Presentation for graduate economics course regarding 2008 financial crisis. (Accompanying paper as well).

1. The Global financial and economic crises and the role of the g-20 Matthew J. Maul – December 1 2009 © 2009

2. The Problem: Current Global Economic Crisis Began with the subprime mortgage crisis in the U.S. and expanded globally. Affects the entire world. Complex nature and history of problem as it expanded to a global crisis from its beginnings in the U.S. housing market.

3. Proposed Solutions: Overview Independent and Joint Efforts by Nations to enact policies to free-up credit, lower unemployment, and protect against long-term fallout from short-term solutions enacted. Requires oversight of each nation by other member nations. Requires support of Third-World Nations and Developing Economies.

4. The Results of Solutions Enacted: In the U.S., recession officially over. Social stimulus programs have helped stabilize unemployment levels. Private-sector businesses, mainly financial institutions, are now socialized. Long-Term outcomes expected to be less than previous economic standing.

5. Introduction to the G-20 Group of top 20 world’s economies, established in 1999. Represents 85% of global economy. Taking actions to assure a sustainable worldwide economic recovery and prevent future events. Re-thinking the economy as a whole. Represented by the member nations’ Finance Ministers and Central Bank Governors.

6. The G-20 Mandate Provide informal forum to promote open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. To help support growth and development globally by strengthening the international financial architecture and providing opportunities for dialogues.

7. Key Dialogues of G-20 Summit National Policies International Cooperation and Support International Financial Institutions, such as The World Bank.

8. The G-20 Website The official G-20 Website offers a thorough understanding of the G-20, its history, current missions, and future goals. http://www.g20.org

9. Key Resources for Economic News: The Economist http://www.economist.com/ The Wall Street Journalhttp://online.wsj.com/home-page?mg=com-wsj These publications are critical to understanding this evolving problem, proposed and enacted solutions, and future outcomes.

10. Comments on The Pittsburgh Summit The following is a short YouTube video regarding the September 2009 G-20 Summit YouTube - Dr. Rob Shapiro @ The G20 Summit and Beyond (4/1/09)

11. Background of the Current Crisis Global financial meltdown of 2007-2009 termed as the worst financial crisis since The Great Depression. Marked by failure of key international businesses, decreased consumer wealth, and reduction in economic activity in both the public and private sector.

12. Background, continued Significant government intervention by all major nations has been enacted to halt a global financial meltdown. The costs, especially long-term, of these interventions is of great concern to long-term sustained economic grown and recovery.

13. Immediate Cause: The U.S. Housing Bubble Collapse of the U.S. housing and mortgage sector during the period of 2005 to 2007. Largely due to poor lending practices. States Most Affected: California Nevada Oregon Colorado Felt by homeowners, realtors, homebuilders, home retail outlets.

14. History behind U.S. collapse Prior to collapse in 2007, U.S. economy received massive inflow of money from developing nations of Asia. Borrowers encouraged to seek risky loans to counter rising home costs. Cash inflow facilitated the Fed in its quest to keep low interest rates. Low interest rates led to increasing unemployment levels. Also led to price reduction in essential asset and commodities markets.

15. U.S. Crisis becomes global In 2007, effects of the tumbling U.S. economy became apparent worldwide. Major European bank failures. Reduced stock indexes. Major equity market declines. Decline in international trade. Frozen credit markets. Crisis continued despite desperate policy actions.

16. The downfall of Financial Institutions Non-performing mortgages infected the global financial system. This led to public distrust, causing money to be pulled out of banks, furthering the problem. The largest financial institutions in the U.S. and abroad were financially rescued by Central Banks, leading to government-controlled private-sector business.

17. Government Bailouts Many citizens believed that the institutions being bailed out, such as AIG, were the same institutions responsible for the crisis, leading to political turmoil. Seemed that U.S. government was only socializing the companies’ liabilities and allowing the profits to be privatized, resulting in unfair compensation to taxpayers, who paid for the bailouts.

18. Krugman’s Views Economist Paul Krugman authored “The Return of Depression Economics and The Crisis of 2008” In his book, he argued that many of the problems could have been averted by looking at past economic failures of other countries. This book offers great insight into the situation.

19. Effects felt throughout the World The rapid changes in economic fortunes experienced dramatically in Arab countries. Oil experienced rapid price increase, then fell drastically by 70% from July to December 2008. During this period, the price per barrel of crude oil went from $130 to $40. This caused rapidly rising food prices in Arab countries, as they import much food.

20. The Decline in Stock Markets Began with the decline of Wall Street and the U.S. markets. Emerging nations felt decline two-fold. All major, industrialized nations saw declines in equity markets following the decline in U.S. markets. Asset prices became inflated, and remain so. Unknown when, and to what degree, markets will self-correct.

21. Two Significant National Market Declines of 2008: The following is for the period of one year, ending February, 2008: The Saudi Arabian market experienced a 49% drop over this one year period. Dubai, once of the world’s wealthiest nations, saw a 72% decline in its markets.

22. Suggestions to halt the downfall IMF urged Arab countries to evaluate long-term expectations on oil prices to avert possible future negative effects. The G-20 backed the IMF’s suggestion. Entire region was facing increasing food costs, as well as other consumer costs. Tension escalated to the point where citizens rioted, such as in Egypt. Arab tourism sector suffered great losses.

23. Hyperinflation in Morocco and beyond Inflation reached 14% in 2008, an indicator of things to come in industrialized nations during long-term recovery. The G-20 is seeking to implement monetary and fiscal policies among member nations to decrease the effects of current hyperinflation and eventual inflation in developed nations.

24. The effects on Africa Economists originally believed African nations did not possess the toxic assets that triggered the crisis. As recession deepened, the IMF projected a decline in Africa’s economic growth. Projected decline from 6% in 2004 to 1.5% in 2009. African economies required extra resources to recover amidst rising population and poverty levels.

25. Africa, continued As developing nations, these economies played no part in the creation of the crisis, but suffered heavily. This was mainly due to lack of resilient economic systems. These nations could not afford bailouts like those enacted in Western nations.

26. G-20 Climate and Energy Proposals Member states realized importance of energy security and combating climatic changes. Poor fossil fuel subsidies promote uneconomical consumption. This inhibits efforts to harness clean, renewable energy resources and combat climatic changes. G-20 promised to remove subsidies by 2020.

27. Pittsburgh Summit Proposals Address increasing product price volatility through improvement of fiscal policy and financial markets. Promote closer relationships between producer and consumer nations. Create sustainable global economic development in a new era of economics.

28. Proposed Solutions to the Crisis G-20 leaders concluded that the future is to be built on steps already undertaken. This provides a platform to tackle new and emerging challenges. To realize growth, it is imperative to: Support lending Implement structural policies that facilitate long-term employment.

29. Other Proposals by G-20 Member nations promised to assist developing and emerging nations. Proposed support in areas of education, health, and infrastructure. This reinforces and reforms the world financial architecture. The goal is to combat the long-term challenges of the crisis.

30. Promoting quality standards Governments will be able to safeguard consumers, investors, and depositors. Avoiding protectionism, regulatory arbitrage, and market fragmentation. Banks should decrease profits and increase capital base necessary for lending. Care should be exercised in lending, as careless lending essentially started this crisis.

31. Other Reforms Proposed Tighter government regulations on lending practices. Sustainable plans for job development. Oversight by all member nations of each nation’s policies. Strengthen transparency and accountability of private institutions. Create market oversights to ensure integrity.

32. Conclusions and Findings Many countries had relied heavily on borrowing for development. This practice led to a build-up of international deficits and debt. Other countries relied too heavily on primary commodity exports.

33. Conclusions and Findings Decision was made to encourage saving and lessen spending to prevent future crises. Countries should build up internal economic resources, depending less on other nations. Mechanisms enacted to protect against asset and credit-price cycles.

34. Conclusions and Findings The G-20 hopes the suggested proposals will not only reinforce international collaboration in supervision of international institutions, but will also strengthen arrangements by individual nations’ authorities in resolution of cross-border financial problems. G-20 believes this will bring back the confidence and stability seen before in the global financial situation.

35. References and further reading Please refer to the handouts provided, as well as the “References” page for further details. Look over the report passed around in The Wall Street Journal. Look at key issues in the copy of The Economist passed around. Refer to Krugman’s book for further reading.