Global Financial Crisis

1. Global Financial Crisis Globalization Unit Lesson 3

2. Objectives • Explore events leading up to financial crisis that struck the US and the world in 2008. • Interpret political cartoons relating to global economic crisis. • Consider the connections between globalization and the current economic crisis. • Describe current Eurozone crisis.

3. Warm Up • What have we learned about globalization so far? • Cultural, economic, political? • Effects on people? • Benefits? • Downsides?

4. Subprime mortgage crisis • Global Pool of Money • World’s total investments • Doubled 2000 ($35t) – 2006 ($70t) b/c BRICS • Invested in US housing market via Mortgage-Backed Securities (MBS). Investments insured via Credit Default Swaps (CDS). • US Housing Bubble Bursts • Speculative – drove up prices, artificial values • Extended mortgages to subprime borrowers • ARM’s, NINA loans • Bubble bursts 06-07 – Values fall, ppl underwater or default on loan payments, banks see cash flow dry up, investors withdraw $

5. Subprime mortgage crisis • Collapse US Economy • Major US investment banks (Lehman Bros, Bear Sterns) assume massive losses, declare bankruptcy. AIG taken over by US govt. • People lose retirement invest, jobs, homes, life savings • Fed Reserve (TARP) & EU inject billions to restart econ • Global Effects • Banks unwilling to trade • Economies slow as credit tightened, internatl trade declines • Stock values all over world drop w/loss confidence • Low interest rates = weaker $ = less profit trade partners • Too Big To Fail Explains It All

6. Political cartoons • In order to analyze the global impact of the crisis, we are going to work in small groups to evaluate a series of political cartoons. Labels: Identify or name certain things in their cartoons so that it is apparent what the things represent. Symbolism: Use simple objects to represent larger ideas or concepts. Analogy: Compare a simple image or concept to a more complex situation, in order to help the viewer understand the more complex situation in a different way. Irony: Highlighting the difference between the way things are and the way the cartoonist thinks they ought to be.

11. Main ideas • Economies are so interconnected that failure of bullish US economy led to a series of global events. • US economy has the power to destroy the entire global economy. • With collapse of US economy, China remains as leading power. Global panic when their market shows slight weakness. • In the end, the US public will pay for Wall St errors in one way or another (higher taxes, or increased price consumer goods)

12. Lessons Learned? • Dodd-Frank reforms not enacted • Big Banks Bigger • No prosecution • Wall St Recovery, Main St Struggles • Debt Persists • Debt Ceiling Crisis

13. Eurozone • EU (28) • Free mvmt people, goods, services, & capital • European Commission • Eurozone (17) • Same currency (euro) • European Central Bank (monetary policy) • Separate national fiscal policies (budgets)

14. Eurozone debt Crisis • When: Late 2009 • Why: Government Debts, Banking & Housing Crisis (similar to US – pool & securitize investments) & Slow, Uneven Economic Growth • Where: PIIGS and others • Who’s In Charge: European Commission, European Central Bank, IMF • Relief: Bailout, Loans, Lower Interest Rates, Austerity Budgets • Consequences: Economic & Political Changes, Social Upheaval

15. Closure • Taking into account everything you’ve learned, should the global economy be better regulated? What impact may these regulations have?