History of financial crisis of XX and begin XXI centuries says what we are not learning. Russian default – 1998 (http://en.wikipedia.org/wiki/1998_Russian_financial_crisis); Brasilian crisis – 1981-1993, Brasilian currency crisis – 1999 (http://en.wikipedia.org/wiki/Economic_history_of_Brazil); Asian financial crisis – 1997–1998 (http://en.wikipedia.org/wiki/1997_Asian_financial_crisis); dot-com crisis – 2001 (http://en.wikipedia.org/wiki/Dot-com_bubble); Argentine crisis 1998-2002 (http://en.wikipedia.org/wiki/1998%E2%80%932002_Argentine_great_depression); economic and financial crisis 2007-2009 (http://en.wikipedia.org/wiki/Financial_crisis).
May be there is another formulation idea of that question?
I think it's a matter of principle of conservation of resources. Just as matter or energy, money is not created or destroyed. It has to be generated somehow and it does not disappear without convincing explanations.
The best text I have ever read on the subject of international economic crises was written by Lyndon Larouche, repeatedly candidate for president of the United States and several times he was third.
He is a controversial figure. His texts can be found in the Schiller Institute (www.schillerinstitute.com) site.
I think two fundamental lessons to be learned are the following:
1. Not to make credit too cheap and unsecured,
2. When the prices of houses are much higher than can afford the lower middle-class earnings, based on an acceptable ratio of house price to annual earnings,
The causes probably are:
1. Credit bubble with low (or no) interest credit
2. Inflated housing bubble – nontraditional mortgage products
3. Greedy bankers manipulated the financial system
Not to have them in future.
I think it's a matter of principle of conservation of resources. Just as matter or energy, money is not created or destroyed. It has to be generated somehow and it does not disappear without convincing explanations.
The best text I have ever read on the subject of international economic crises was written by Lyndon Larouche, repeatedly candidate for president of the United States and several times he was third.
He is a controversial figure. His texts can be found in the Schiller Institute (www.schillerinstitute.com) site.
We should live in the present !
Lower the optimum level of satisfaction!
The epic fail with economics is that economists - hence, also financial specialists, economic policy developers, etc. lack a sense oh history. They take economics in terms of longer or shorter cycles - of production or crises.
In my view this is a deep and far more serious crisis than, f.i. the one in 1929.
If I am allowed to, I would recall that this crises start a bit early than what our friend Sylantyev mentions: the dotCom crisis, plus the hedge funds crises, plus the real estate crisis, plus the continuous debt ceiling in the U.S., and then yes: the financial crises of Ireland, Greece, and Spain.
Now everyone is shaking about the coming crisis in Italy, France and the possible worsening in Spain.
To be sure, the so-called, recovery of consuming in some sectors is not the sign of a general health recovery of the economy in these and other countries.
One thing is certain people will have to start live within their means and do not go for loans that you cannot service. Then everything will be fine. Problem is when you look for more reward than what you deserve.
Dear Nageswara, following up your comment, as we know, the foreseeable future crisis will (presumably) be the crisis of the credit cards - as it has been told around a number of times.
(I am aware of the cautious and preventive language we must use when talking about predictions in economics).
There is an interesting angle to your question in the field of market behavior. At the height of the last crisis the contagion between markets has been extreme. In other words, the correlation coefficient between markets changed dramatically. This has been true at the height of other crisis but may be to a lesser extent.
This is one of the factors that rendered the traditional risk models completely inoperative as they were showing actual losses by financial institutions as statistically impossible. I am not sure the financial risk models in use today have been adjusted to include this decorrelation risk
Agree dear Robert. The current tools and rods from financial and, moreover risk theory, are simply linear. Hence, they cannot cope with the complexity (nonlinearity) of the events.
We can learn. But we will not.
I spent two years attempting to find funding for crisis detection and prevention methods research with 0 results.
There is quite a bit that we can learn, but as Bradut says, we may not!!
The first thing we must recognize is that most of the crisis mentioned happened due to over enthusiastic subscription to 'market' models of economics which is grounded in a strong industrial base, in the hope that marketisation and globalisation are the shortest route to alleviate poverty in domestic territory. These countries (quoted by Sylantyev) and any other similar aspirants would do well to realise that unless the core sectors of domestic economy are strengthened, marketisation is only going to result in the rich getting richer, poor getting poorer, and disproportionate outflow of domestic capital.
Take the Chinese for example. After their 'Canton Tea party', China closed its doors effectively to outside world; in the years following Mao, it was felt as though integrating with the world may be the answer for domestic travails. But Chinese 'wisdom' prevailed perhaps largely owing to Deng. Past 1990s, Chinese have steadily opened their doors - letting out more than in. Even as of few years back, it used to be a joke that if Chinese shut their doors again, the first one to suffer would be Wall Mart since over 65% of what is sold in Wall Mart comes from China!! Predictions now say that China will be the number 1 economy by 2020, over taking the United States which has held that enviable position from 1872. (Hardtalk BBC covered this aspect very lucidly on 30 April).
I am not even remotely suggesting that we must go Chinese. All that I am trying to say is that we must look at domestic sectors of economy first; maximise/strengthen them, and then calibrate our way through the processes of global marketisation. The fundamental lesson that we must learn from these stories of economic 'melt downs' is that we must not blindly copy models from other countries. We must look into our own history, understand the needs of people, identify areas that need to be strengthened and protected and open our doors to those aspects that would contribute to mutual benefit.
have a great day!!
There are lot of things to learn from the crisis. But the thing is that we are not having mindset to revisit the defaults done earlier and correct them for betterment of economy in future. The markets are driven by the expectations and what we have experienced in 2008 may again be experience in the years to come. If we are not prepared to learn from the mistakes made in past, how can we assure that this is not going to happen again ? There is a very thin line between investment driven market and speculation driven market. If speculation driven market dominates, the crises are going to be there.
The key issue of learning from the crisis is to have scientifically sound means to prevent, detect early and address crisis. It would mean economic policies driven by science not policy and doctrine. It would mean pushing towards old fashion rational decision making.
May be organizing finantial markets as only markets (to sell and buy products and goods), not as political decision makers for others as FMI 'international monetary fund' and related. Money must circulate to grow and help economic development, not to be stored and fluctuated by toxic and virtual policies.
Argentine crisis-2001 was the product mainly of the increased in foreign debt by the goverment to finance its expenditures.Since there was a currency board each dolar that came into de economy was printed in pesos. The peso becames overvalued and finally the foreign creditors cut financing. The crisis follows. One problem was that the Central Bank wasn`t able to response to the bank run since same 85% of the deposits were in dollars, and the Argentinean Central Bank can print pesos but cann`t print dollars.Not all banks have had the same recilence to the crisis and finaly deposits in dollars where converted to pesos and the Central Bank bailout the banks. There was a huge recession, unemployment and poverty skyrocketed. The devaluation of the currency went from 1 peso per dolar to 3 pesos per dolar. See my article "La ¿ùltima" crisis de la Argentina" with Luis Secco and Maria Belen Olaiz.
Marcelo Dabos [email protected]
In my country in the mid of the 90ith, the Director of IMF (FMI) himself announced to the population through the governmental TV that we have to face poverty and unemployment;everybody understood that we have lost our liberty for FMI benefice. And governments(chosen by FMI) become just its executors, facing in parallel a terrible terrorism (may be programed by the same agency and/or fund!!) where enterprises and even children schools were destroyed.
My country couldn't be in economic crisis and/or financial stock-market crash, so shouldn't needed FMI policies since it exports petrol and gas through Opep policies (however no country from Opep faced FMI!!!!)....
A key question: What/who was behind FMI strategy for destructing countries and choosing the right people to manage it, through virtual crises????
Well at least you had a good world cup run and were a bit unlucky not to reach the quarter finals--not something that can be blamed on the IMF! But to the bigger question of crises, I think the argument can be made that periodic episodes of crisis and the expansion of financial markets go hand in hand--although the nature of the crisis may change. Markets cycle through their Minsky phases. We had the Dutch Tulip Mania, the South Sea Bubble, late 1920s stock boom and subsequent crash, the 1970s LDC debt crisis, Japanese real estate in the 1980s, the dot com boom, the housing bubble, etc. I think, however, that the worst crises were the result of bad monetary policy (the 1920s stock boom, Japan, and the financial crisis of 2007-09). The question then becomes, do monetary policy makers learn from these errors or not. Sadly, Fed Chair Janet Yellen's performace at the IMF conference today, where she argued for only a very limited role for monetary policy in promoting financial stability, suggests the lessons have not been learned. The next question, then, is what crisis will the current policies of zero rates and QE result in?
https://www.researchgate.net/publication/286256177_Global_Financial_Crisis_Exploring_the_Special_Role_of_US_Banks_and_Regulations
Article Global Financial Crisis: Exploring the Special Role of U.S. ...
To go back to the original question, it seems to me that all crisis have a financial component that is potentially contagious. However, in previous crisis the contagion has been contained because their impact on the core group of very large banks (sometimes called too big to fail) were not significantly affected. These banks are the pivot of a financial system that has grown to such size (when on takes derivative into account) thattheir worldwide role is crucial to the financial system stability
In the 2008 crisis, the US very large banks were affected and the contagion spread quickly to the rest of the financial system.
For more on this subject: http://www.cirano.qc.ca/files/publications/2009RB-02.pdf
As for the future, is the financial system still vulnerable to another crisis?
Recent legislation has strengthened very large banks balance sheets but they remain, by nature highly geared and they remained highly interlinked.
Is there however a financial actor which could put them in peril? In that respect, the contagion to Europe in 2010 is very interesting. European banks were generally not the cause of the crisis there but it was more the weakness of overly indebted governments that created a financial crisis that is still unresolved. For more, please see: http://www.cirano.qc.ca/files/publications/2012DT-01.pdf
Indeed, a crisis of confidence towards governments in the west or the far east would have sufficient impact on very large banks to create a contagious financial crisis and this time, central banks, because of their bloated balance sheets and their zero interest rates policy will have trouble supporting the financial system.
These papers may be useful:
Welburn, J.W. and Hausken, K. (2015), “A Game Theoretic Model of Economic Crises,” Applied Mathematics and Computation 266, 738-762.
Welburn, J.W. and Hausken, K. (2016), “Game Theoretic Modeling of Economic Systems and the European Debt Crisis,” Computational Economics, Forthcoming 10.1007/s10614-015-9542-3.
Article A game theoretic model of economic crises
Article Game Theoretic Modeling of Economic Systems and the European...
- Badges
- Science topic
- Similar topics
- Economics