Financial crisis and its effects on the security market.

1. Financial crisis
and Its Effects on
Global Security
Markets
BHARAT RACHURI (57)
KRISHNA RATHI (65)
RISHI SHARMA (79)
AKASH A V (53)

2. Agenda
How the financial crises occur in
security markets.
01
major financial crisis’s effect
on the economy and people
03
How the economies react in the
after math of the financial crisis
04
What are the changes that the
takes place in the security
markets after the financial crisis
05
02
How a bubble is created in
market
06 Signs of a bubble in a market and
safeguards in a market

3. Causes of financial crisis
Excess leverage is the heart of all
financial crises which extends beyond
the balance sheet.
Leverage
Liquidity mismatches (lending long,
borrowing short) must be drastically
reduced
Liquidity
industry that is too large, and
"systemically critical" to regulate,
govern, or let to collapse.
Too Big To Fail
Such obvious conflicts of interest are
not accepted in any other profession
Conflicts of Interest
01 02
03 04
A financial crisis usually occurs due to various causes but often it a combination of
assets being overvalued, excessive risk taking, policy and regulation error,
geopolitical or natural disaster like a pandemic which trigger a irrational behavior
in the investors in rapid selloff of stressed assets.
Taxes and Subsidies
Governance
06
05
Some of the root causes of the financial crisis are :
substantial influence on cost and
movement of capital, and the existing
tax law as it relates to finance need
revision.
democratic governance is required
or the commons will be seized

4. How bubble forms in a market
Panic
While some latecomers to the game may
have waited for an asset's price to rise
again in the past, by the time the bubble
reaches its panic stage, this is no longer a
viable option. Instead, the eagerness to
acquire an item has given way to a
panicked desire to sell it. The price drop
quickly wipes out gains and encourages
more panic-driven selling
Boom
Price rises during the displacement stage,
but things really take off during the
bubble's second stage. The boom period
attracts speculators, who help drive the
asset's price higher as word of the asset's
gains spreads
Earning a Profit
price increase turns out to be too good to
be true. Booms are followed by busts,
and as the bubble reaches the profit-
taking stage, some investors start selling
to lock in profits. The stock market
bubble has burst, and those who
recognize the signs will profit sooner
rather than later.
Euphoria
The fervor grows stronger as the asset's
price rises. Excitement motivates people
more than rational justification for the
massive price increase during the peak
bliss stage.
And, because new investors are always
eager to join, there is always the
possibility that someone will be willing to
pay more for the asset.
.

5. Major financial crisis’s effect on
economy and people
British credit crisis of
1772-1773
The 1772-1773 credit
crisis is possibly the
least well-known
financial catastrophe
of the eighteenth
century. It occurred
between two infamous
events: the 1763
financial crisis and the
American
Revolutionary War's
economic turbulence.
Great Depression
1920
The Great Depression is
worst economic disaster
of the 20th century and,
possibly, the worst in the
history. between 1929 and
1933, the unemployment
rate increased to 25% of
the work force, the stock
market lost 80% of its
value, and over 7,000
banks failed. Financial crisis 2008
Global financial crisis
of 2007-08 caused by
the Lehman brothers
bank made ripples
through global
economy due to which
many banks, companies
and institutions were
bankrupt.
Covid-19 Pandemic
Covid and war in
Ukraine disrupted
many lives and send
shock waves through
our financial and social
life.
British credit crisis of
1772-1773
Great Depression 1920
OPEC Crisis
Financial crisis 2008
Covid-19 Pandemic
OPEC Crisis
OPAC crisis or the
oil crisis of 1972 had
rapidly increased the
oil price due to
which there was an
energy shortage
leading to inflation
in many countries.

6. • Worldwide economic downturn that began in 1929 and lasted until
about 1939. It was the longest and most severe depression ever
experienced by the industrialized Western world. Although the
Depression originated in the United States, it resulted in drastic
declines in output, severe unemployment, and acute deflation in almost
every country of the globe.
• But its social and cultural effects were no less staggering, especially in
the United States. After the WALL STREET CRASH OF 1929, where
The Dow Jones Industrial level dropped from 381 to 198 over the
course of two months, optimism persisted for some time.
The Great Depression 1920’s
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
united states united kingdom france Germany
The Great Depression 1929
Industrial production Whole sale price foreign Trade
• Between 1929 and 1932, worldwide GROSS DOMESTIC PRODUCT(GDP) fell by an estimated 15%. By comparison,
worldwide GDP fell by less than 1% from 2008 to 2009 during the GREAT RECESSION. Some economies started to recover by
the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of world war
II.

7. OPEC CRISIS
• The OPEC oil embargo was an event where the 12 countries that
made up OPEC at the time stopped selling oil to the United
States.
• The embargo sent gas prices through the roof. Between 1973 and
1974, prices more than quadrupled. The embargo contributed to
stagflation.
• The OPEC oil embargo was an event where the 12 countries that
made up OPEC at the time stopped selling oil to the United
States.
• The embargo sent gas prices through the roof. Between 1973 and
1974, prices more than quadrupled (four times).
• The embargo contributed to stagflation.
• OAPEC countries cut production of oil and placed an embargo on
oil exports to the United States when Richard Nixon requested
$2.2 billion to support Israel in the Yom Kippur War on October
19, 1973. The embargo only lasted until January 1974, but the
price of oil remained high even after the embargo was lifted.
• In response to the 1973 oil crisis, the United States took steps to
become increasingly energy independent.

8. Dot Com Bubble 2000
How dot com bubble started
1. Many companies chasing few internet users
ie 300 million users but 17 million websites.
2. Overvalued tech companies.
3. Media build up hype of internet companies.
Where did the money raised spent on.
Why the bubble did not expand further and how
did the bubble burst.
Money supply- y2k bug- Japan recession
Ex: pets.com & Web van
Other facts – false reports, emails leak,
2001 twin tower attack
Positive effect like - Culture of tech
entrepreneurship and rise of big companies.
Start - 1989

9. Financial crisis 2008
• Start – interest rate decrease and Bush dream
• Golden age – Because buying homes till burry’s
observation
• Other facts- Rajan, professors Iceland and Hank Paulson
• How Escalated –Bank liquidity and surplus liquidity with
that interesting things CDO’s passed on till sub prime
defaulted
• Credit Default Swaps – AIG where Micheal burry made
money
• Price of Houses remained mostly flat which which rose
due to flipping.
• Lessons – Are we afraid ? No it’s better to be cautious
• What can be done – Not lowered taxes and would have
regulated the financial sector

10. Covid-19 Pandemic
The pandemic has triggered severe social and economic
disruption around the world, including the largest global
recession since the Great Depression.
The June edition of the Global Economic Prospects, put it
plainly: “COVID-19 has triggered a global crisis like no other –
a global health crisis that, in addition to an enormous human
toll, is leading to the deepest global recession since the Second
World War.” It forecast that the global economy as well as
per capita.
33%
7%
15%
25%

11. How financial crisis Changes the markets
OPEC oil Crisis 1973
Covid impact on stock market
Heavily populated, impoverished countries, whose economies
were largely dependent on oil—including MEXICO, NIGERA,
ALGERIA, and LIBYA—did not prepare for a market reversal
that left them in sometimes desperate situations.
The stock market peaked on February 19, 2020, just before the
COVID-19 epidemic prompted a freefall in share prices. since, the
globe has transformed, reshaping our lives, economies, and
company fortunes—an unfolding journey mirrored in the ups and
downs of share prices.
The Great Depression
2008 financial crisis
• Stock market crash
• Banking panics and monetary contraction
• The Gold Standard
• Inflation During the 1910s to the 1930s
financial crisis effected many countries and
stock markets of many countries fell
causing million of job losses and trillion in
loss. The financial crisis effected the stock
market around the world.

12. Signs of a bubble in market
economy enters a recession nine months after the jobless rate
reaches its lowest point, or "trough." It stands to reason that
unemployment would climb in the run-up to a recession and peak
at the worst of it.
Sharp declines in both new house building and home sales are two of the clearest
markers of an impending recession.
It indicates that unemployment is low, people are well compensated, and they
are spending their money. Retail prices rise in tandem with customer demand,
which is what causes inflation
A protracted decrease in equity prices is a leading signal of lesser profits projected
to be made by firms, or at least lower earnings than the stock market had previously
predicted
Short-term bond rates are frequently lower than longer-term bond yields, although
not always. When this occurs, a recession is almost always on the horizon.
The Treasury Yield Curve Flips
Sustained Stock Market Losses
Drop in Housing Construction
and Sales
Rising Inflation
Unemployment Bottoms Out

13. safeguards are that are implemented to prevent these financial crises
01 02 03 04
Innovation and structu
ral changes
Destabilizing incentive
s
Systemic risk and pro
cyclical risk-taking
Transparency and disc
losure and Role of cre
dit ratings
Procyclical capital requireme
nts and accounting
Leverage and risk
Making both capital require
ments and macroeconomic p
olicy more countercyclical
Risk disclosure and
valuation
Excessively market-based,
backward-looking risk
management.
Disregard of systemic risk.
Reassessing mark-to-
market accounting
Securitization processes and
markets
A more complex but less
differentiated configuration
of players.
Regulatory reform
priorities
Making securitization more c
ompatible with incentives
Quality of the rating process
and conflicts of interest.
originate-to-distribute
model and wholesale
funding.
Strengthening liquidity mana
gement.
Uses of ratings.

14. THANK YOU
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