1 / 21

Financial Crisis of 2007-2008

Financial Crisis of 2007-2008. [i.e. what we’re going to discuss, teach and write about during the next 1 0 years]. Prof. Marian Moszoro, PhD November 12th , 2008. Origin. real estate prices had NEVER fallen all bad debts CAN’T default at the same time

chanel
Download Presentation

Financial Crisis of 2007-2008

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Crisis of 2007-2008 [i.e. what we’re going to discuss, teach and write about during the next 10 years] Prof. Marian Moszoro, PhD November 12th, 2008

  2. Origin • real estate prices had NEVER fallen • all bad debts CAN’T default at the same time • Subprime bonds = „sophisticated” asset-backed securitized mortgages = from junk to AAA ratings • ... and what should have NEVER theoretically happened, HAPPENED: real estate prices went down and AAA bonds defaulted, banks went bankrupt and the system collapsed

  3. Origin (2) • real estate prices had NEVER fallen

  4. Origin (3) - Theethicaldimension • Many layers failed living up to ethical standards: • The subprime broker selling mortgages to people who could not afford it • The retail banker selling CDOs (or funds loaded up of CDOs) to people not understanding the products • The people involved in favorable market-to-market • The people involved in securitization of what were always inflammable products • The risk managers not understanding the structural change or even worse, understanding it but not adjusting it • CEOs, CIOs being happy with superior performance without questioning • The shareholders punishing conservative performance • Academics? Aren’twe supposed to explain not only the past? When we think people are jeopardizing the future, shouldn’t we make noise?

  5. As in war times • Sept. 24, 2008 - prime time address of the President of the United States • „This crisis is an economic Pearl Harbor. I know it sounds melodramatic, but I haven’t used this term before.” - Warren Buffet, in „The Charlie Rose Show”, Oct. 02, 2008 • 26 judicial investigations against mortgage banks in East NY by Oct. 2008

  6. Casualties - biggest R.I.P. 

  7. From finance to real economy

  8. New economic paradigms • Arrow-Lind theorem (1970) in practice? • National interventionism • Paulson’s plan and Bush’s argument for $700bn aid to the financial sector • UK, Ireland, Benelux, Russia, France, Italy, Germany... • Global interventionism - sovereign funds • Citigroup: $7.5bn (4.9% of Citi's total shares outstanding) from Abu Dhabi Investment Authority (Nov. 2007) • UBS: $10bn from the Singapore government and an unnamed Middle East investor (Dec. 2007) • Iceland: €4bn credit from Russian government

  9. New economic paradigms (2)Curiousobservations • Interest rates: • During the Asian financial crisis of 1997, the World Bank and IMF called affected countries to rise interest rates to 25-40 percent... • ... on Oct. 9, 2008 six major central banks -in an unprecedented synchronized action- cut rates by 50 bp • Public aid: • governments can save banks with tacit EU Commission approval... • ... but Poland cannot save shipyards with public funds (SIC!) • China: • $584bn economic and infrastructure stimulus plan (Nov. 11, 2008)

  10. Any safe havens? • World Equities Nov. 12, 2008 -6 months

  11. Any safe havens (2) • Currencies Nov. 12, 2008 -6 months, performance compared to US$

  12. Any safe havens (3) • Commodities vs. Dow Jones (Nov. 12, 2008)

  13. Any safehavens (4) • Gold vs. Dow Jones (Nov. 12, 2008)

  14. Any safehavens (5) • Bonds (US Yield Curve Nov. 12, 2008) • ... but that’s also recognizing the public sector as a „better investor”

  15. By theway... • Bonds (UK Yield Curve Nov. 12, 2008) • 150 bp down = biggestinterestcutindecades

  16. Lessons learned • The value of TRUST • Diversification of growth sources • Once good, now bad examples: Ireland, Spain (housing, tourism) • Common sense (which is the least common of the senses) • do the financial math, but also crunch the fundamentals • eat humble pie: we don’t know everything about finance yet • B2B (Back-to-Basis) • the real economic wealth is in the REAL economy • finance is ancillary to business • ... To be continued... [10 years]

  17. Consequences for Poland • Bad news... • Less export • Less FDI • Less liquidity in the debt market • PE reluctant to invest • Interest rates rising due to uncertainty  Middle-term depreciation of Polish Zloty

  18. Consequences for Poland (2) • ... but also good news (if we are able to discount the opportunities) • Cheaper inputs (mainly oil and energy) • Cheaper capital investments • Some companies are liquid and sitting on cash • Poland as destination of capital (the economy slowing down, but still growing fast) • Polish companies on the buyer side of M&A’s  Qualitative jump forward

  19. Recommendations • Non-quoted SME’s in emerging economies • Strong fundamentals in real business • Don’t have access to bank loans neither to PE financing right now • Underpriced (low multiples) • Bonds in countries with strengthening currencies - USA, China, Japan

  20. Conclusion „A aguas revueltas, ganancia de pescadores” In a free translation: In turbulent waters, fishmen make profits

  21. Complementary readings • Global Financial Stability Report - Financial Stress and Deleveraging. Macro-Financial Implications and Policy. International Monetary Fund, October 2008: http://www.imf.org/external/pubs/ft/gfsr/2008/02/index.htm • Taking Hard New Look at a Greenspan Legacy, by Peter Goodman, New York Times, October 8, 2008: http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?pagewanted=1&_r=1

More Related