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Faced the world since the summer of 2008 winds financial crisis hit Trade Fusion successive number of major international financial institutions in the world's greatest economies, he made many of rubble, so endowed with governments around the world to take measures that will reduce the effects of this crisis and its extension and try to save what can be saved . However, the negative its effects continued to fester to affect some countries and put it on the brink of bankruptcy due to immersion number of banks of these countries in the huge lending operations exceeds the gross domestic product has the size, making this crisis deserves describe the financial disaster that unmatched since the Great Depression of the thirties of the loan but last remaining Khaleda this crisis stage in the book of world economic history.
Lost bankruptcy of investment bank Lehman Brothers in the form of symbolic 09/15/2008 signal serious because this great institution was one of the few institutions that survived the crisis of the Great Depression in 1929, and served as a companion indisputable that the financial crisis has entered a dangerous phase consisted bankruptcy in US banks The European mission, prompting the governments of these countries to make efforts to save their financial institutions measures. In the United States have been issuing an emergency law to restore economic stability, central banks in European countries has also injected capital for commercial banks and rippling impact of this crisis affects the countries themselves, where almost Iceland into bankruptcy a result of the bankruptcy of the three largest banks in it.
As a result of the evolution of the crisis were stock prices fell sharply across the world and tried to world leaders, economists coordinate their efforts to contain the crisis. The United States has issued a fiscal stimulus plan of up $ 700 billion for in order to buy troubled assets, after intercepting members of Congress and their demand for the creation of adjustments to the pace of the decline of stock prices increased, while interest rates continued between banks to rise, which negatively impact on their ability to refinance themselves it who was forced Congress to approve the adoption of this plan.
With the continuing sovereign pessimistic outlook in the global financial markets, the British government nationalized most of the financial institutions are facing major disruptions as a result of this crisis, and followed several other European governments (in addition to the US government) the example of the British government in this context, resulting in relative stability in the stock markets since October end 2008. Osarasala also fell sharply due to increased supply and demand expected to fall, as oil prices have seen a dramatic decline coincided with the expectations of a global economic recession has led to an end to the continuing rise in prices since the beginning of the new millennium.
With regard to Eastern Europe, it represents the impact of the crisis on the economies of these countries, such as Poland, Hungary, Romania and Ukraine to increase its debts Used Items in hard currency difficulties, especially in Swiss francs, with the currencies of these countries prices fell sharply, which increased the difficulty of doing to fulfill their obligations.
Because of developments in the financial crisis in September and October 2008 financial panic that prevailed in the market, demand has been very intense toward the purchase of tangible assets and tools safer such as gold, treasury bills and US bonds, which like the first primary option for those investors around the world seeking safety for their investments, which led to the influx of significant liquidity to the US market, which limited the ability of those countries exporting money to increase the money supply in an effort to save their local economies, increasing the pace of demand for the dollar (which is still is the currency of the global reserves), as well as the Japanese yen (to exit from Carry operations of previous trades).
Believing in the importance of a researcher studying the roots of this crisis, it will attempt to explore the depths of the reasons leading to this economic disaster Recognizing that a diagnosis of these reasons draw lessons and try to avoid factors that will repeat in the future of this disaster and the ensuing negative consequences.
The first indicators of the start of the crisis.
The first indications of the crisis began in July of 2007, when investors' confidence fell in the mortgage bond sector, which led to the occurrence of a liquidity crisis, which forced the world's central banks like the Federal Reserve and the Bank of England and the ECB to carry out pumping additional liquidity in the financial markets.
The results of the decay of this confidence high so-called pal TEDfSPREAD (which represents the difference between the yields of US Treasury Bills and returns and deposits of EURODOLLAR) because asylum investors to liquidate their investments less secure, such as mortgage bonds and the use of US Treasury Bills (solvent Supreme) and stayed Index TEDfSPREAD then wobbling as a reflection of the state of fear and uncertainty that prevailed in the global financial markets, and soon in the month of September 2008 (1) that rose sharply SPIKED direct evidence of the state of fear and uncertainty that prevailed in the global financial markets, where the index rose to its highest level in 10 October of 2008 and the record level of 4.65% as a direct result becomes clearer over the depth of the crisis following the collapse of the Bank of LehmankBrothers in September 2008 and the implications for all other financial institutions, resulting in a sharp drop in the stock markets and the collapse of a number of banks in addition to the collapse of a number of mortgage providers and insurance companies.
And spread the real estate and financial sector problems and the problems of credit in the United States to affect a very large segment of the financial and economic activities in the US, but also for the whole world, which is a clear evidence of the importance of the US economy and its pivotal role in the global economy with the possession of the United States to the corner of control that network by virtue of sheer size of its economy and its dominance the Bretton Woods institutions. Although the crisis began in the United States but it soon spread to the rest of the world. What began as an American crisis has become a global crisis as a result of a single global economic grid resulting in: -
It emphasizes financial institutions in the granting of credit for both businesses and individuals where it became difficult to get funding.
A sharp fall in the stock markets and derivatives markets.
Liquidity problems in kkHedgekFunds hedge funds and equity funds Equity Funds.
Fall in asset values and part of which was insured, leading to the detriment of insurance companies. In addition to land owned by pension funds and asset values which led to growing doubts about the ability of these institutions to meet their obligations.
Aggravation of public debt to governments because of the financial rescue plans adopted to ward off the specter of bankruptcy for many of the giant institutions.
Drop some currency values, such as the Icelandic krone as well as the currencies of some eastern European and Latin American countries in addition to the increased volatility of major currencies markets.
The following is an attempt to diagnose the main causes of the global financial crisis: -
High real estate prices.
Note some analysts (2) that, during the period from 1953 to 1995, the house prices have taken the same path of the inflation rate, but since 1995 these prices had risen above the level of inflation, and so Mr. sees DeankBaker that the US housing sector bubble are the cause of the emergence of the crisis Finance, Mr. Baker adds that the studies carried out by some economists such as Mr. Robert Shiller data on the housing sector during the hundred years (1895-1995) show that house prices have not changed.
He adds that the housing bubble grew and grew out of sync with inflated stock prices in the mid-nineties of the last century.
It has resulted in rising stock prices to increase wealth often, prompting those who increased their wealth to increase consumption rates, causing what could be called the PAL Consumption Boom and with the end of the nineties and at the same time the savings rate of 5% in the mid-nineties fell to 2% in 2000 .
One of the effects of rising stock prices and increase the wealth of the dealers have moved to buy bigger and better homes, which led to a rise in house prices and the pace began to escalate since the mid-nineties.
Contrary to what happened in Japan has been the form of decline in stock prices in the United States during the period from 2000-2002 incentive for customers toward buying more properties as a refuge safety has coincided with the growth of the economy very slowly after the recession of 2001 occurred, prompting the Federal Reserve to continue lowering interest rates, where the reduction in the prices of 6.5% in the month of January 2001 to the level of 1% in the month of June 2003. These prices remained low until mid-2004, which reduce the cost of borrowing. All of this has contributed to enhancing the pace of the US housing sector, which maintained its recovery until 2007 when it began to subside Faqaath growth.
It is important to note the inflationary impact as a result of the continuation of the above case for a long time where he led the occurrence of inflation in asset prices is greater than the increase in the general level of prices of goods and services. The reason for this is attributed to lower prices of goods that are imported from the economies of the BRIC (Brazil, Russia, India and China), limiting the occurrence of any significant inflation levels.
Because of the increasing numbers of new buildings, home prices began to decline and this decline intensified in the fall of 2007 and in 2008. As a result of this decline in prices experienced owners of these homes (who financed by debt) risk of eviction, which was either evictions short as a result of the acquisition of banks on the properties of those who were unable to repay the loans in installments imposed on them, or that it was a voluntary evacuation operations. With the decline in real estate prices have become worth less than the loan value of the impact on the owners, prompting them to evacuate voluntarily to be controlled by the banks, which has led to the acceleration of the pace of decline in property prices.
It was one of the first victims of this crisis bank Northern Rock Englishman was dependent on its high levels of leverage Highly Leverage, where failure to fulfill its obligations, resulting in mid-September 2007 to accelerate frantically by depositors to withdraw their deposits at the bank and the failure of the British government to find a buyer to him from the private sector that has Trade Fusion System this problem was an initial warning investors of the risks harnesses that will affect other banks in the future.
Has been affected by this problem mainly those companies that have a direct relationship in housing construction and mortgage lending, such as: -
Country Wide Financial institutions related to the operations of the securitization of mortgages securitisation of Mortgages like its founder, Bear Stearns, which collapsed because of this crisis, where its share price to the level of US $ 3 collapsed compared to the highest rate may link during the year, which amounted to US $ 134 and the JP Morgan Chase Bank to control them compared to 10 dollars / share.
Then there were frequent reports about the effects of the crisis across financial sectors that are not directly related to the problems in mortgage lending, which led to increase in militancy grant all facilities and even the reluctance of these banks for granted.
As a result of falling property prices, the economy has lost about $ 6 trillion in addition to the amount may be greater than that due to falling stock prices.
During the first weeks of the crisis it has been be curved blame for the occurrence of neglect of low creditworthiness lending Sub-prime lending.
In any case, the mortgages sector, low credit rating was only part of a larger problem affecting the entire housing sector amounting to about 20 trillion dollars. As the Sub-prime sector, it was only as the first sector in which it exploded a mortgage bubble, which lasted for the entire housing sector.
The role of central banks.
Can be seen to this crisis as an excellent example of the Austrian theory of the business cycle, which says that the facilities that are created by the central banks contribute to the creation of an artificial economic growth, which will be followed inevitably Aguetsadah.olma crisis, the supporters of this theory has predicted the occurrence of such a crisis.
A study of the yield curve Yield Curve during the period from 2000 to 2007, we see the importance of the role of credit creation by Reserve and its impact is important in this crisis that emerged since 2007 and is still occurring list.
Which represents the yield curve, which is a tool in the hands of the monetary policy interest rate structure, which is a graph of return of US Treasury versions of shows for
3 months and up to 30 years, which represents on the vertical axis and the period of maturity, which represents the horizontal axis.
When the yield short periods of less than a return long periods, the curve described by Positively Slope leading to encourage the expansion of the money supply and encourage borrowing operations it happens what is known as bubbles Bubbles.
When returns long periods be less than their short-term returns, it is called the yield curve description Inverted, leading to a contraction in the money supply.
When it returns longitudinal periods equal to their short-term yields, the yield curve is known as the Flat.
And seen the shape of the yield curve as an indicator of the state of the economy in the future. When the yield curve InvertedjY.C take shape. This is a reference to the proximity of an economic contraction. The shape of the curve while taking PositivelynY.C. This is evidence of inflation, and there are those who question the rules above. In 2006, then-Federal Reserve Chairman Alan Greenspan said that the adoption of the yield curve to form Inverted Y.C. It is no longer a true indication of the imminence of a recession.
With the beginning of the new millennium, and as a result of the policies of the Federal Reserve indicated it previously took the yield curve Positively Sloped YC form, enabling the large banks Trade Fusion of borrowing money for short periods at low prices benefits and do lend for longer periods and at high interest rates which made these banks in the face of liquidity Liquidity Risk risks and in the case of changing the direction of the yield curve to take the form of Inverted YC Which banks will be forced to borrow for short periods and high interest rates to overcome the problem of lack of liquidity.
In the wake of the dotcom bubble burst in 2000 and the subsequent decline in equity markets in 2002, the Fed's series of sharp reduction in interest rates on state funds for one night and started in second in 2001 and up to the month of June 2003 month of December, during which he cut interest rates from the level of 6.5% to the level of only 1% (as explained above) which led to the dumping massive amounts of liquidity as a result of globalization surplus funds have flowed in the world towards the assets which led to the occurrence of a bubble in the US housing sector, where the economy has begun to bring the attention of investors is the largest since the beginning of 2002 only this interest peaked in 2005.
With the growing expectations of the need for the Fed to raise interest rates, the yield curve shape very positively sloped Y.C. taken , Where he arrived the return of US Treasury Bills for the three months to the lowest level in that period and 0.88% in the fall of 2003, while at the same time return of US Treasury bonds reached for thirty years to the level of 5%.
The Fed at the end of June 2004 to raise interest rates again, however it continues to raise interest rates gradually policy, the yield curve began to subside. That is the difference between the yields of short periods and returns long periods taking shrinking, which he described as Mr. Greenspan then Trade Fusion (Conundrum), during his testimony before Congress in February 2005 and predicted Greenspan at the time that returns long periods rise again and with high yields short periods.
In any case, the policy of raising interest Tightening the prices of Monetary Policy and through which to raise benefits for short periods prices have led to a slowdown in economic activity and gradually increased expectations that such a new policy of the Federal damaging constantly this growth, resulting in a reduction of demand for borrowing periods long.
Thus, with the continued Alvedral this policy carried through which to raise interest rates to 5.25% in the month of June 2006, but the yield curve in the month of October 2006 has taken the form of the closest thing Flat Y.C. (Especially maturities of five years and up to thirty years), which represents a "Neutral Monetary Policy" any "Neither Simulative Nor Contractionary"
While Hafez Alvedral on short-term interest rates at these high levels, but the long-term returns periods began to decline because the resulting yield curve takes little by little inverted Inverted Y.C. form . And this figure reached its peak in March 2007, to the growing belief that the economy would fall sharply and that there is no fundamental factors suggest the permanence of economic growth.
Rising commodity prices Commodity Bubble.
It had a narrowing of the yield curve Narrowing of the yield curve since 2004 and taken shape inverted Inversion of the Yield in 2007, an indication of the explosion of the housing bubble, which led to head the frenzied wild gyration direction of goods, which has led to raise their prices because of the money escape from assets
(Housing and equity sector) which led to the emergence of a new bubble is a bubble goods after the collapse of the housing bubble.
The price of a barrel of oil to its highest level rose at all in 2008 when it reached the level of US $ / barrel 147 and so shortly before the collapse of these prices as a result of the worsening global financial crisis that began to affect and significantly at the end of the third quarter, fourth quarter of 2008 and the quarter. It was like the sharp and rapid collapse in commodity prices significantly damaging the giant banks that bet on the continued overvaluation in the prices of energy and commodities in general.
Lending low credit worthiness and the role of legislation.
There is an opinion that the researchers cushions amid low lending operations solvency credit was one of the main reasons for the outbreak of the current financial crisis. In this context, the Clinton administration may be the subject of charge and take responsibility (at least partly) what happened.
In this regard, we note that in 1999 Congress passed a law
The Gramm- Leach- Bliley Act under which repealed part of the law
Glass-Steag all Act of 1933 has been such cancellation and faced a lot of criticism as a result of a lot of complexity and uncertainty in financial instruments which bone of risks.
In addition, it has been to expand its operations Leverage Over-Leveraging by banks and investors eager to achieve high returns on their capital significant impact as to what happened.
However, there are those who believe that the roots of the crisis could go back directly to the low creditworthiness lending by Fannie Mae & Freddie Mac and the two institutions are owned by the US government.
On 09/30/1999 The newspaper published a New York Times report that the Clinton administration had lobbied for the establishment of these two institutions for lending in the sector, the Sub-Prime, where he was in the paper: -
Fannie Mae, the nations biggest underwriter of home mortgages, has been under increasing pressure from Clinton administration to expand mortgage loans among low and moderate income people.
The paper goes on (3) that the Fannie Mae Corporation is easing the credit granting requirements against loans purchased by the creditors, and that this trend (albeit temporarily) will increase the real risks that could be faced by this institution, which could not appear during periods of economic boom , but that this institution may slip into a spiral of risks in periods of declining economic activity, which the federal government will pay to save them, as happened in the savings and loan industry in the eighties of the last century.
In well under the Clinton administration has been to weaken the instructions under which each of the institutions Freddie Mac & Fannie Mae in providing liquidity to allow for the issuance of housing loans as stated in the newspaper (4) Washington Post that
"Congress wanted to provide more money to these institutions for the purchase of real estate debt and therefore asked them to keep up much less liquid than have to other financial institutions retention. While those banks that retain 100 dollars you can spend 90 dollars just to buy real estate debt, see that Fannie Mae & Freddie Mac can to $ 97.50 spent to buy the debt. the Congress called on those institutions to maintain a portion of its capital as a foundation to mitigate the impact of losses that might result invested in risky securities Riskier Securities realized, but those rules did not apply during the Clinton administration period was applied. http://binaryreviewscam.com/trade-fusion-review-is-trade-fusion-binary-system-scam Trade Fusion Trade Fusion