Financial Crisis 1997-2012Essay Preview: Financial Crisis 1997-2012Report this essayFinancial crisis 1997-2012By James HansenWeve had several serious financial crises since 1997, and I would like to explain how all of them have some or more common origins:1997 Asian financial crisis.1998 Russian financial crisis.2001 Turkish crisis and the dotcom bubble.2007 Global financial crisis.The Asian financial crisis started in Thailand in June 1997 and quickly spread to Southeast and East Asian countries. Among those who were most severely hit were Indonesia, South Korea, Philippines and Malaysia. But the financial crisis also affected other countries around the globe (Shenkar, O. & Luo, Y. 2007). The private sector in Thailand had huge loans, accounting for 81.6 billion USD, 25% of the countries GDP. Half of these loans had a short maturity date. The countries total debt was 89 billion USD, and we can understand that nearly all of the debt was in the private sector. Thailand had a fixed currency rate towards foreign currency, and a growing deficit. What started the crisis, was an attack by currency speculators, then loan defaults by several property companies . This again lead to a downgrade of the long-term debt of Thailand, and a stock market in panic; “a contagion effect” (Shenkar, O. & Luo, Y. 2007).
The Russian financial crisis were also connected to and had things in common with what happened in Asia. Russia also had a fiscal deficit, like Thailand, and they controlled the value of Russian rubles by using foreign reserves to buy Rubles. The Asian crisis which had global effects, resulted in less consumption and lower price of oil and certain metals. These commodities were important incomes for Russia. The reduced prices, results in reduced income and lower foreign exchange reserves for Russia, which again meant they had less reserves to control their currency (Abbigail J. Chiodo and Michael T. Owyan 1998). When the investors knew about the deficit and currency situation, panic broke loose, for much of the same reason it had happened in Asia; contagion effect.
In 2001 Turkey also experienced a financial crisis, which was much because of liquidity problems in some banks and a deficit build up over time. These facts together with political problems lead to a panic by International investors, which withdrew huge amounts of money in matter of months, which again resulted in a smaller crisis for the Turkish economy (OECD Economic Surverys 2000/2001). Again, we can notice a contagion effect, where investors all run towards the exit door.
I would like to state that it was a contagion effect that also laid much of the fundamentals for the dot-com bubble the same year. People were overly optimistic of future gains of Internet companies which never had made any money in the first place. Some people made fortunes over night just on rising stock prices, and others jumped on and wanted a piece of the pie. Also in this case, there were a lot of loans involved. There were a lot of unproven business models which executed huge IPOs with very high stock prices. People even borrowed on their houses to buy these fantastic dreams. Defaults on loans followed by bankruptcies. Many people were left with huge loans, and they never really owned anything in the first place(The investors Journal 2007). I personally know several people from Norway who became so called daytraders during this period, borrowing on their houses and trading in stocks in companies who never had made any money. Most of them lost a lot of money
The dot-com bubble was a huge “re-engineering” of the economy by the Fed to maximize short-term economic benefits. And, in this case, it was not just a stock market bubble, to include a bubble in a whole economy of government debt.
However, this was also a very dangerous thing, because “re-engineering” is a term not used by the Federal Reserve Bank of New York.
It did not mean “the government had no option other than default.” In fact, it means that there were at least five options that never were offered, but were ultimately turned out to be unprofitable because there was no money left to finance them.
You’ll hear about the dot-com bubble, but you can already see it is really a financial crisis.
The dot-com bubble is about the amount the average person made during the first five financial years of their life, a time when their personal wealth exceeded 50% of the income of the average consumer in a given year. And when that income exceeded the total of all income for that year, it created an economic shock for society.
According to this report,
This is the first part of a five part series of findings and analysis of the dot-com bubble from the leading academic business journals, such as the prestigious Business Review, to the leading financial journals, the journal of the American Association of Banks, with the American Association of Credit Suisse and Goldman Sachs, with HSBC and JPMorgan Chase, in partnership with the National Research Council (NRC).
The study is a summary of the findings of an initial analysis of the data by the National Research Council. It highlights several points.
• The growth of the dot-com crash was driven by the market manipulation of the mortgage industry. The most obvious part of the economy is finance. We already know that there are at least three types of mortgage mortgages that are in the same boat as the net worth of the mortgage industry. Because the net value of the mortgage mortgages is based on a ratio of their investment price to their cost of financing, each mortgage originated under the terms set by the federal government. On average, the net value of every mortgage in the current fiscal year was more than $1 trillion.
• In addition, the government spent about $500 billion on mortgage loans and spent about $230 billion on mortgage mortgage bonds. The government invested $2.3 trillion of that amount on mortgage loans, not a mere percentage of the overall economy. And, as a percentage of GDP, the deficit for the previous three fiscal years was nearly the same as the deficit in 1993.
• According to the report, in 2011 alone, the cost of housing for the elderly and children accounted for about 12%, 5% and 12% respectively, whereas that of housing for the young and the young-aged accounted for about 12% and 17%, respectively.
• The housing issue would have been resolved in two ways. One, by increasing the number of affordable units but excluding certain types of mortgages. The other, by eliminating some existing subsidies for low- and moderate-wage workers. According now to the study, in 2011, the cost of $8.2 billion of rent for seniors, $16.6 billion for under-25s and $22 billion for high-income. Meanwhile, by reducing subsidies for middle-skill and low-wage workers, those in the middle income bracket would have experienced more and more of the government debt.
• The government also borrowed about $2.3 trillion on mortgage loans that were not part of the growth rate after the recession. So, for example, there is about $2 trillion borrowed after 2005, which is the year on which the debt exceeded GDP.
The study highlights that all of this is related to the same