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Peak Period (2008) – The collapse of major banks



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2.1.3. Peak Period (2008) – The collapse of major banks


2008 was the peak period of the financial crisis with the failure of a series of large and long-standing banks, along with the strong loss of people's confidence in the economy, causing the US economy to fall into recession. crisis in history since the Great Depression of 1930. The US government was forced to step in with a series of emergency relief campaigns.
On March 16, 2008, Bear Steam, one of the top five US investment banks, had to cease operations after 85 years of existence due to an uncontrolled decline in financial-real estate investments. . Under the guarantee of the US Government, JP Morgan Chase bank bought Bear Stearns at a price of 2 USD/share, 10 times lower than the stock price traded on the market before the time of purchase. This price after being adjusted to 10 USD per share. The fact that the Federal Reserve Bank of New York could not save Bear Steam and was forced to let it be sold at too cheap a price has raised concerns about the ability of the Government to bail out financial institutions in difficulty. Bear Steam's demise pushed the crisis up the ladder.

  • On July 11, 2008, IndyMac - a leading real estate lender was closed by the country's Thrift Supervision Commission (OTS) and transferred to the Federal Deposit Insurance Corporation (FDIC). .

  • On September 7, 2008, the US government spent $200 billion to take over Fannie Mae and Freddie Mac through preferred stock purchases to keep these companies from going bankrupt. Fannie Mae and Freddie Mac are the two largest mortgage lenders in the US, underwriting $5 trillion worth of real estate across the US, accounting for 50% of the market. This event caused a real financial earthquake.

  • On September 14, 2008, Bank of America agreed to buy financial investment firm Merrill Lynch for $50 billion. This merger will create the most powerful financial group in the world in the context of US economic difficulties.

  • On July 11, 2008, IndyMac - a leading real estate lender was closed by the country's Thrift Supervision Commission (OTS) and transferred to the Federal Deposit Insurance Corporation (FDIC). .

  • On September 7, 2008, the US government spent $200 billion to take over Fannie Mae and Freddie Mac through preferred stock purchases to keep these companies from going bankrupt. Fannie Mae and Freddie Mac are the two largest mortgage lenders in the US, underwriting $5 trillion worth of real estate across the US, accounting for 50% of the market. This event caused a real financial earthquake.

  • On September 14, 2008, Bank of America agreed to buy financial investment firm Merrill Lynch for $50 billion. This merger will create the most powerful financial group in the world in the context of US economic difficulties.

  • On September 15, 2008, after an attempt to raise capital failed due to the refusal of the US government to guarantee it, Lehman Brothers, the leading investment bank in the world with 158 years of history and over 26,000 employees, announced bankruptcy father. Lehman Brothers has a total debt of $768 billion (including $614 billion in bank debt and $155 billion in bond debt). The paper asset valuation of $639 billion includes many assets whose actual value could be much lower than their book value. The bankruptcy of Lehman Brothers and the events that preceded it marked the escalation of the financial crisis that many experts consider to be the worst since the Great Depression of the 1930s. .

  • On September 16, 2008, the Fed spent $85 billion in emergency relief for AIG, the world's leading insurance and financial services group on the verge of bankruptcy. AIG provides insurance and financial services in more than 100 countries around the world. The group insures bonds worth up to $441 billion, including $57.8 billion in real estate-related securities. Over the past 18 months, AIG has lost more than $18 billion. The loss stemmed from investing in real estate-backed securities and selling credit default swaps (CDSs), which are insurance policies against default. debt of a certain company. In the first two quarters of 2008 alone, AIG ran a pre-tax asset shortfall of $14.7 tyt because of this type of contract.

  • On September 26, Washington Mutual Bank - the largest savings bank in the US was taken over by the Government and then sold to JP Morgan Chase & Co for $1.9 billion. Washington Mutual created the largest bank bankruptcy in history with a total assets loss of up to 307 billion USD.

September and October 2008 also became a dark period for Wall Street when the Dow Jones index lost 25% of its value after only one month from September 15, 2008. Since then, volatility on Wall Street has become more unpredictable, with many decades-old bullish and bearish records broken.
In between the above events, the first 9 months of 2008 also witnessed the oil, food, and inflation fevers that rocked the global economy. Especially the price of oil, from $90 a barrel at the beginning of the year climbed above $100 an ounce on March 17. And the expensive food prices create real stress in many places, even food exporting countries. Since then, inflation has also spread to many countries. However, after peaking in July 2008, oil prices suddenly plummeted without stopping. The reason for this phenomenon is that the demand for oil in many countries, especially China and India, has dropped sharply due to economic difficulties. The price of this fuel is only about 40 USD a barrel, losing more than 100 USD, or nearly 70%, compared to the original value, despite OPEC's efforts to cut output.
The worsening situation of frozen financial markets has forced the central banks of the US, UK, Japan, EU and many other countries to cut interest rates in series to open up capital flows. Since the beginning of 2008, the US has cut interest rates 8 times, since then the basic interest rate has been reduced from 5% to only 0.25%. Not stopping at the fiscal adjustments, the above countries also actively inject money to support liquidity for financial groups, as well as stimulate consumption and lending activities.
On September 29, 2008, the $700 billion financial market bailout package was rejected by the National Assembly due to mixed opinions of the parties, this event caused the Dow Jones to have the largest decline in history. , nearly 778 points and Wall Street lost 1200 billion USD.
On October 3, 2008, In an effort to find a lasting solution, the US House of Representatives passed a 700 billion USD solution package after making many adjustments. Along with that, the Fed decided to cut interest rates from 2% to 1.5% to limit the recession of the economy.

The freezing situation of the financial system continued to lead to a decrease in the production activities of enterprises as well as the targets of the people. As a result of this situation, many businesses went bankrupt and pushed unemployment rates up in many countries. Consumer confidence indicators fell to the lowest level in many years. In three months, by the end of September 2008, more than 30,000 American businesses went bankrupt. Accordingly, the unemployment rate in many of these countries as of December 6, 2008 has reached 6.7%, the highest level in the past 15 years. In addition, a number of sad decades-old records for the number of new unemployed people weekly and monthly were also broken in regulation IV/2008.
Not stopping there, things could be even worse if the top three car manufacturers, Ford, General Motors (GM), and Chrysalis go bankrupt. Since the beginning of the year, the US auto industry has been severely affected by the financial crisis. With US car sales in October 2008 falling to their lowest level in 25 years, and predicted to get worse due to the financial crisis, the three giants are facing many difficulties. which is running out of cash in the immediate future. Since December 18, 2008, Chrysler has completely stopped production in North America. The US government is considering a plan for GM and Chrysler, the two most dangerous corporations, to "borrow" 14 billion USD, extracted from 700 billion USD of support for buying bad debts of banks. However, the above money is probably just a temporary medicine, enough for the two firms to "survive" until the end of the I/2009 period. Longer-term plans to tackle the car industry's troubles will then be transferred to the new administration of President Barack Obama. According to estimates by economists, if companies that are considered icons of the US auto industry go bankrupt, about 2.5 million more people will lose their jobs. The unemployment rate in the US will also escalate at breakneck speed.
On November 23, 2008, three important US financial regulators agreed to come up with a package of solutions worth 20 billion USD and guarantee all of Citigroup's debt, in order to pull the globally influential corporation out of danger. muscle collapse.
On November 25, 2008, the US Federal Reserve spent 600 billion USD of which 500 billion was used to buy back securities mortgages of Fannie Mac and Freddie Mac and also Ginnie Mac and 100 billion USD to buy back securities. losses of Fannie, Freddie and Federal Home Loan Banks.
On December 1, 2008, the US National Bureau of Economic Research announced that the US had entered a recession since December 2007 and was officially recognized by the US Government. The "domino" effect started with the collapse of a series of large and long-standing financial institutions, leading to the collapse of the entire banking system. In 2008, 25 banks were closed, by 2009 this number was 140 and in 2010 more than 200 banks collapsed because bad debts continued to increase sharply.
The economic leaders of the US and Europe have not yet ended their misery because of the financial crisis and economic recession, the US and EU were once again shaken when in mid-December 2008 the biggest scam ever carried out by Bernard Madoff was carried out. is now exposed. Taking advantage of Madoff's influence and reputation on Wall Street, Madoff's investment fund, operating under the Ponzi model, has attracted more than 50 billion USD from investors, including many large banks in Europe. . Many Madoff clients are facing the risk of losing their investment. The scandal has not ended with big questions surrounding the role of the US financial supervision system as well as the involvement of officials in Washington with Madoff.

2.2. The crisis has spread beyond other countries


Countries around the world are also not immune to the "unwelcome visit" of the crisis. Especially for countries with developed and strong economies such as the European Union (EU), Japan, etc.

  • July-September 2007: German bank IKB becomes the first bank in Europe to be affected by bad investments in the US subprime lending market. Meanwhile, German Bank SaxonyLB must receive a bailout from the Government.

  • September 14, 2007: For the first time in more than a century, customers flocked to a large bank to demand withdrawals at a major UK bank - Northern Rock Mortgage Bank - the 5th largest bank in the UK.

  • December 17, 2007: The credit crisis spread to Australia with the victim being Centro Properties Group, an owner of major shopping streets in the US in Australia after this group issued a profit warning. profits decrease. Centro Properties shares fell 70% in Sydney trades.

  • January 30, 2008: Switzerland's largest bank UBS announced a provision of $4 billion, bringing the total provision to $18.4 billion due to losses related to the mortgage crisis.

And no country in the world is immune to this economic crisis:
In Mongolia, the government had to pump money into the banks; Argentina had to nationalize pension funds; the three major banks and the Icelandic currency collapsed; Japan and many European countries also sank into recession.
India and Russia are both grappling with economic difficulties, reducing employment and investment. Russia has spent 160 billion USD to protect the ruble and the domestic financial market. The global economic crisis caused gasoline prices to drop, making part of the big plans of Russia as well as those of other oil exporting countries disappear. Oil prices trade at less than $40 a barrel, sending exporters such as Russia, Venezuela and Iran reeling.
China's export turnover dropped in November 2009, the biggest drop in 7 years. "The World's Factory" was heavily influenced by the decline of the world market, first of all, Western Europe and North America. In Guangdong, the industrial heart of China, 80,000 export factories may close. It is hoped that the $600 billion stimulus package implemented by the Chinese government can restore the domestic market, impacting on structural transformation of one of the world's most important economies.
Entering 2009, the global financial crisis continued to negatively impact the economies of countries around the world. Economic growth slowed, industrial production dropped sharply in the first months of 2009. Typically, the US auto industry. It can be said that 2009 was the most difficult year for the auto industry in the US. Chrysler and General Motors, two of the three giants of the auto industry, have filed for bankruptcy protection respectively, relying on government support to get out of bankruptcy and complete debt restructuring. . Meanwhile, although Ford has not yet filed for bankruptcy protection, in the globalized competition, it is also walking very arduously. To rescue the auto industry, President Obama had to quickly set up a special task force for the auto industry and provide a $50 billion bailout for GM and Chrysler. Not only did the government receive a 9.85% stake in Chrysler, a 60.8% stake in GM, and $2.1 billion in preferred shares, the government also received $13.8 billion in debt from these two companies. Besides, the US banking industry continues to face difficulties when the number of banks dissolved from January to December 2009 has reached 140. This is a record number of bank dissolutions in the US. since 1992. Last year, only 25 US banks failed. The Federal Deposit Insurance Agency said it has spent $30 billion dealing with bank closures this year and expects to spend an additional $100 billion on the work over the next four years. next year. On the other hand, the US dollar USD – the strongest currency in the world has experienced a year of sharp decline. The outbreak of the financial crisis caused this foreign currency index to constantly fall to the lowest level in history. in the context of a sharp increase in oil, gold and commodity prices, the USD/EUR exchange rate, the USD/GBP exchange rate, and the USD/AUD exchange rate all slid.
Besides the US, the Japanese economy also suffered a sharp decline. According to data released on December 9, 2009 from the Japanese Cabinet Office, in the third period of 2009, Japan's GDP decreased by 0.3% compared to the second period of 2009. The Japanese cabinet office said that the main reason for the decline in the Japanese economy in the third period of 2009 was the large changes in domestic market demand, the growth rate was adjusted to negative, and for the economic growth of the domestic market from 0.8% to only 0.1%.
The problem of unemployment is becoming alarming worldwide. Unemployment rate is increasing. It can be said that 2009 was one of the darkest years for workers. According to statistics of the International Labor Office (IPO), compared to 2007, which is the pre-crisis period, this financial and economic earthquake took the jobs of 40-60 million people. 2009; pushing about 200 million workers into poverty with incomes of less than two dollars a day. The most affected classes are young people and women. The number of young people under the age of 26 without a job jumped from 12% to 15% in the past year.
Besides, the national debt became one of the heaviest impacts of this great crisis on the global economy in 2009. After the economic stimulus packages, many countries will have to consider debt repayment as key tasks in this year's fiscal plan. Throughout 2009, many economic research organizations warned of the indebtedness of governments after spending a lot of money on economic stimulus measures. This situation is especially common in Europe, where budget deficits in most countries exceed 3%. Business Week magazine has just released a list of countries with a debt-to-GDP ratio expected to be at dangerous levels in 2010, including the world's leading economies such as the US, Japan, Iceland, and Greece.The most prominent is the Dubai shock. The world market on November 23, 2009 received a shocking news when Dubai World, a leading state-owned enterprise applied for debt forgiveness, causing the global financial market to wobble. The case of the "rich people asking for debt" began when the Dubai Government announced that Dubai World plans to apply for a delay in paying debts of up to $ 59 billion, more than two-thirds of the total debt of $ 80 billion of this country's government. The announcement of Dubai's debt forfeiture plan quickly negatively impacted the stock markets of countries and investors' confidence in Government debt. Not only causing the world's stock market to be "red on the floor", Dubai's request to postpone this debt payment also dragged down the price of oil and gold.
By the end of 2009, there were positive signs that the global economy had initially shown certain signs of recovery, in which Asian countries played a leading role in the process of reviving the economy. regional economy. The economies of other countries began to grow again, and production began to recover.
In 2010, the world economy continued to show more positive signs. The prospect of the US economy's recovery is also growing. Gross industrial product as well as new orders in EU countries also increased. Asian countries such as China, Japan, and Singapore have also made significant recovery steps. However, the problem of high unemployment rate and the problem of huge debts of countries are still major problems for the world economy.

2.3. The cause of the crisis


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