Financial Crises Analysis the Sub-prime crisis金融危機分析次貸危機

BertrandCandelonFinancialCrisesAnalysis

1Studiumgeneral-06/10/2011Studiumgeneral-06/10/2011SequenceoftheSub-Primecrisis: 1.USHousingMarketCollapse.

2.Bankdistress:US-Europe-ROW. 3.StockMarketCrash.

4.EconomicRecession. 5.SovereignDebtCrisis.…..

2Thestrongestcrisissince1929?Thesamecauses,thesameerrors? Wheredowego?Studiumgeneral-06/10/201131-Whatisafinancialcrisis?2-Theoriginsofthecrises. 3-CrisisMutation4-TheCurrentcrisis.

5-AEuropeanCrisis4Studiumgeneral-06/10/20111-Whatisafinancialcrisis?1.Wikipedia:”Situation,whenmoneydemandexceedsmoneysupply” .Temporaryevent .Liquidityproblem.FredericMishkin:”Nonlineardisruption,...,sothatfinancialmarketsareunabletochannelfundstothosewiththemostproductiveinvestmentopportunities.” .Severalmarketsinvolved .Roleofthebankingsector .Jumps!Speculativeattacks5Studiumgeneral-06/10/20116Studiumgeneral-06/10/2011StockmarketscrisisCurrencycrisisBankingcrisisSovereigndebtcrisis…Foodcrisis,Politicalcrisis

FinancialCrisis:agrowingandmoresevereproblemfortheworldeconomies?

No,…. -Globalizationleadstoabetterriskdiversification. -Bettereconomiceducation.-Moreefficientprudentialrules(Basle).-Informationbetterwidespread.7Studiumgeneral-06/10/2011Yeah,…. -Capitalhighlymobile. -Financialproducts(hedge,..)havewidespreadtheriskbutnotremovedit.8Studiumgeneral-06/10/20119Studiumgeneral-06/10/20112-Theoriginsofthefinancialcrises.FundamentalbasedcrisesMacro-andMicrofundamentals.10Studiumgeneral-06/10/2011.Non-fundamental-basedcrises-Self-fulfillingpropheties.-Contagion-Moralhazard.11Studiumgeneral-06/10/20113-Crisismutation

.

FloodandGarber(1984)–CurrencyCrisis -Economicrelationships(UIP,PPP,..)onflows

-Butalsoaccountingrelationshipextractedfromthecentralbankbalancesheet.

R+DC=Ms

AcrisisoccurswhenR=0.

12Studiumgeneral-06/10/2011

.

BalancesheetApproach(Rosembergatal.2005)13Studiumgeneral-06/10/2011

.ThesubprimecrisisexplainedviatheBSA.

Realestatebubble–non-financialBSThenfinancialsectorBS---BankingcrisisThenGovernmentBS---SovereigndebtcrisisThen….Resurgencebanking,currency,..14Studiumgeneral-06/10/2011

.

Empiricalanalyses.

-Fromcurrencytobankingcrisis:Glick-Hutchinson(1995),Bordoetal.(2001),..

-Frombankingtosovereigndebt:Reinhart-Rogoff(2009)Candelon-Palm(2010)15Studiumgeneral-06/10/2011

16Studiumgeneral-06/10/201117Studiumgeneral-06/10/20114-TheCurrentcrisisHistory1/ -Businesscycleturningpointinearly2007.-Realestatebubbleexplodes.-Financialinstitutionsfacedliquidityproblem(NorthernRock,BearStearn,FreddyMac,FannyMae,…)

-BankruptcyofLehmanbrothers.Sept15th,2008-SystemicBankingcrisis18Studiumgeneral-06/10/2011-Irrationalreactionofstockmarkets,whichcrashed.-SeveralfinancialinstitutionsinEuropefacedliquidityproblems(fortis,dexia,..).NobodybelieveanymoreintheIFS.-Uncoordinatedreactionofgovernments(Paulson’splan,recapitalization,nationalization)-G20meetingtorestorecredibility.

19Studiumgeneral-06/10/2011History2/ -Realeconomycollapsesince2009.-Publicfinance,austeritymeasures.-Greekdefault.

-Distressofthe€,bankingsectorweakness,..20Studiumgeneral-06/10/2011Theoriginsofthecrisis1-

.Businesscycleturnpike..Badbankingmanagementandgovernance:Scandals(SoG,CL,..),notenoughdiversification,toocomplexfinancialproducts.21Studiumgeneral-06/10/2011ThecrisisbecomesirrationalwiththebankruptcyofLehmanbrothers.

Why?

Incoherentpoliticalreaction

(Paulson’splanbytheUScongress,ortheabsenceofcoordinatedEUreaction)22Studiumgeneral-06/10/2011Theoriginsofthecrisis2-

.Badmacroeconomicfundamentals(importantdebt,globaldisequilibrium)

.Politicalincompetencesleadingtoastatusquo(onfinancialregulation–CRA-,ondecisions,..)-

.Procyclicalfiscalpolicies(bankingsafetyplans,..)

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PoliticalCrisis(inparticularEurope) ThemarketsandinvestorsdonotbelieveanymorepoliticiansStudiumgeneral-06/10/201124WhatisthesituationinOctober2011?

.Financialmarkets:quietuntilJuly2011,loosemorethan25%last3months… .Sovereignbondsmarkets:extremelyhugespreadsforGreece,Italy--unsustainable

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.RealMarkets

-Disastrous

GDPgrowthat0%.

Unemploymentincreases.Debtlevelandbudgetdeficitwillstilldeterioratewithausterity–

Deflationisaroundthecorner

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5-theEuropeancrisis.FromaBankingcrisistoasovereigndebtcrisis..Fromasovereigndebttoacurrencycrisis(totheendof€?)..Fromasovereigndebttoapoliticalcrisis

27Studiumgeneral-06/10/2011.2009.LossofCredibilityintheEuropeanArea. SovereignDebtcrisis

.2010.Threatontheeuro(willitstillexistinthisform?)anddepreciationwithrespecttotheUS$ Currencycrisis?

bankingcrisis(Dexia)?----viciouscircle?28Studiumgeneral-06/10/2011Sovereigndebtcrisis?29Studiumgeneral-06/10/201130Studiumgeneral-06/10/201131Studiumgeneral-06/10/2011.FrenchandGermanbankshighlyinvolvedInPIIGSBIS(2009)GreeceSpainIrelandItalyPortugalTotal.Capital&reserveFrenchb.75.2219.660.3511.444.7579.3Germanb.45.0237.9183.8189.747.4565.232Studiumgeneral-06/10/2011DepreciationoftheEurovisavisofothercurrenciesisthenextstep,ifEurostillexist…33Studiumgeneral-06/10/2011Policyrecommendations: -FiscalPolicy(SGPanditsimplementation,theESFandfiscalfederalism).A