financial crisis celine jullien
TRANSCRIPT
The Financial crisis« We are living a major crisis, the crisis of the
organization of financial system » Michel Aglietta, 16 septembre 2008.Michel Aglietta, 16 septembre 2008.
Céline Jullien
January 2010
Outline
IntroductionA attempted summary
Preliminary definitions, notions and concepts
Part 1. “The” crisisI. The origin: the Internet bubble creates an instable macroeconomic
environment that leads to the search of alternative sources of profitsenvironment that leads to the search of alternative sources of profitsII. The sequence of events: when the new sources of profitability attracts
everyone but are finally “toxic”Part 2. Getting out of the crisis
I. An emergency regulation echoing the danger of a generalized banking bankruptcy
II.Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ?
Conclusion. The after crisisQuestions and issues for a modern and efficient financial regulation
IntroductionA attempted summary
• At the origin
– A simple idea
– A strong assumption
– A real political impulse – A real political impulse
– An instable macroeconomic context
IntroductionA attempted summary
• In cause
– A loop of economic value « outside revenues »
– High risk financial practices
– Financial products are sold for what they are : just products!
– Risks are changing hands but not holders
– Individual risks are aggregated , split and on average limited as
any other risks : but they are correlated and dependent on a
unique estimate, the real estate market.
IntroductionA attempted summary
• In consequence– An historical crisis
– With multiple origins
– With tremendous issues…– With tremendous issues…
– …and new solutions to be built
IntroductionPreliminary definitions, notions and concepts
a) Financial system : definition, major functions
b) Financial risks
c) Financial markets
d) Financial intermediariesd) Financial intermediaries
e) Financial leverage
f) Subprime and cash-out
g) Derivatives
h) Securitization : pooling, offloading, tranching
i) Interest rates and monetary policy
References
Outline
IntroductionA attempted summary
Preliminary definitions, notions and concepts
Part 1. “The” crisisI. The origin: the Internet bubble creates an instable macroeconomic
environment that leads to the search of alternative sources of profitsenvironment that leads to the search of alternative sources of profitsII. The sequence of events: when the new sources of profitability attracts
everyone but are finally “toxic”Part 2. Getting out of the crisis
I. An emergency regulation echoing the danger of a generalized banking bankruptcy
II.Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ?
Conclusion. The after crisisQuestions and issues for a modern and efficient financial regulation
Part 1. “The” crisis
I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits
1. The macroeconomic context after the Internet bubble
2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisions
II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic”1. Sequence of events
2. Short term effects
I. The origin
1. The macroeconomic context after the Internet bubble a) Abundant worldwide liquidity
b)Low levels of inflation, with low volatility
c) Low risk premiums
d)Decreasing long term interest rates
e) Credit expansion
f) Increasing trend of real-estate prices
a) Abundant worldwide liquidity
b) Low levels of inflation, with low volatility
c) Low risk premiums
d) Decreasing long term interest rates
e) Credit expansion
– Cheap and easy to get
– Thanks to low interest rates and low risk premiums, financial leverage are important
f) Increasing trend of real-estate prices
I. The origin
2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisionsa) High expected rate of return are satisfied by the new financial
investments
b) Conditions for granting loans are relaxedb) Conditions for granting loans are relaxed
c) High risk credit are marketed
d) The sophistication and complexity of financial products are hiding the risks
e) The financial innovations, that should participate to the optimal allocation of risks, tend to be toxic
b) Conditions for granting loans are relaxed
c) High risk credit are marketed
c) High risk credit are marketed
• Collateralized debt obligations (CDOs) are more and more exchanged– Revealing a preference for assuming risks without funding them!funding them!
• Securitization is total, complex and opaque
d) The sophistication and complexity of financial products are hiding the risks
– For the borrowers • Credit expansion towards the most fragile households
• Together with aggressive commercial practices
– For professionals• Operational risks: mistakes, frauds, etc. even more probable and • Operational risks: mistakes, frauds, etc. even more probable and
possible as the products are gaining in complexity
• « mark to market » risk
e) The financial innovations, that should participate to the optimal allocation of risks, tend to be toxic
–Asymmetry of information and quality issues
–The concentration of individual risks feeds the systemic risk
Part 1. “The” crisis
I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits
1. The macroeconomic context after the Internet bubble
2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisions
II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic”1. Sequence of events
2. Short term effects
II. The sequence of events
1. Sequence of eventsa) The crisis starts in summer 2007b)And keeps on going until summer 2008
MOODY’SDÉCLASSE LA
NOTATION DES
PRÊTS AU
LOGEMENT
RUMEUR : BEARSEARNS
UN FOND
SPÉCULATIF
EST
RENFLOUÉ
DE 3,2 MDS $
S&P DÉCLASSE 7,3 MILLIARDS DE $ DE
PRÊTS
MOODY’S 5 MILLIARDS DE $
COUTRYWIDE FINANCIAL CORP. ANNONCE LA CHUTE DE SES
BÉNÉFICES
LES VENTES DELOGEMENTS
NEUFS -6,6%
LA BANQUE ALLEMANDE
IKB S’INQUIÈTE DE LA
QUALITÉS DES PRODUITS
AMERICAN HOMEMORTAGE INVESTMENT
CORP. ANNONCE SON
15 juin 20 juin
SFERMERAIT
2 FONDS
SPÉCULATIFS
22 juin 10 juillet
$ D’OBLIGATIONS
24 juillet 26 juillet 30 juillet
CORP. ANNONCE SON
INCAPACITÉ A FINANCER
SES OBLIGATIONS DE
PRETS
31 juillet
JUIN 2007 JUILLET 2007
FONDS DE
SECOURS
EN
ALLEMAGN
E 3,5 MDS €
AMERICAN HOME MORTAGEINVESTMENT CORP. DEMANDE
A BÉNÉFICIER DE LA LOI SUR
LES FAILLITE
BNP PARIBAS GÈLE LES
RACHATS DE 3 FONS DE
PLACEMENT
LA BCE INJECTE
95 MDS €
LEHMAN BROTHERS FERME SA FILIALE BNC
MORTGAGE
NORTHERN ROCK DEMANDE UNE AIDE
’
1er aout
E 3,5 MDS €
6 août 9 août
95 MDS €
17 août
LA FED RÉDUIT DE
50PB SON TAUX
DIRECTEUR À 5,75%
22 août 15 septembre
D’URGENCE À LA BANQUED’ANGLETERRE
AOUT 2007 SEPTEMBRE 2007
DÉMISSION
DU PDG DE
MERILL LYNCH
LA FED BAISSE SON TAUXDIRECTEUR DE 0,25 PB A
5,25%
DÉMISSION DUPDG DE
LA FED INJECTE
$47,25 MDS
LA FED BAISSE SON TAUX
DE 0,25 PB A 5%
DÉMISSION DUPDG DE BEAR STEARNS
BUSH ANNONCEUN PLAN DE
RELANCE DE $150 MDS.
LES PLACESBOURSIÈRES
MONDIALES
S’EFFONDRENT
29 octobre
LYNCH
31 octobre4 novembre
PDG DE
CITIGROUP
15 novembre 11 décembre
DE 0,25 PB A 5%
8 janvier 18 janvier
MDS.
21 janvier
OCTOBRE-NOVEMBRE 2007 DECEMBRE 2007 JANVIER 2008
LA FED BAISSE SON
TAUX
DIRECTEUR
DE 0,75 PBA 3,50%
LA SOCIETE GENERALE PERD 4,9 MDS €
L’ALLEMAGNE
ANNONCE $400 MDS DE PERTES
SUBPRIME
UBS PERD 12,4 MDS DE FRANCS
LA FED ACCORDE
UN PRÊT
D’URGENCE A
BEAR STEARNS ET SUPERVISE SON
RACHAT PAS
JPMORGAN CHASELA FED BAISSE SON
TAUX
DIRECTEUR
DE 0,50 PB A
LA FED BAISSE SON
TAUX
DÉMISSION DU
PDG D’UBS
22 janvier
A 3,50%
24 janvier30 janvier 9 février 15 février
MDS DE FRANCS
SUISSES
14 mars 18 mars 1er avril
DE 0,50 PB A3%
TAUX
DIRECTEUR
DE 0,75 PB A2,25%
JANVIER 2008 FEVRIER 2008 MARS AVRIL 2008
LABANQUECALIFORNI
ENNE
INDYMAC MISE SOUS
SOUTIEN DES AUTORITÉS AFREDDIE MAC ET FANNIE
MAE MERRILL LYNCH SEDÉLESTE A
PERTE DE 30 MDS$
« TOXIQUES »
BUSH SIGNE LE
PLAN DE
UBS CITIGROUP MERRILL LYNCH
RACHÈTENT À
LEUR CLIENTS 49 MDS$
D’OBLIGATIONS
BENBERNANKEANNONCE SA
PRIORITÉ : RESTAURER
LA STABILITÉ
LISTE NOIR DE8600 BANQUES
11 juillet
MISE SOUS
TUTELLE
13 juillet15 juillet 29 juillet 30 juillet
SAUVETAGE DE
L’IMMOBILIER DE
300 MDS$
10 août 29 août26 août
FINANCIÈRE INTEGRITY BANK
(N°10) FAITFAILLITE
JUILLET 2008 AOUT 2008
II. The sequence of events
2. Short term effects a) Liquidity crisis
b)Banks bankruptcy and financial system crisis
c) households patrimonial losses
d)Reduced financial leverage
e) Negative short term consequence on economic growth
Outline
IntroductionA attempted summary
Preliminary definitions, notions and concepts
Part 1. “The” crisisI. The origin: the Internet bubble creates an instable macroeconomic
environment that leads to the search of alternative sources of profitsenvironment that leads to the search of alternative sources of profitsII. The sequence of events: when the new sources of profitability attracts
everyone but are finally “toxic”Part 2. Getting out of the crisis
I. An emergency regulation echoing the danger of a generalized banking bankruptcy
II.Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ?
Conclusion. The after crisisQuestions and issues for a modern and efficient financial regulation
Part 2. Getting out of the crisis
I. An emergency regulation echoing the danger of a generalized banking bankruptcy1. September 2008 : historical public policy decisions
2. “Rescue and recovery” plans2. “Rescue and recovery” plans
II. Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ?1. How ?
2. Who ?
HENRYPAULSON
ANNONCE LA
MISE SOUS
TUTELLE DE
FANNIE MAE ET
LEHMAN BROTHERSANNONCE 3,9 MDS$ DE
PERTES GOLDMAN SACHS
ET MORGAN
STANLEY
DEVIENNENT
DES BANQUES
COMMERCIALES
ENQUÊTE DU FBI SUR 26
ÉTABLISSEMENTS
FINANCIERS
LEHMAN ENFAILLITE
BANK OFAMERICA
ABSORBE
MERRILL
JP MORGAN
RACHETE
WHASHINGTON
REJET DU PLAN
PAULSON PAR LE
CONGRES
LE DOW JONES
PERD 777PTS
7 septembre
FREDDIE MAC
10 septembre 2008
15 septembre 22 septembre
23 septembre
L’ASSUREUR AIG EST SAUVÉ PAR LA
FED
LYNCHWHASHINGTON
MUTUAL FUND
25 septembre26 septembre
30 septembre
SETPEMBRE 2008SETPEMBRE 2008
NOUVELLE
MOUTURE DU
PLAN PAULSON
ACCEPTE PAR LES
SENATEURS
BUSH SIGNE LE
PLAN
SARKOSY –PDT
CONSEIL DE
L’EUROPE –PROPOSE UN
FONDS DE
SAUVETAGE
EUROPEAN DE 300
PANIQUE SURLES MARCHES
FINANCIERSL’ISLANDE
REPREND LE
CONTRÔLE
COMPLET SUR
TOUT LE SECTEUR
BANCAIRE
TOKYO TOMBE ET
LA BANQUE
LE GOV
BRITANIQUE
ENVISAGE DE
NATIONALISER 8 GRANDES
BANQUES
LE GOV USA ENVISAGE DE
NATIONALISER DES
SARKOSY
ANNONCE LA MISE
EN PLACE D’UNE
GARANTIE DE
L’ETAT POUR 320 MILLIARS D’EUROS
OCTOBER 2008
SENATEURS
1er octobre3 octobre
4 octobre
EUROPEAN DE 300 MILLIARDS
D’EUROS
6 octobre
LA BANQUE
CENTRAL
JAPONAISE
INJECTE DES
LIQUIDITE
7 octobre8 octobre
NATIONALISER DES
GRANDES
BANQUES
9 octobre 13 octobre
