final global recession 2003

8/4/2019 Final Global Recession 2003

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Delnaz Dastoor (15)Shweta Dwivedi (18)

Prachi Mehta (32)

Niril Modi (35)

Prof. Smruti Balsari


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Before, understanding Recession,we need to understand the market

economy;

Two stages of market economy Growing market economy

Declining market economy

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A period of general and sustained economic

decline


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A stage of business cycle in which economicactivity is in slow decline. A Recession usually

follows a boom, and precedes a depression

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Economy StrongEmployment High Large

Demand

Inflation

Rise in Salaries

Rise in Prices

Decreasing Demand

Layoffs

Decreasing Prices

Lower prices

Increasing Demand

More Supply Needed


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Economic Indicators

GDP

Unemployment

Inflation


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Great Depression:1929 to late 1930s

Post-Korean War Recession: 1953 - 1954

1973 oil crisis: 1973 to 1975Great Commodities Depression: 1980 to 2000

Japanese recession: 1990 to 2003

Early 2000s recession: 2001 to 2003


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1.

SubprimeMortgageCrisis

2.

Failure ofmajorbanks

3.

U.S.HousingCrisis

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Subprime Mortgage offered/issued at ahigher interest rate to persons who do not

qualify for prime rate loans. With the

following perks:

No down payment required

Credit Rating Ignored

Credit history Ignored

No proof of employment required

No proof of ability to pay mortgage (income)

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HOW and WHY Long term trend of rising house prices (so your

purchase will increase in value)

Interest rates start of small but increase with time.

Mortgage Brokers

Competition for commissions

Did not actually lend any money

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Next Large number of subprime mortgages put

together into a RMBS - Residential Mortgage-

Backed

Security

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Next RMBS split into 4 parts each with a different

rating, risk and return.

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Next as many as 150 of each part put into a CDO

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Next CDO rated and sold to large investors

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Jan 11 - Bank of America buys Countrywide

Financial for $4 billion in an all-stock deal.

March 16 - JP Morgan Chase buys Bear

Stearns.

July 11 - IndyMac is 12th to be seized by the

FDIC after depositors withdraw $1.3 billion in

11 days.

July 13 - Fannie Mae and Freddie Mac arenationalized

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September 15

Investment bank Lehman Brothers files for

Chapter 11 bankruptcy protection.

Rival Merrill Lynch agrees to be taken over by

Bank of America. The Dow Jones fell 504 points, the indexs worst

since the 2001 terrorist attacks.

September 16 - Insurer American InternationalGroup (AIG) is rescued by the federal

government through an $85 billion loan

packageCK


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September 21 - Goldman Sachs Group Inc. and

Morgan Stanley become bank holding companiesregulated by the Fed, essentially ending Wall Street's

investment banking model.

September 25

Washington Mutual is seized by the FDIC, making

it the largest U.S. bank failure, with $307 billion in

assets.

JPMorgan Chase buys WaMus banking assets for

$1.9 billion.

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Biggest economy inthe world

Constitutes 27% of

Global GDP

Worlds biggest

debtor country

Biggest Importer of

Oil 27% in 2007

Australia

2%Brazil

2%

Canada

3%

China

5%

France

5%

Germany

6%India

2%

Italy

4%

Japan9%

Korea

2%

Mexico

2%Russian

Federation

2%

Spain

3%

UK

5%

USA

27%

Rest of the

World

21%

Global GDP


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DOWN 6.6%

FTSE

British

DOWN 8.2% DAX

German

DOWN 8.3% CAC-40

French

DOWN 9.6%

NIKKEI

Japan

DOWN 8.3 S&P/ASX200

Australia

Down 7% RTS

Russia


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Worst hit by the global economic slowdown

Cancelation of orders by importing countriesof the west

Government pressure is forcing the exportsunits to close down

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Increasing diseconomies of scale

Decrease in demand due to saturated markets

Adverse impact on cost of production

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Weak dollar forcing companies to cost cutting

measures

Companies camouflaging actual financial

position

Outsourcing firms affected by downturn in U.S

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CHINA

Decline in industrial production

Steel production has gone down by 12% &electricity production by 9.6%

Mass unemployment and an explosion ofsocial unrest

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JAPAN

The trade deficit ballooned to 952.6 billion

yen ($9.9 billion) in January as exports

plunged 45.7%

Japan's unemployment rate rose to a near

three-year high of 4.4%


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UK

Credit crunch and rising costs had dented the

most important sectors

House sales down by 30%

Mortgage approvals had plunged by 28%


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INDIA

Our Share Markets are falling everyday

FIIs withdrawing money

To meet liabilities of parent countries

Rupee is weakening against dollars

demand for dollars has increased as FIIs are

buying dollars


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INDIA

Our banks are facing severe crash crunch

resulting in shortage of liquidity in the market.

Industries facing problems of raising finance

A global recession has hurt external demand
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GDP % CHANGE

US 2.8 2.0 1.6 0.1Euro Area 2.8 2.6 1.3 0.2Japan 2.4 2.1 0.7 0.5BRICA

Brazil 3.8 5.4 5.2 3.5Russia 7.4 8.1 7.0 5.5

India 9.8 9.3 7.9 6.9China 11.6 11.9 9.7 9.3ASEAN 6.0 6.5 5.4 5.4

2008F 2009F2006 2007

US, EU, JAPAN AND BRICA
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SECTORS LESS AFFECTED BY RECESSION

Food

Railway

PSU Banks

Education

Media and

Entertainment

IT

Telecom

Health care

Luxury products

M&A & Marketing

Consultants


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STEPS

TO

COMBATRECESSION


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700 Billion Bailout

To prevent the total collapse of U.S. economy and

Wall Street

To restore confidence and stability

Money goes to the largest banks

Money comes from other countries but paid for

ultimately by taxpayers

CK 700,000,000,000,


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You could buy 438 pounds of rice for every single

person in Africa.

14 times the budget of Trinidad and Tobago (08-

09)

It is more than $100 for every person in the

world.

$668,577 dollars for every Trinidadian and

Tobagonian.

You can buy a country - Denmark, Peru, Nepal, or

IcelandCK


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Cost to bring every delinquent mortgage to par:

$11 billion

Cost to restore every foreclosed home (2 years):

$ 60 billion

Just take three of the major Banks bonuses 07

a. Goldman Sachs paid 30 billion

b. Morgan Stanley paid 30.7 billion

c. Lehman Brothers paid 10.9 billion

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Nationalisation of some banks

Fiscal Policy Tax cuts/rebates

Establishment of new govt jobs

Unemployment insurance

Monetary Policy Reduce the reserve ratio

Lower the federal funds rate

Lower the discount rate

Use its own reserve money to buy government bonds

Changes in who can borrow

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final global recession 2003

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