Cuộc khủng hoảng tài chính năm 2008

VIET NAM NATIONAL UNIVERSITY OF HCM
UNIVERSITY OF ECONOMIC AND LAW

THE GLOBAL
FINANCIAL CRISIS
OF 2008
INTERNATIONAL FINANCE

SCHOOL YEAR 2021-2022


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GROUP: 4


CONTENTS
INTRODUCTION

01

01

EVOLUTION OF THE 2008
FINANCIAL CRISIS

02

02

THE REASONS

04

03

THE US GOVERNMENT'S POSTCRISIS ECONOMIC RECOVERY
AND RECOVERY MEASURES

09

04

CHANGES IN MANAGEMENT
REGULATIONS TO LIMIT SIMILAR
CRISES IN THE FUTURE

11

05

THE IMPACTS

12


INTERNATIONAL FINANCE

GROUP 4

INTRODUCTION
In 2008, world finance faced many difficulties. With the starting
point is the liquidity crisis in the US banking system. This crisis led
to the collapse of a series of major financial institutions, the
nationalization of many credit institutions, and a decline in stock
markets around the world. Economists consider this crisis to be the

worst financial crisis since the Great Depression of the 1930s. The
financial crisis broke out in the US and spread globally, leading to
the simultaneous collapse of many giant financial institutions, and
the stock market faltered. The year 2008 saw unprecedented
efforts of economies to cope with the crisis. Here are some
background facts about the 2008 financial crisis.

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INTERNATIONAL FINANCE

GROUP 4

EVOLUTION OF THE 2008
FINANCIAL CRISIS

The crisis can be considered to have
begun on August 6, 2007 when American
Home Mortgage, one of the largest
mortgage lenders in the United States,
filed for bankruptcy. Then many US and
European banks were in trouble and the
government had to spend hundreds of
billions of dollars in bailouts throughout
2007.
And with America's fourth-largest
investment

banking

event,

Lehman

Brothers declared bankruptcy on 1592008, triggering the crisis to spark and
explode causing the worst financial crisis
since the War 2nd world on a global scale.

The bankruptcy of Lehman Brothers shocked
and accelerated events, it cost the US stock
market up to 1.1 trillion dollars, causing panic
throughout the financial institutions. The US
government had to spend $ 85 billion to help
the world's largest insurance group AIG hold on
when it appeared to be insolvent due to huge
losses related to mortgage debt. The other "big"
banks are also not immune to misery, including
Morgan Stanley, Goldman Sachs, Citigroup, etc.
After a month since this event, the US Congress
had to approve a $700 billion bailout package,
not only to save banks and other financial
institutions, but also to pour money into
manufacturers that are also on the verge of
bankruptcy like General Motors and Chrysler.
Not only that, inter-bank transaction activities
were almost paralyzed, tens of millions of people
lost their houses, hundreds of millions of people
lost their jobs and trillions of dollars of assets
were "evaporated", making the global economy

go crazy. demand loss of $4.5 trillion in 2009.

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INTERNATIONAL FINANCE

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When the "great flood" spread to Europe,
the stock market plummeted, leaving the
Icelandic banking system on the brink of
bankruptcy. The European economies
themselves, which already have many
difficult problems, are now resonating with
the US "financial storm", making Europe's
economic problems even more serious.
Banks suffered heavy losses, the French
banking system alone lost 12 billion euros
within 12 months; several banks in the UK
have declared bankruptcy due to mortgage
lending; Fortis bank in the group of 20
largest European banks is on the verge of
bankruptcy and has been acquired by 3
European
countries.
Governments
in
European countries all have their own
interventions such as injecting more money

into the credit system, reducing taxes, etc.,
but there are still no signs that the
economic situation has improved.

In November 2008, the situation worsened.
Worse than the crisis, it has spread and
impacted many emerging markets (Korea,
China, Russia, Hungary, etc.) that few months
ago. China faces serious challenges in terms of
environmental pollution, rising raw material
prices, shrinking external markets... and
economic growth is at risk of a dangerous
slowdown. In addition, with the event that
Japanese
insurance
group
Yamato
Life
Insurance Co. declaring bankruptcy after nearly
100 years of operation is considered a step
marking the crisis that has "reached the faucet"
to Asia.
Economic recession occurred when many
developed countries including the US, UK, Euro
zone countries, Japan, Taiwan, South Korea,
Singapore announced their economies were in
recession. This is arguably the worst crisis since
1929.

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INTERNATIONAL FINANCE

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THE REASONS
THE 2008 FINANCIAL CRISIS

SUBPRIME DEBT

The basic cause leading to the
2008 crisis was that the US real
estate bubble had occurred. When
the real estate bubble formed, the

CREDIT RATING
COMPANIES

financial market was also affected
and influenced by each other, more
specifically due to a number of
reasons as follows:

CREDIT DEFAULT
SWAPS

CRISIS OF
CONFIDENCE

BUY AND SELL
SHORT
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INTERNATIONAL FINANCE

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SUBPRIME DEBT

Trust companies provide untruthful
information by creating attractive, lowrisk property security debentures. This
causes information asymmetry because
banks
and
financial
institutions
deliberately withhold information and
encapsulate it in securities called
collateralized debentures (CDOs) and so
bad loans have been lost. become good,
safe and attractive in the eyes of
investors.

A loan with a higher-than-standard
interest rate, granted to individuals who do
not qualify for standard loans. These
subjects have potential risks of inability to
repay debts. Because the expected

property price is higher than the interest
paid on the loan, borrowers and borrowers,
along with trust banks, have confidence
that when interest rates are higher,
borrowers will not be able to repay their
loans. put real estate on a debt island, so
the bank does not give loans even though
they do not consider whether they have
the ability to repay the loan or not. Thus,
lending to unqualified people is a reckless
act, which can cause the risk of bad debt
formation. The more substandard people
get loans, the higher the bad debt, which
means the financial risk increases..

CREDIT RATING
COMPANIES
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INTERNATIONAL FINANCE

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CREDIT DEFAULT
SWAPS
At this time, the largest insurance
company in the United States, AIG, issued
CDS contracts to investors who purchased
MBS securities for a premium. Of course, later

AIG was under a lot of pressure when the real
estate bubble occurred because it was not
able to recover the loss that MBS securities
investors suffered.

Banks compete on loan levels as well
as assets. Complex transactions are
created to eliminate risk and hide the
slippage of real asset values. When the
market crashed, real estate prices
plummeted,

everyone

lost

money,

debtors couldn't pay their debts, banks'
bad debts increased, and there was a
risk of bankruptcy. cannot compensate
the bank for the loss, so this is
considered the DOMINO effect.

CRISIS OF
CONFIDENCE
PAGE

6

INTERNATIONAL FINANCE

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BUY AND SELL
SHORT

Knowledgeable
and
experienced
speculators predicted that the shares of
corporations involved in subprime lending
would fall, so they massively borrowed
these stocks and sold them to make a profit.
The form of investors in stocks when it is
high to sell when the price is low, investors
buy back to pay is called short selling.
Negative rumors about falling prices are
often closely related to short selling.
Rumors can cause stock price volatility
relative to intrinsic value and thus reduce
market efficiency. In the long term, the
deviation of a security's price from its
intrinsic value can cause investors to make
buying/selling decisions without a basis of
accurate information.
In addition to the direct causes above,
there are deeper causes that are:

Due to the ambition to recover the
economy after the recession in 2001
and the effects of the 9/11 terrorist
attacks, the FED (US Federal Reserve)
lowered the interbank interest rate.
Keeping interest rates low for a long
period of time makes it easier to
borrow money from banks, lowering
costs in the economy as a whole, but
it also devalues the currency, leading
to inflation.

Due to the loose mechanism
and policies of the US when
allowing commercial banks to
operate in a versatile and wideranging manner throughout the
US, there are no barriers and no
control over newly emerged
financial
instruments.
In
addition, it is also freely allowed
to speculate and sell short.

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INTERNATIONAL FINANCE

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The US
government's
post-crisis
economic recovery
and recovery
measures
1. For the US Federal
Reserve:
As soon as the secondary housing credit
crisis broke out, the Fed began to intervene by
lowering interest rates and increasing MBS
purchases. Until the situation developed into a
financial crisis in August 2007, the US Federal
Reserve (Fed) continued to conduct monetary
easing measures to increase liquidity for
financial institutions. Specifically, the interbank
overnight lending rate has been reduced from
5.25% in 6 installments to 2% in less than 8
months (September 18, 2007 to April 30, 2008).
This interest rate then continued to decrease
and on December 16, 2008, it was only 0.25%, a
rare near zero interest rate.
The Fed also conducts open market
operations (buys back US government bonds
that financial institutions have) and lowers the
rediscount rate. In mid-December 2008, the
Fed

announced

plans

to

implement

quantitative easing.

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INTERNATIONAL FINANCE

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2. For the US Government:
On February 13, 2008, President George
W. Bush signed the Economic Stimulus
Act of 2008 under which the government
will apply a combined stimulus program
worth $168 billion mainly in the form of
personal income tax refunds. . In the face
of a severe financial crisis, the Bush
administration submitted a $700 billion
fiscal package to Congress.

After being elected US president in 2009 - Barack Obama - has launched a
number of economic stimulus policies to recover from the crisis, specifically,
the US will conduct stimulus by the following ways:

Unprecedented infrastructure development project since the 1950s
Upgrading the energy use system of US government agency offices
towards energy saving
Large investment in technology development, especially electronic health
information, computer systems for high schools and broadband Internet
development
Additional funding for the Health Insurance Program. An additional $50 billion
will be provided in addition to the $20 billion already agreed to for the auto
industry, on the condition that the industry undergoes substantial reform.

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INTERNATIONAL FINANCE

GROUP 4

Changes
in
management
Changes in management
regulations
to
limit
similar
regulations to limit similar
crises
in
the
future

crises in the future


The global financial crisis has taught us many lessons, as well as
finding the right economic policies for each period so that the economy
develops more stably of each country in particular and of the global
economy. demand in general. Here are a few recommendations for
regulatory changes to prevent similar crises in the future:
Strengthen control of the monetary system, strengthen the capacity of
monetary and financial regulatory agencies. Effectively use monetary tools
with flexible adjustments according to market movements such as exchange
rates, interest rates, credit limits, etc.
Closely monitor money supply and increase credit; strictly review and control
loans for real estate and securities business.
Strengthen government supervision over the financial system, banking and
stock market. Reviewing and sounding out the financial and banking
system. Review banks that lend a lot to the real estate sector and high-risk
projects. Check the credit quality of commercial banks, especially credit for
risky areas.
Encourage businesses to save themselves (by cooperating, expanding to
new markets, focusing on the domestic market, saving costs, and the State
has measures to support: access to credit, support interest rates) capacity,
providing information, etc.)
It is necessary to provide large liquidity to governments to repay their debts
to avoid disruptions and contagion in financial markets that prevent
indebted countries from accessing markets, which can introduce liquidity
risks. become a country risk.
Strengthen information and public relations work. Regularly follow up,
update information at home and abroad to have a proper assessment of the
situation, thereby having the most appropriate and timely policy response.

PAGE

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INTERNATIONAL FINANCE

GROUP 4

The Impact of the
September 2008
Economic Collapse


U.S. households lost on average nearly $5,800 in income

due to reduced economic growth during the acute stage of

the financial crisis from September 2008 through the end of

Income – The financial
crisis cost the U.S. an
estimated $648 billion due
to
slower
economic
growth, as measured by
the difference between
the Congressional Budget

Office (CBO) economic
forecast
made
in
September 2008 and the
actual performance of the
economy from September
2008 through the end of
2009. That equates to an
average of approximately
$5,800 in lost income for
each U.S. household.
Stock Values – The U.S.
lost $7.4 trillion in stock
wealth from July 2008 to
March 2009, according to
the Federal Reserve. This is
roughly
$66,200
on
average
per
U.S.
household.

2009. Costs to the federal government due to its interventions
to

mitigate

the

financial

crisis

amounted

to

$2,050,

on

average, for each U.S. household. Also, the combined peak
loss from declining stock and home values totaled nearly

$100,000, on average per U.S. household, during the July 2008

to March 2009 period. This analysis highlights the importance

of reducing the onset and severity of future financial crises,
and the value of market reforms to achieve this goal.

Government Response –
Federal government spending to
mitigate
the
financial
crisis

through the Troubled Asset Relief
Program (TARP) will result in a net
cost to taxpayers of $73 billion
according to the CBO. This is
approximately $2,050 per U.S.
household on average.
Jobs – 5.5 million more
American jobs were lost due to
slower economic growth during
the financial crisis than what was
predicted by the September 2008
CBO forecast.

Home Values – The U.S. lost
$3.4 trillion in real estate wealth
from July 2008 to March 2009
according to the Federal
Reserve. This is roughly $30,300
per U.S. household. Further,
500,000 additional foreclosures
began during the acute phase
of the financial crisis than were
expected,
based
on
the
September 2008 CBO forecast.

THE END
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