OVERVIEW OF THE GLOBAL ECONOMIC CRISIS
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OVERVIEW OF THE GLOBAL ECONOMIC CRISIS. OUTLINE. WHAT IS CRISIS? ABOUT THIS CRISIS SPECIFICS CAUSES IMPLICATIONS WHAT TO DO END NOTES. WHAT IS CRISIS?.

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OVERVIEW OF THE GLOBAL ECONOMIC CRISIS

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Overview of the global economic crisis

OVERVIEW OF THE GLOBAL ECONOMIC CRISIS

'BIODUN ADEDIPE, Ph.D.


Outline

OUTLINE

  • WHAT IS CRISIS?

  • ABOUT THIS CRISIS

  • SPECIFICS

  • CAUSES

  • IMPLICATIONS

  • WHAT TO DO

  • END NOTES

'BIODUN ADEDIPE, Ph.D.


What is crisis

WHAT IS CRISIS?

  • “PEOPLE ARE IN A STATE OF CRISIS WHEN THEY FACE AN OBSTACLE TO IMPORTANT LIFE GOALS — AN OBSTACLE THAT IS, FOR A TIME, INSURMOUNTABLE BY THE USE OF CUSTOMARY METHODS OF PROBLEM SOLVING.”

    • CAPLAN, 1961

'BIODUN ADEDIPE, Ph.D.


What is crisis contd

WHAT IS CRISIS? (CONTD.)

  • “…AN UPSET IN EQUILIBRIUM AT THE FAILURE OF ONE’S TRADITIONAL PROBLEM-SOLVING APPROACH WHICH RESULTS IN DISORGANIZATION, HOPELESSNESS, SADNESS, CONFUSION, AND PANIC.”

    • LILLIBRIDGE AND KLUKKEN, 1978

'BIODUN ADEDIPE, Ph.D.


What is crisis contd1

WHAT IS CRISIS? (CONTD.)

  • “…CRISIS IS A PERCEPTION OR EXPERIENCE OF AN EVENT OR SITUATION AS AN INTOLERABLE DIFFICULTY THAT EXCEEDS THE PERSON’S CURRENT RESOURCES AND COPING MECHANISMS.”

    • JAMES AND GILLILAND, 2001

'BIODUN ADEDIPE, Ph.D.


What is crisis contd2

WHAT IS CRISIS? (CONTD.)

  • THE LAST OF THESE DEFINITIONS MAKES CLEAR THAT CRISIS IS A PERCEPTION, WHICH THEN MAKES IT LARGELY A MATTER OF HOW THE INDIVIDUAL RESPONDS TO THE TRIGGER OR DEVELOPMENT.

'BIODUN ADEDIPE, Ph.D.


About this crisis

ABOUT THIS CRISIS

  • THE BUSINESS CYCLE IS INEVITABLE.

  • THIS MEANS THAT THERE ARE FOUR PHASES TO HUMAN ACTIVITIES, WHICH APPLIES TO SOCIETIES, ORGANIZATIONS OR INDIVIDUALS.

  • THE FACT IS, RECESSION WILL INEVITABLY FOLLOW A BOOM, AND WHEN NOT ‘DEALT WITH’ PROMPTLY, IT CAN PROGRESS TO A BURST BEFORE THERE CAN BE HOPE FOR RECOVERY!

'BIODUN ADEDIPE, Ph.D.


About this crisis contd

ABOUT THIS CRISIS (CONTD.)

GDP GROWTH

BOOM

RECESSION

RECOVERY

BURST

TIME

'BIODUN ADEDIPE, Ph.D.


About this crisis contd1

ABOUT THIS CRISIS (CONTD.)

  • SINCE THE GREAT DEPRESSION OF THE LATE 1920’s AND EARLY 1930’s, THERE HAS NOT BEEN A CRISIS OF THE KIND OF MAGNITUDE, COMPLEXITY AND SPREAD AS THE CURRENT ONE THE WORLD IS GOING THROUGH.

    • BETWEEN THEN AND NOW, EPISODES OF FINANCIAL CRISIS WERE LIMITED IN SPREAD AND EASILY CONTAINED.

  • THIS IS WHY THE CURRENT CRISIS IS UNIQUE AND THAT IS IN SIX WAYS.

  • 'BIODUN ADEDIPE, Ph.D.


    About this crisis contd2

    ABOUT THIS CRISIS (CONTD.)

    • THE WORLD HAS BECOME TRULY ONE BIG GLOBAL VILLAGE, WHERE DEEP INTERDEPENDENCE MAKES EVERYONE FEEL SO SAFE AND YET SO VULNERABLE.

    • THE ADVANCES IN FINANCIAL INNOVATION IN THE LAST THREE TO FOUR DECADES CREATED AN ILLUSION OF INCREASING ‘CAPACITY’ TO PREDICT AND THUS FORESTALL UPHEAVALS IN FINANCIAL MARKETS.

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd3

    ABOUT THIS CRISIS (CONTD.)

    • MARKET EFFICIENCY THROUGH INFORMATION COMMUNICATION TECHNOLOGY HAS HUGELY SHORTENED THE TIME FOR POLICY/ACTION TRANSFERENCE.

    • INNOVATIONS AND WIDELY ACKNOWLEDGED CREATIVITY IN FINANCIAL MATTERS CREATED A CLASS OF ARROGANT ‘EXPERTS’ IN THE ACADEMIA AND AMONG PRACTITIONERS THAT ARE TREATED LIKE ‘ORACLES’ AND THEREFORE, CANNOT BE WRONG.

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd4

    ABOUT THIS CRISIS (CONTD.)

    • THIS CRISIS CAUGHT MOST PEOPLE (‘EXPERTS’ INCLUSIVE) UNAWARES, BECAUSE THE WORLD IGNORED THE ‘GREED FACTOR’ IN HUMAN DECISIONS AND ACTIONS.

    • ITS DEPTH WAS DIFFICULT TO MEASURE, NEITHER IS IT EASY TO FORECAST ITS FUTURE EXTENT EVEN NOW!

      • NOBODY COULD HAVE PREDICTED THAT AIG WOULD RECORD A LOSS OF $67.1 BILLION IN THE 4TH QUARTER OF 2008, AND THIS WAS JUST ONE OF THE JAW-DROPPING EFFECTS OF THIS CRISIS!

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd5

    ABOUT THIS CRISIS (CONTD.)

    • ACCORDING TO THE LONDON ECONOMIST IN FEBRUARY 2009:

      • “MANAGING A CRISIS AS COMPLEX AS THIS ONE HAS SO FAR CALLED FOR NUANCE AND PRAGMATISM RATHER THAN STRIDENCY AND PRINCIPLE…ONLY THE FOOLISH AND THE PARTISAN HAVE REJECTED (OR EMBRACED) ANY SOLUTIONS CATEGORICALLY.”

    • OBVIOUSLY, THESE ARE UNUSUAL TIMES THAT POSE THE DEEPEST CHALLENGES TO ALL AND SUNDRY.

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd6

    ABOUT THIS CRISIS (CONTD.)

    • THE CRISIS AT FIRST, CREATED CONCERNS ABOUT THE WAY NATIONS STARTED TO ADDRESS THE PROBLEM.

      • ‘EVERYONE FOR HIMSELF, AND GOD FOR US ALL’!

    • THERE WAS AN EMERGING AND GROWING TENDENCY TOWARDS NATIONALISM AND PROTECTIONISM, WHICH THREATENED REVERSAL OF THE GAINS OF THE ‘OPEN ECONOMY’ OF THE 20TH AND EARLY 21ST CENTURIES.

      • THE WORLD BANK HAD TO WARN THAT THIS COULD BECOME A MAJOR PROBLEM FOR THE WORLD ECONOMY, WHICH LARGELY INFORMED THE FORMATION OF THE G20.

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd7

    ABOUT THIS CRISIS (CONTD.)

    • EVERY STAKEHOLDER IN THE WORLD ECONOMIC SYSTEM WAS SOMEWHAT RESPONSIBLE:

      • GOVERNMENTS AROUND THE WORLD WERE EXCITED ABOUT THEIR SEEMINGLY ROBUST AND STEADILY GROWING ECONOMIES, AND THE ‘POLITICAL GAINS’ OF THAT!

      • FINANCIAL SYSTEM REGULATORS WERE CARRIED AWAY BY THE ACCOLADES AND AWARDS FOR GETTING IT RIGHT – OVER A LONG TIME IN THE US, BRITAIN, EUROPE AND MORE RECENTLY IN NIGERIA.

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd8

    ABOUT THIS CRISIS (CONTD.)

    • EVERY STAKEHOLDER RESPONSIBLE (CONTD.):

      • MARKET OPERATORS BASKED IN THE EUPHORIA OF SUPERLATIVE CORPORATE PERFORMANCE THAT MADE THEIR HISTORICAL HIGHS PALE INTO INSIGNIFICANCE.

      • RATING AGENCIES GAVE OPTIMISTIC ASSESSMENTS OF CORPORATE AND SOVEREIGN DEBTS, AND THEY BECAME ARROGANT EXPERTS THAT EVERYBODY BELIEVED KNEW ALL THINGS!

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd9

    ABOUT THIS CRISIS (CONTD.)

    • EVERY STAKEHOLDER WAS RESPONSIBLE (CONTD.):

      • OTHER MARKET PARTICIPANTS WERE ALSO CARRIED AWAY BY THE ‘ABNORMAL’ PROFITS THEY WERE MAKING, AND ASSUMED THAT THE ‘SUN WILL ALWAYS SHINE’!

    • THE GREED FACTOR LED EVERYBODY ALONG AND CAUTION WAS THROWN TO THE WINDS!

    'BIODUN ADEDIPE, Ph.D.


    About this crisis contd10

    ABOUT THIS CRISIS (CONTD.)

    • IT ALL APPEARED VERY MUCH LIKE AN AFRICAN PROVERB (COMMONLY YORUBA) THAT WHEN A LITTLE BOY IS BEATING A DRUM WHOSE SOUND RESONATES SO AS TO MAKE DANCERS HIGH, THE EXCITEMENT WILL LIKELY MAKE HIM BEAT THE DRUM HARDER UNTIL IT EVENTUALLY TEARS!

      • AFTER ALL, THE MEMBRANE IS EITHER REAL OR ARTIFICIAL LEATHER, BOTH OF WHICH ARE VULNERABLE!

    'BIODUN ADEDIPE, Ph.D.


    A few specifics

    A FEW SPECIFICS

    • ALL THESE DEVELOPMENTS CAME AGAINST THE BACKGROUND OF THE REAGANOMICS OF THE 1980s, WHICH HAS BEEN EMBRACED BY MOST OF THE WEALTHIEST NATIONS AND ‘FORCED’ DOWN THE THROAT OF MANY HEAVILY-DEPENDENT DEVELOPING COUNTRIES.

      • IT IS GENERALLY TERMED THE NEOLIBERAL ECONOMIC IDEOLOGY THAT EMPHASIZES FREE MARKET AND INDIVIDUALISM, AND ARGUED VEHEMENTLY AS THE ONLY ROUTE TO DEVELOPMENT.

    'BIODUN ADEDIPE, Ph.D.


    Specifics contd

    SPECIFICS (CONTD.)

    • AT FIRST, THE CRISIS WAS THOUGHT TO BE A PROBLEM WITH THE USA MORTGAGE LENDERS, ARISING FROM SUB-PRIME MORTGAGES AND THEREFORE, A LOCALIZED PROBLEM. I.E., THE PROBLEM IS NOT ECONOMY-WIDE, BUT LOCALIZED TO THE PROPERTY MARKET.

      • THE RESULTING DELAYED ACTION BY GOVERNMENTS AND REGULATORS WAS TO BECOME QUITE EXPENSIVE. THE FIRST DECISIVE ACTION ON BANK RESCUE WAS BY THE BRITISH PRIME MINISTER, GORDON BROWN, AND ONE JUST WONDERS WHAT WOULD BE HAPPENING NOW IF HIS INITIATIVE DID NOT COME AT THAT TIME TO SET THE TONE AND AN EXAMPLE FOR OTHER WORLD LEADERS TO FOLLOW.

    'BIODUN ADEDIPE, Ph.D.


    Specifics contd1

    SPECIFICS (CONTD.)

    • AN IMPORTANT FACT IGNORED INITIALLY WAS THAT INVESTMENTS IN REAL ESTATE, STOCK MARKET AND THE MONEY MARKET ARE ALTERNATIVES THAT INVESTORS MOVE INTO AS CONDITIONS WARRANT.

      • AS SUCH, WHATEVER IS HAPPENING IN ONE OF THESE MARKETS INFLUENCES SUBSEQUENT DEVELOPMENTS IN THE OTHER TWO.

    'BIODUN ADEDIPE, Ph.D.


    Specifics contd2

    SPECIFICS (CONTD.)

    • EMPIRICAL EVIDENCE PROVIDED BY THE INTERNATIONAL MONETARY FUND (‘IMF’) HOWEVER, POINTS OUT THE RELATIVE IMPORTANCE OF THE PROPERTY MARKET, INDICATING THAT HISTORICALLY, THE COST OF A BURST IN THE PROPERTY MARKET WAS ABOUT 8% OF GDP, AND THIS IS TWICE THE COST OF A BURST IN THE EQUITY MARKET.

      • MOREOVER, PROPERTIES HAVE COLLATERAL VALUE IN MODERN DAY FINANCE WHERE A LOT OF DEBT FINANCING IS RELIED UPON.

    'BIODUN ADEDIPE, Ph.D.


    Specifics contd3

    SPECIFICS (CONTD.)

    • WITH INTENSE GLOBALIZATION OF THE PAST FEW DECADES, THE CONTAGION AND KNOCK-ON EFFECTS QUICKLY MADE EVERYBODY VULNERABLE!

    • AS SUCH, POLICY MAKERS AND TOP GOVERNMENT FUNCTIONARIES SHOULD HAVE PAID MORE ATTENTION TO THE SUB-PRIME MORTGAGE CRISIS IN THE US, RATHER THAN THE FURIOUS ATTEMPTS MADE INITIALLY TO DENY THE OBVIOUS.

    'BIODUN ADEDIPE, Ph.D.


    Causes

    CAUSES

    • SO, HOW AND WHERE DID THIS FINANCIAL CRISIS BEGIN?

    • THE CURRENT GLOBAL FINANCIAL CRISIS HAD BEEN BREWING PRIOR TO 2007, BUT ITS EFFECT STARTED TO BE SEEN IN AUGUST 2007 AND BECAME A GLOBAL PHENOMENON BY JUNE 2008.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd

    CAUSES (CONTD.)

    • LARGE FINANCIAL INSTITUTIONS THAT WERE DEEMED TO BE VERY STRONG AND FAILURE-PROOF EITHER FAILED (LEHMAN BROTHERS) OR HAD TO BE BOUGHT OVER CHEAPLY BY THEIR COMPETITORS (MERRILL LYNCH).

    • THOSE THAT SCRAPPED THROUGH WERE BADLY DAMAGED AND HAD THEIR CAPITAL HEAVILY ERODED, AND HAVE HAD TO CHANGE THEIR BUSINESS MODELS TO SURVIVE.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd1

    CAUSES (CONTD.)

    • AT THE HEART OF THE CRISIS WERE CREDIT DERIVATIVES, WHICH ARE A FORM OF INSURANCE IN WHICH THE INVESTOR UNDERWRITES THE DEFAULT EVENTS IN CORPORATE DEBTS.

    • THUS, DERIVATIVES ENABLE THE SHARING OF CREDIT RISKS BY BREAKING THEM DOWN INTO SMALLER, DIGESTIBLE CHUNKS.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd2

    CAUSES (CONTD.)

    • AS SUCH, ON THEIR OWN, DERIVATIVES ARE GOOD FOR RISK HEDGING.

    • HOWEVER, PROBLEMS AROSE FROM TWO PREMISES:

      • WHAT THEY WERE USED FOR – SPECULATION!

      • WHAT THEY LED MARKET PARTICIPANTS TO BEGIN TO DO – BANKERS ESPECIALLY, BECAME CARELESS IN LENDING.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd3

    CAUSES (CONTD.)

    • BRITISH COMEDIANS, JOHN BIRD AND JOHN FORTUNE, PUT THE CRISIS SUCCINCTLY AS:

      • “A COLLAPSE OF THE US SUB-PRIME MORTGAGE MARKET AND THE REVERSAL OF THE HOUSING BOOM IN OTHER INDUSTRIALIZED ECONOMIES HAVE HAD A RIPPLE EFFECT AROUND THE WORLD. FURTHERMORE, OTHER WEAKNESSES IN THE GLOBAL FINANCIAL SYSTEM HAVE SURFACED. SOME FINANCIAL PRODUCTS AND INSTRUMENTS HAVE BECOME SO COMPLEX AND TWISTED, THAT AS THINGS START TO UNRAVEL, TRUST IN THE WHOLE SYSTEM STARTED TO FAIL.”

    'BIODUN ADEDIPE, Ph.D.


    Causes contd4

    CAUSES (CONTD.)

    • WE CAN IMMEDIATELY IDENTIFY THE FOLLOWING ISSUES IN THIS STATEMENT:

      • SUB-PRIME MORTGAGE LENDING

        • LENDING TO THOSE WHO COULD NOT AFFORD MORTGAGES OF THE MAGNITUDE OF EXPOSURE.

        • FURTHER LENDING ON EQUITY (‘BUBBLE’) CREATED BY SOARING ASSET PRICES.

        • POOR ATTENTION TO CREDIT RISK ANALYSIS, RELYING ON THE WINDOW FOR SELLING OFF OR SHARING CREDIT RISK.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd5

    CAUSES (CONTD.)

    • ISSUES ARISING (CONTD.):

      • REVERSAL OF HOUSING BOOM

        • CONTAGION EFFECT OF REAL ESTATE BURST IN THE US TRIGGERED ‘CAPITAL MIGRATION’, AND THE ‘FEAR FACTOR’ CREPT IN TO FURTHER ACCELERATE THE DOWNWARD SPIRAL IN HOUSING PRICES.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd6

    CAUSES (CONTD.)

    • ISSUES ARISING (CONTD.):

      • INADEQUATE REGULATION OF FINANCIAL SYSTEMS

        • TO ENCOURAGE INNOVATIONS AND IN RECOGNITION THAT FINANCIAL EXPERTS HAD CAPACITY TO MANAGE RISKS.

        • RISKS HAVE BEEN PROPERLY IDENTIFIED AND UNIVERSAL STRATEGIES DESIGNED IN BASLE 2 ACCORD (UNDER THE AUSPICES OF THE BANK FOR INTERNATIONAL SETTLEMENT) WILL MAKE BANKERS (ESPECIALLY) ADOPT APPROPRIATE BEHAVIOUR.

        • WITH MARKET DISCIPLINE A MAJOR PILLAR OF THE NEW ACCORD, BANKERS WILL HENCEFORTH BEHAVE RESPONSIBLY.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd7

    CAUSES (CONTD.)

    • ISSUES ARISING (CONTD.):

      • EXTREME INNOVATIONS THAT CONFOUNDED (POSSIBLY, CONFUSED) REGULATORS AND PARTICIPANTS.

        • FINANCIAL DERIVATIVES WERE DRIVEN TO DIZZYING HEIGHTS THAT ONLY THE INITIATED IN THOSE COMPLEX ESOTERIC PRODUCTS COULD FIGURE OUT WHAT THEY MEAN OR IMPLY.

    'BIODUN ADEDIPE, Ph.D.


    Causes contd8

    CAUSES (CONTD.)

    • THE CAUSES OF THE CRISIS WERE SUMMARIZED IN THE TRADE AND DEVELOPMENT REPORT FOR 2008 AS:

      • THE GLOBAL FALLOUT FROM THE FINANCIAL CRISIS IN THE UNITED STATES.

      • THE BURSTING OF THE HOUSING BUBBLES IN THE US AND IN OTHER LARGE ECONOMIES.

        • THE BENEFIT OF HINDSIGHT WAS ARGUED BY BERNANKE AND GERTNER (2001) THAT THIS WAS A MAJOR FACTOR IN THE ECONOMIC DEPRESSION OF THE LATE 1920s.

      • SOARING COMMODITY PRICES.

      • INCREASINGLY RESTRICTIVE MONETARY POLICIES IN A NUMBER OF COUNTRIES.

      • STOCK MARKET VOLATILITY.

    'BIODUN ADEDIPE, Ph.D.


    Implications

    IMPLICATIONS

    • TILL DATE, NO COUNTRY OR FINANCIAL SYSTEM HAS FOUND AN ENDURING SOLUTION TO THE CRISIS.

    • EVERY COUNTRY THAT SHOWED SOME SIGNS OF RECOVERY HAD ALSO HAD WORRYING MACROECONOMIC STATISTICS (USA) OR DEVELOPMENTS THAT CREATED FRESH PANIC (UK).

    • SPECIFICALLY, THE IMPLICATIONS ARE AS FOLLOWS.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd

    IMPLICATIONS (CONTD.)

    • FINANCIAL SYSTEMS WENT INTO TURMOIL AND ESPECIALLY BANKS SUSTAINED HUGE LOSSES THAT THREATENED THEIR EXISTENCE, AND MADE RECAPITALIZATION INEVITABLE.

    • NIGERIA IS NOT DIFFERENT FROM THE REST OF THE WORLD, AND IT WAS SELF-DELUSION THAT MADE US ARGUE THAT BANKING CONSOLIDATION ‘INSULATED’ OUR FINANCIAL SYSTEM FROM THE CRISIS.

      • RATHER, IT WAS THE UNDEVELOPED CREDIT CULTURE THAT LIMITED THE IMPACT OF THE CRISIS ON NIGERIA.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd1

    IMPLICATIONS (CONTD.)

    • EVEN AT THAT, NIGERIAN BANKS HAD ALSO ENGAGED IN SUB-PRIME LENDING DURING THE PERIOD OF GROWING ASSET BUBBLES IN THE EQUITY MARKET!

    • TO ENSURE THAT BANKS DO NOT FAIL IN LARGE NUMBERS, WORLD GOVERNMENTS INTRODUCED FISCAL STIMULUS PACKAGES, ESTIMATED BY IMF AT US$4.1 TRILLION!

    'BIODUN ADEDIPE, Ph.D.


    Implications contd2

    IMPLICATIONS (CONTD.)

    • THE ENSUING CREDIT CRUNCH AFFECTED ADVERSELY COMMODITY CONSUMPTION, INCLUDING A SHARP DROP IN THE DEMAND FOR CRUDE OIL (BY CHINA AND INDIA ESPECIALLY) AND CAUSED THE PRICE OF CRUDE TO DROP FROM ITS PEAK OF $147/BBL IN JULY 2008 TO SUB-$40/BBL BY END-2008.

      • RECOVERY HAS PUSHED IT UP TO ABOUT $70/BBL.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd3

    IMPLICATIONS (CONTD.)

    • COUPLED WITH REDUCTION IN CRUDE OUTPUT DUE TO THE UNREST IN THE NIGER DELTA REGION, GOVERNMENT REVENUE IN NIGERIA REDUCED SIGNIFICANTLY. THUS, BUSINESS WITH THE GOVERNMENTS WILL NOT BE AS USUAL.

    • JOB LOSSES INCREASED, ESPECIALLY IN THE BANKING INDUSTRY. THIS ALSO HAS MEANT STOPPAGE OF NEW RECRUITMENTS IN FINANCIAL SERVICES.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd4

    IMPLICATIONS (CONTD.)

    • THE EXCHANGE VALUE OF THE NAIRA WEAKENED AGAINST NIGERIA’S MAJOR TRADING CURRENCIES (ABOUT 20% AGAINST THE US DOLLAR), MAKING NIGERIAN IMPORTS EXPENSIVE AND TRIGGERING INFLATIONARY PRESSURES.

    • AS WELL, CHEAPER NAIRA HAS MADE INVESTING IN NIGERIA ATTRACTIVE TO FOREIGNERS.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd5

    IMPLICATIONS (CONTD.)

    • SECURITY CHALLENGES HAVE ESCALATED, AS MORE PEOPLE HAVE BECOME DESPERATE BECAUSE OF JOB LOSSES, DEEMED PROSPECTS OF NEW JOBS OR FURTHER SINKING INTO POVERTY.

    'BIODUN ADEDIPE, Ph.D.


    Implications contd6

    IMPLICATIONS (CONTD.)

    • TYPICAL OF HUMAN BEINGS IN CRISIS, COMMON SENSE CAME BACK INTO PLAY, AS DISCRETIONARY INCOME SHRINKS.

      • PEOPLE HAVE BECOME MORE RATIONAL IN SPENDING AND THAT WILL PUT THOSE IN SELLING OR OFFERING NON-ESSENTIAL PRODUCTS AND SERVICES IN STRESS.

    'BIODUN ADEDIPE, Ph.D.


    What to do

    WHAT TO DO

    • AS OBSERVED IN THE ADVANCED FINANCIAL SYSTEMS, THE FIRST THING TO CONSIDER IS ‘STRESS TEST’ OF THE BANKS AND OTHER VULNERABLE FINANCIAL INSTITUTIONS.

      • THIS SHOULD HELP DETERMINE THE EXTENT OF TOXIC ASSETS A BANK IS CARRYING AND WHETHER ADEQUATE PROVISIONS HAVE BEEN MADE IN THE BANK’S BOOKS FOR THAT.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd

    WHAT TO DO (CONTD.)

    • WHERE BANK CAPITAL WAS FOUND TO HAVE BEEN BADLY ERODED, RECAPITALIZATION SHOULD BE QUICKLY CONSIDERED THROUGH A BAILOUT PACKAGE.

      • SOME BANKS HAVE PLAYED THE OSTRICH IN THIS, WITH THE CBN PLAYING ALONG AND THE GOVERNMENT QUITE COMFORTABLE.

      • UNFORTUNATELY, THE BANKS THAT TOOK THE RIGHT ACTION OF ‘BITING THE BULLET’ BY PROVIDING FULLY FOR DEFICIENT MARGIN LOANS ARE PERCEIVED AS WEAK. ON THE CONTRARY, SUCH BANKS HAVE MADE THE APPROPRIATE RESPONSE TO THE CRISIS AND SHOULD COME OUT STRONGER!

    'BIODUN ADEDIPE, Ph.D.


    What to do contd1

    WHAT TO DO (CONTD.)

    • IF OUR BANKS DISCLOSE FULLY THE EXTENT OF THE LOSSES ON MARGIN LOANS, THE IMPACT ON THEIR CAPITAL WILL INDICATE THE NECESSARY ACTIONS, WHICH WHEN TAKEN, COULD HAVE US EMERGE FROM THIS CRISIS WITH A MORE ROBUST BANKING SYSTEM.

    • ONE IMPORTANT OPTION IS TO ALLOW BANKS RESTRUCTURE THE LOANS TO BORROWERS THAT HAVE LONG-TERM REPAYMENT CAPABILITY BEYOND THE PRESENT LIMIT OF DECEMBER 2009.

      • UNUSUAL TIMES LIKE THIS WILL ALSO ADVISE REDUCTION IN THE INTEREST RATE APPLICABLE, RATHER THAN CHARGING A HIGH DEFAULT RATE.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd2

    WHAT TO DO (CONTD.)

    • BUSINESS ORGANIZATIONS SHOULD PURSUE AGGRESSIVELY COST EFFECTIVENESS.

      • SEARCH FOR AND IMPLEMENT RELIGIOUSLY STRATEGIES FOR REDUCING OPERATING EXPENSES TO LEVELS COMMENSURATE WITH VOLUME OF BUSINESS.

      • IT IS A TIME TO CUT OFF THE ‘FAT’.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd3

    WHAT TO DO (CONTD.)

    • ORGANIZATIONS SHOULD REVISIT THEIR BUSINESS MODEL, AND ESPECIALLY RETURN TO THEIR CORE BUSINESS AND THE BASICS OF IT.

      • THIS GOES BEYOND THE BANKS AND SHOULD BE AN ECONOMY-WIDE ACTION.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd4

    WHAT TO DO (CONTD.)

    • THOROUGH-GOING RESEARCH OF THE CRISIS SHOULD BE CONDUCTED AND ALL THE POSSIBLE LESSONS PROPERLY DOCUMENTED FOR FUTURE REFERENCE.

      • ONE MAJOR LESSON OF THE CRISIS IS THAT ‘GREED IS A KILLER’ AND WHENEVER THE SIGNS ARE PERVASIVE, REGULATORY AUTHORITIES SHOULD MOVE QUICKLY WITH COUNTER MEASURES.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd5

    WHAT TO DO (CONTD.)

    • RECOGNIZE THAT THE CRISIS IS BOTH A DANGER AND AN OPPORTUNITY, AS UNDERSCORED IN THE STATEMENTS CREDITED TO J.F. KENNEDY AND CHIN-NIN CHU.

    'BIODUN ADEDIPE, Ph.D.


    What to do contd6

    WHAT TO DO (CONTD.)

    • JOHN F. KENNEDY:

      • “THE CHINESE USE TWO BRUSH STROKES TO WRITE THE WORD 'CRISIS'. ONE BRUSH STROKE STANDS FOR DANGER; THE OTHER FOR OPPORTUNITY. IN A CRISIS, BE AWARE OF THE DANGER-BUT RECOGNIZE THE OPPORTUNITY.”

  • CHIN-NING CHU:

    • “WITHOUT THE STRENGTH TO ENDURE THE CRISIS, ONE WILL NOT SEE THE OPPORTUNITY WITHIN. IT IS WITHIN THE PROCESS OF ENDURANCE THAT OPPORTUNITY REVEALS ITSELF.”

  • 'BIODUN ADEDIPE, Ph.D.


    What to do contd7

    WHAT TO DO (CONTD.)

    • IT IS A TIME TO THINK SERIOUSLY HOW NIGERIAN BANKS (AND THE ENTIRE FINANCIAL SYSTEM) WILL CONNECT WITH THE REAL SECTOR, AND ULTIMATELY HELP TO REDUCE POVERTY AS FINANCIAL CRISIS EXTENUATES THE VULNERABILITY OF BOTH THE ACTIVE AND INACTIVE POOR.

      • MARTIN RAVALLION, DIRECTOR OF THE WORLD BANK’S DEVELOPMENT RESEARCH GROUP STATED THAT “IF THERE’S ONE THING THAT SHOULD NOT BE MISSED DURING THIS CRISIS, IT’S THE OPPORTUNITY TO CREATE PRO-POOR STABILIZERS IN DEVELOPING COUNTRIES, SIMILAR TO THE AUTOMATIC SOCIAL SAFETY NETS THAT RICH COUNTRIES ALREADY HAVE IN PLACE,”

    'BIODUN ADEDIPE, Ph.D.


    End notes

    END NOTES

    • IN DEALING WITH THE CRISIS AND ITS EFFECTS, GOVERNMENTS AROUND THE WORLD HAVE BEEN PRAGMATIC, WHILE NIGERIA HAS BEEN SLOW TO ACT AND APPEARS TO BE MOVING AGAINST THE GRAIN OF COMMON SENSE.

    • IF THIS CRISIS HAS DONE ONE THING, IT IS THAT IT HAS PROVED THAT THERE ARE NO EXPERTS ANYWHERE ON THIS MATTER – EVERYBODY IS STILL GROPING AND SEARCHING!

    'BIODUN ADEDIPE, Ph.D.


    End notes contd

    END NOTES (CONTD.)

    • IT IS THEREFORE, SAFE TO SEEK SOLUTIONS TO THE QUAGMIRE OUTSIDE OF THE WELL-WORN ‘WASHINGTON CONSENSUS’ WITH ITS QUESTIONABLE EFFICACY, WHICH RATHER DISCOURAGINGLY IS WHAT THE NIGERIAN GOVERNMENT IS STILL DOGGEDLY IMPLEMENTING.

    • AS HAS BEEN SUGGESTED IN SEVERAL QUARTERS ACROSS THE GLOBE, THIS IS PERHAPS THE TIME TO BEGIN RESEARCHING INTO ‘THE NEW ECONOMY’ THAT WOULD BE EXPLAINED BY NEW ECONOMIC THEORIES.

    'BIODUN ADEDIPE, Ph.D.


    End notes contd1

    END NOTES (CONTD.)

    • ANY ECONOMIC ENTITY, BE IT GOVERNMENT OR PRIVATE ENTERPRISE, THAT FAILS TO ADJUST TO THE REALITIES OF THE SHRINKING FINANCIAL SPHERE MIGHT BE INVITING A ‘NEAR END’.

    • THESE ARE TIMES THAT REALITIES MATTER AND MUST GUIDE PRIORITIES AT ALL LEVELS.

    'BIODUN ADEDIPE, Ph.D.


    Selected references

    SELECTED REFERENCES

    • BERNANKE S. BEN, ASSET-PRICE “BUBBLES” AND MONETARY POLICY, REMARKS BEFORE THE NEW YORK CHAPTER OF THE NATIONAL ASSOCIATION OF BUSINESS ECONOMICS (OCTOBER 15 2002).

    • CONTACT GROUP ON ASSET PRICES, TURBULENCE IN ASSET MARKETS: THE ROLE OF MICRO POLICIES (SEPTEMBER 2002).

    'BIODUN ADEDIPE, Ph.D.


    Selected references contd

    SELECTED REFERENCES (CONTD.)

    • ECONOMIST (LONDON), ISSUE OF 19TH APRIL 2007.

    • KANAGA RAJA, ECONOMIC OUTLOOK GLOOMY, RISKS TO SOUTH, SAY UNCTAD, THIRD WORLD NETWORK, SEPTEMBER 4, 2008.

    • SHAH ANUP, GLOBAL FINANCIAL CRISIS 2008, WWW.GLOBALISSUES.COM

    • TRICHET JEAN-CLAUDE, ASSET PRICE BUBBLES AND MONETARY POLICY, SPEECH AT MAS LECTURE, SINGAPORE, 8TH JUNE 2005.

    'BIODUN ADEDIPE, Ph.D.


    Overview of the global economic crisis

    THANK YOU

    GOD BLESS

    'BIODUN ADEDIPE, Ph.D.


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