-time-in-40-years/ 5
“Jill Meagher murder: Man appears in Melbourne court”
- bbc.co.uk
Date of publication: 28 September 2012
http://www.bbc.co.uk/news/world-europe-19754826 6
“Spain floods claim 10 lives” -cnn.com
Date of publication: September 29, 2012
Article by: the CNN Wire Staff
http://articles.cnn.com/2012-09-29/world/world_europe_spain-floods_1_flash-floods-andalucia-region-heavy-rainfall 7
“Runaway teacher Jeremy Forrest to return to UK”
–guardian.co.uk
Date of publication: Tuesday 2 October 2012
Article by: Angelique Chrisafis
http://www.guardian.co.uk/uk/2012/oct/02/runaway-teacher-jeremy-forrest-return 8
“April Jones, missing five-year-old in Wales: day four as it happened” –telegraph.co.uk
Article by: Tom Rowley and Ben Bryant
Date of publication: 04 Oct 2012
http://www.telegraph.co.uk/news/uknews/crime/9586248/April-Jones-missing-five-year-old-in-Wales-live.html 9
Most outrageous:
“Czech President Vaclav Klaus shot at with replica gun”
–bbc.co.uk
Date of publication: 28 September 2012
http://www.bbc.co.uk/news/world-europe-19767929 10
Note to readers: watch the video and you will see how this was a clear security failure! -LARA SHEEHAN
9/11 ATTACK
DRAWING BY LYDIA DELIKOURA