Assignment

Course Code: Comm-206

Course Title: Financial System and Banking R.
Submitted To: M. Ahsan Mukhtar
Submitted By:
Name: Maryam rafiq
Roll#: 20021554-005
Department: Bs (Banking & Finance)

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Topic:
 Global Financial Crisis 1929-2008
Financial crisis:
In a financial crisis, asset prices see a steep decline in value, businesses
and consumer are unable to pay their debt, and financial institution
experience liquidity shortage.
A financial crisis may be limited to bank or spread throughout a single
economy of a region, or economies worldwide.
Stages of financial crisis:
The financial crisis can be segmented into three stages.
 Financial system fail, generally caused by system and regulatory
failure, institutional mismanagement of finance, and more.
 The next stages involve the breakdown of the financial system,
with financial institutions, businesses, and consumer unable to
meet obligation.
 Finally, assets decrease in value, and the overall level of debt
increases.

Introduction:

Great depression 1929

Begin in 1929 and lasted until 1939.it was the longest and most severe
depression.it is originated in the United States, but great depression caused drastic
decline in output, severe unemployment, and acute deflation in almost every
country of the world. The declines in consumer demand, financial panics and
misguided government polices cause economic output to fall in the United States,
while the gold standard, which linked nearly all the countries of the world in a
network of fixed currency exchange rates, played a key role in transmitting the
American downturn to other countries. The initial decline in u.s. Output in the
summer of 1929 is widely believed to have stemmed from light u.s. Monetary
policy aimed at limiting stock market speculation’s stock prices had risen more
than fourfold from the low in 1921 to the peak in 1929. In 1928 and 1929, the
federal reserve had raised interest rates in hope of slowing the rapid rise in stock
prices. These higher interest rates depressed interest sensitive in area such as
construction and automobile purchase, which in turn reduce production. When a
variety of minor events led to gradual price decline in October 1929 investor lost
confidence and the stock market burst. The panic selling began on “Black
Thursday”, October 24,1929. Because the decline was so dramatic, this event is
often referred to as the great crash of 1929.

Reason Of the Great Depression

On October 29,1929, black Tuesday it walls street as investor traded
some 16 million shares on the New York stock exchange in a single day.
Aftermath of black Tuesday u.s. and the rest of the industrialized world
spiraled downward into the great depression 1929-39. Economists give
different reasons behind the great depression:
1. Stock market crash.
2. Decline in spending.
3. The gold standard.
4. International trade and lending.
5. Monetary contraction and banking panics.
Stock market crash:
During the 1920, the American stock market underwent rapid expansion,
reaching its peak in august 1929. Among the other cause of the stock
market crash of 1929 were low wages, the proliferation of debt, a
struggling agriculture sector and an excess of large bank loan that could
not be liquidated.
Decline in spending:
The critical reason for financial emergency was the lessening in
complete interest or toward the days end decline in spending. The
spending level was incredibly low all through the slump. Industries were
forced to decrease their production which increased the unemployment.
Also, securities exchange crash diminished individual force of
procurement.
Monetary contraction and banking panics:
When account holders mentioned that banks pay them in genuine cash
considering nonattendance of trust.in fall of 1930, banking caution wave
got to handle on the bank of American bank simply have a little piece of
complete stores as cash holds. Rushed liquidation can lead a bank to
disillusionment. the state bank expanded the loan fees and gotten the
cash supply to lessen these frenzies.
The global standard:
The federal reserve bank expected to safeguard the best quality level that
is explanation it allowed and enormous lessening in real money supply.
This was the critical reason for moving u.s. commitment to the b Est
quality level is not broken. The value of broken. The banks were
reduced which made them more valuable in order to follow the gold
standard.
International trade and lending:
The business investigation acknowledges that fall in new crediting to
u.s. &Germany was furthermore a clarification for the great depression.
Regardless in 1928, new crediting was diminished which could have
been behind great depression.
Financial crisis in 2008
Introduction:
Great Recession
Being in mind 2007 the American financial market started to slide into
the “worst financial crisis since the great depression of the early 1930”.
In the following this term paper will deal with the main causes and
effects of 2008 financial crisis. the crisis led to the great recession,
where housing prices dropped more than the price plunge during the
great depression. Two years after the recession ended, unemployment
was still above 9%. that does not count those discourage workers who
had given up looking for a job. among economists there are different
approaches to explain the main causes of the financial crisis. Therefore,
the central ideas behind this paper are first to clarify different trigger
point and secondly to answer critically the question who is to blame for
it. The last part will refer back to the question posed, summarize the
main parts of this paper and will take a look in the future of the financial
sector.
Causes Of Great Recession
To analyze the main reasons for the meltdown of the financial sector
resulting in a worldwide recession and economic crisis one has to look
back into the American history.
The complex mix of government policy, financial market structure and
the development of the real estate market in the American were only a
few of the main forces to collapse the financial sector.
That the wall street bank and investment firms enable such a severe
outcome for the global economic. Such as too many homeowners with
questionable credit being approved for mortgage loans, even some for
100% or more of the home value.
some blamed the community reinvestment act, which pushed banks to
make investments in subprime areas. Several studies by the federal
reserve found it did not increase risky lending. On September 7,2008 the
crisis created a run-on money market funds where companies parked
excess cash to earn interest on it overnight, and banks than used those
funds to make short-term loans. During the run, companies moved a
record $172 billion out of their money market account into even safer
treasury bonds. They only approved the bill on oct.1,2008, after global
stock markets almost collapsed.
Global financial crisis of 2008 -2009 referred to as “the great
recession”.
It began with housing market bubble, created by an overwhelming load
of mortgage-backed securities that bundle high risk loan. Reckless
lending led to unprecedented number of loans in default, bundle
together, the losses led many financial institutions to fail and requires a
government bailout.

Collapse of major investment bank 2008:

Serious harm arriving at a peak with the insolvency of Lehman brother
on September 15,2008. And the ensuing global financial emergency.

Collapse of stock price in 2008:

The monetary trade cash of 2008 was an eventual outcome of default on
joined home advanced-main trained securities. Bank offered these
danced to almost everyone, even the people who were not monetarily
solid. While the housing market fell.
Increase in the default and foreclosure rates beginning in the second
half of 2006 due to the feds manipulation of interest rates during
2002-2006:

The home loan default rate expanded so forcefully during 2006 and
21007, in light of the fact that a ton of credits were made with settle with
state for what is, most convenient option and more individual had no
likelihood to reimburse the home loan.
 1929&2008 similarities:
Both the great depression and the 2001 recession followed years of
exceptional productivity growth in the economy. He noted a key
similarity in that 1920 marked the end of a very long period of
productivity enhancement because of the invention of the electronic
motor, which was followed by the means production of automobile and
other good. similarity the 1980 and information technology
development. the economy of the stock market reacted to the both
increase and decrease in economic activity during the late 1920 and the
1990.

Difference b/w the great recession and great depression with table
Recession and depression have similar indicators and causes but the
biggest differences and severity, duration, and overall impact.
Depression spans years rather than months and typically sees higher
unemployment and a sharper decline in GDP and while a recession is
often limited to a single country, a depression is usually severe enough
to have global trade impact. Because economists do not have a set
definition for what constitutes a depression, the general public
sometimes uses it interchangeably with the term recession. But the u.s.
there has only been one depression. The great depression of the 1930
which spanned 10 years.
There as a critical fall in stock costs that stage was known as the great
depression.
Parameters of comparison The great depression The great recession
Time period 2007-2008 1929-1933
Economic decline -4.1% -25
Change in price 0.5%
Unemployment rate 8.5 25
State response The federal stimulus Raises taxes,
plan gave fiscal relief cut spending
to state

Main difference b/w the great recession on and the great depression:
 The origin of the great:
 During the great recession:
 In the great recession:
 In the great depression:
 When it comes to emergency:

Is there a real difference b/w a recession and depression?

A Recession is a downward trend in the business cycle, one that is
characterized by a decline in production and employment.
A depression is a major downward (far more severe than a downward
trend in the business cycle.
This trend lower household income and spending, which consequently
causes many businesses and households to delay making large
investments or purchases.
A depression characterized by sharply reduce widespread
unemployment, a serious decline of growth in construction, and great
reduction in international trade and capital movements.
A recession can be limited geographically, like in a single country.
A depression can have global reach.
How the great depression of 1929 resolved?
  The great depression of 1929 was resolved by the combination of
world-war 2 and the new deal which lifted the US out of the
depression.
 Federal polices to increase the supply of money in the economy.
 28.6% increase in the private saving Stabilize the banking system
and the economy.
 Lesson of government spending was also a major cause of great
depression.
Recovery from the great recession of 2008:
 Economic stimulus plans were given to cope with the damage of
recession.
 Wall stress plan and consumer protection act was given to recover
from the effects of great recession of 2008.
 Unemployment in the great recession and recovery the great
recession lasted from December 2007 to June 2009.
 The unemployment rate climbed sharply and neared post word-war
2 record highs by 2010.
 A steady improvement followed, and the unemployment rate fell
below 4% by 2019, 10 years after the end of the recession.

Conclusion:
The economy of the united stated states of American recorded a drastic
decline owing other impact of the great depression of 1929.however ,it
is believed that several economic factors primarily in the u.s. Economy
led to the great depression. Some of the most significant causes include
impact of word-war I, the U.S. Economic policies and the decreased
purchasing power additionally , other factors such as bank failures and
unfavorable climatic condition were believed to have contribution to the
great depression especially during the period of economic recession that
followed shortly after the great depression. Despite the government
effort to restore the economy, normal forces of demand and supply
prevented rapid recovery from the great depression. Prior to 2020, the
great recession was the most important macro-economic shock to the
United States economy in generations. Million lost jobs and homes.at its
peak, one in ten workers wo wanted a job could not find one. On an
annual basis, the economy contracted by more than it had since the great
depression. A slow and steady recovery followed the great recessions
official end in the summer of 2009, but because it was slow and the
depth of the recession so deep, it took years to reduce slack in labor
markets. But because the slow and steady recovery lasted so long many
pre-recession peaks were exceeded, and eventually real wage growth
began to accumulate for workers across the distribution.in fact the
business cycle (including recession and recovery) beginning in
December 2007 was one of the better periods of real wage growth in
many decades, with the___14 bulk of that coming in the last year of the
recovery. We place
the great depression in historical context and trace the path of the
recovery, studying its different phases and how different group of
workers were impacted in each phase. We place the great recession in
historical context and trace the path of the recovery, studding its
different phases and how different group of workers were impacted in
each phase. We also discuss the reasons of fiscal and monetary policy to
the great recession and draw lesson for the future.
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