Post on 06-May-2015
description
GREAT DEPRESSION AND SUBPRIME MORTGAGE CRISIS
SEHER HAKAN
CONTENT
How Great Depression started? Causes of Great Depression Causes of Subprime Mortgage Crisis How Crisis Spread All Over The World Basic Differences Conclusion
How Great Depression Started?
Black Thursday on 24th of October 1929 Started with Great Crash of Stock Market
Numbers of Crisis
Real GDP fell 30% Industrial production declined 47% Wholesale price index fell 33% Unemployment rate increased 25%
Table
Causes of GDP
Stock Market Crash Banking and Monetary Contraction Gold Standard International Lending and Trade
Stock Market Crash
In 1929, US stock price tripled Panic selling October 1929, stock price decreased by 33%
Stock Market Crash
Aggregate demand decreased. Business investment decreased. People feel poorer.
Banking and Monetary Contraction
Banking panic
Money supply decreased
Lose confidence
Banking and Monetary Contraction
20% of the banks went bankrupt Interest rates increased
Gold Standard
The UK abandon the gold standard. The Great Depression widen to the world
because of gold standard.
International Lending Trade
Lending rate decreased
Trade decreased
Mortgage Types
Prime Subprime
Causes of Subprime Mortgage Crisis
Boom and burst in US housing market Speculation Securitization Financial innovation
Boom and Burst in US Housing Market
Housing prices decreased. Value of mortgage back asset decreased.
Speculation
Interest only adjustable rate mortgage Easily given up houses NINA people
Securitization
Distribute risk Issue new securities
Financial Innovation
Offsetting risk exposure
How Crisis Spread All Over the World?
Credit Channel (Narrowed Economic Activity) Portfolio Investment Channel (Global
Liquidity)
How Crisis Spread All Over the World?
Foreign Trade Channel (Tourism, Real Estate Sale)
Negative Impacts of Expectation (Panic, Demand)
Basic Differences
Gold Standard
1. Credit-portfolio investment
2. Foreign trade
3. Globalisation
4. Negative expectation
Basic Differences
In 1929 - Tax and tariffs increased. In 2008 - Recapitalization
Conclusion-What we learnt?
Interest rates fall during crisis. There must be harmony between fiscal and
monetary policy.
Any Questions?
THANKS FOR YOUR
ATTENTION…