20 years: Sales & Trading
In this video, Richard explains the circumstances leading up to the infamous 2008 Financial Crisis. He provides a systemic overview of the crisis by focussing on the timeline of events and the financial ecosystem.
In this video, Richard explains the circumstances leading up to the infamous 2008 Financial Crisis. He provides a systemic overview of the crisis by focussing on the timeline of events and the financial ecosystem.
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34 mins 25 secs
The financial crisis was a globally connected episode where confidence in and between banks evaporated, leading to a sharp and prolonged impact on public and private-sector balance sheets. The connectivity and interdependency between banks made the crisis escalate rapidly, leading to severe outcomes. Global growth went into reverse and no area of the world was spared. The eye of the storm was the collapse of Lehman Brothers and related events, but the seeds were sown many years before.
Key learning objectives:
Define the 2008 Global Financial Crisis
Define the Keynesian market economy
Define the pre-crisis ecosystem
Identify the factors in the ecosystem that led to the crisis
Learn how the interaction of agents and factors sow the seeds of doom and lead to the crisis
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The financial crisis was a globally connected episode where confidence in banks and between banks evaporated, leading to a sharp and prolonged impact on public and-private sectors balance sheets. The connectivity and interdependency between financial institutions made the crisis escalate rapidly, leading to severe outcomes. The eye of the storm was the collapse of Lehman Brothers and events anchored around autumn 2008, but the seeds were sown years before. The crisis was liquidity-driven: confidence (particularly between banks) was lost so liquidity i.e. the supply of funds, evaporated. The reduction in private-sector balance sheets, coupled with an explosion in government and central bank balance sheets, is key to how the financial crisis played out.
The concept of economic loss to firms and financial loss to providers of loans and capital allows us to accept that depreciation is constant. To stand still, economies require constant investing. Systemic equilibrium is reached when firms hire, households commit labour and investment, banks lend, and firms borrow and build to hire etc. Disequilibrium - households contracting balance sheets, banks not lending to other banks, players sharply re-pricing real economic and financial risk owing to a fear of loss - leads to financial crisis.
Contributory factors:
Agents:
Market tools:
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