Financial Crises History Flashcards
(12 cards)
Explain the liquidity crisis of 33 AD
- Regulation on the real estate market and a decline in public spending led to a shortage of money and contraction of credit- bad for Rome’s banking system
- As borrowers tried to comply, real estate prices crashed and runs on banks exaggerated the economy’s liquidity problems
- Injection of free interest rate loans in the economy prevented a full collapse of the economy
Explain the Great Debasement of 1544-1551
- During Henry VIII and Edward VI, the gold content was reduced to produce more coins and thus the purchasing power of these coins plummeted
Explain Tulip Mania 1637
- Bulbs became attractive financially from 1630 and many people started to invest
- In February 1637 the market crashed with adverse consequences for many investors
Explain the South-Sea/ Mississippi Bubbles
- Both events were preceded by a new type of financial innovation, the exchange of government debt for private equity
- The deal was monopoly rights to trading in return, a company would assume some government debt
- Both the South-sea and Mississipi company issued shares to cover the debts
- The shares of both rose dramatically then crashed
Explain what happened in the crash of 1929
- 1920s speculative boom-economic growth
- Many americans invested high in stock exchange which increased share prices and resulted in a bubble
- Dow Jones declined significantly in october 1929
- Thus, AD collapsed due to lack of confidence
Explain the event of Black Monday 1987
- On 19th October 1987, 20% decline in various stock market indices
What caused this decline on black Monday
1) Margin calls which are wehre borrowers who posted shares as collateral to repay part of a loan after share prices fall
2) Program trading- programmed computers selling after prices drop after a certain level
3) Information acquisition issues- traders followed actions of other traders thus prices stopped reflecting true economic information
Explain the Southeast Asian Twin Crisis 1997
- External shocks caused the devaluation of the chinese and japanese currencies
- In Thailand the currency collapsed in 1997
- Events in Thailand were followed by a wave of currency depreciations and stock market declines which led to bankruptcies and a collapse in activity in the region
Explain the DotCOm Bubble 2000
- Stock value of tech companies grew
- Rising prices encouraged firms to go public and these companieds were selling above the initial valuations
- The bubble bursts
Explain the events chronologically that led to housing bubble during 2008 financial crisis (6)
- A decade of low inflation, low interest rates and steady growth
- Savings glut
- Foreign capital inflows financing US trade deficit
- Credit boom due to loose monetary policy
- US saving rate fell and debt-dispobale income rate rose
- Housing bubble
Explain what the 1933 Glass-Steagall act was and when abolished
- Separation of commercial banking from investment banking
- Investment banking would expose too much risk to commercial banks thus government separated them to protect depositors
- 1999
What was the ‘Bing Bang’ in 1986
Complete deregulation of the UK financial system
