G LO B A L I Z AT I O N U N I T L E S S O N 3

GLOBAL FINANCIAL CRISIS

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.

WARM UP

• What have we learned about globalization so far?

• Cultural, economic, political?• Effects on people?• Benefits?• Downsides?

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 $

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

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.

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)

LESSONS LEARNED?

• Dodd-Frank reforms not enacted• Big Banks Bigger• No prosecution

• Wall St Recovery, Main St Struggles• Debt Persists• Debt Ceiling Crisis

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)

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

CLOSURE

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