1. Presenters: Irene, SyL & Yukiko
GLOBAL FINANCIAL CRISIS
&
Government Regulation
2010
Presentation Designed by SyL

2. INTRODUCTION
• Yukiko • Sunny • Irene
• Background • A blame game • The role of governments
• Subprime mortgage • Greed • Direction of future
• Free Market regulation
• Impact
• The whole system • Closer Observation of
individual institutions
• Overall Evaluation of
• The need of government Systemic Risk
intervention

3. IMPACTS ON USA
• Financial market Dow Jones Industrial Average
Foreign exchange
Source: YAHOO! FINANCE

4. IMPACTS ON USA
USA
• Unemployment rate
Source: http://www.tradingeconomics.com/Economics/Unemployment-rate

5. IMPACTS IN THE WORLD
•World Trade
(Unit : %) (Unit : %)
Figure1. increase in import Figure2. increase in export
volumes volumes
Source : World Bank

6. IMPACTS IN THE WORLD
• Global growth
(unit: %)
Figure3. growth in industrial
production
Source : World Bank calculations based on Thomson
Datastream data

7. LOSSES
US$ 4.1 trillion (IMF report)
GDP (Gross domestic product) 2008
Source: World Development Indicators database, World Bank, 19 April, 2010

8. A BLAME GAME
Roots of the problem - Greed
Fear is so pervasive today because for years the financial
markets — and many borrowers — showed no fear at all. Wall
Streeters didn't have to worry about regulation, .....and they
didn't worry about risk, .....This lack of fear became a hothouse
of greed and ignorance on Wall Street — and on Main Street as
well. When greed exceeds fear, trouble follows.....(Time
Magazine, 2008)

9. A BLAME GAME
Roots of the problem - Greed
"We need to stop their greed before they have squandered all
our money....","I think this is really disgraceful and very
insensitive." said by the anger of ordinary people (U.K.'s Daily
Mail)

10. A BLAME GAME
Free Market Philosophy
"The regulators as a whole didn't regulate," Some officials, often
at the state or even city level, did warn of the risk but were
ignored ...blames regulators for relying on a "free market
philosophy" that "just let things go." (BusinessWeek, 10/9/08)

11. A BLAME GAME
Free Market Philosophy
Mark Duckenfield of the London School of Economics said that
"Deregulation and a lack of financial oversight are not exclusive
to the U.S”, "A lot of European countries embraced the free
market and deregulation."
.... a free-market ideology that has been variously called neo-
liberalism....The political home of neo-liberalism in Australia is, of
course, the Liberal Party itself (Rudd, 2009).

12. A BLAME GAME
The whole economic system
Georgetown University finance professor, Reena Aggarwal says
that "It's so difficult to pinpoint one person or two people”,"It
really was the whole system."
George Soros has said that "the salient feature of the current
financial crisis is that it was not caused by some external shock ...
the crisis was generated by the system itself". Soros is right.
(Rudd, 2009)

13. “Governments must craft consistent global financial regulations to
prevent a race to the bottom, where capital leaks out to the areas of the
global economy with the weakest regulation. We must establish
stronger global disclosure standards for systemically important financial
institutions. We must also build stronger supervisory frameworks to
provide incentives for more responsible corporate conduct, including
executive remuneration .”
-------------------------------Mr Rudd (2009)

14. “....the free-market fundamentalism it has produced, has been revealed as little
more than personal greed dressed up as an economic philosophy. And, ironically,
it now falls to social democracy to prevent liberal capitalism from cannibalising
itself.”
“clearly the days of effective non-regulation and unconstrained financial
innovation are gone, and must not be allowed to return. The
consequences for the economy are too great.”
-----------------------------------------------Mr Rudd (2009)

15. THE ROLE OF GOVERNMENT
• Proactive and preventative
• Cost of preventative measure VS Lose in Crisis
• Example

16. DIRECTION OF FUTURE
REGULATION
• Closer observation of individual institutions
• Overall evaluation of systemic risk

17. CLOSER OBSERVATION OF
INDIVIDUAL INSTITUTIONS
• bring new transparency to many financial markets
• prevent reckless risk taking
• practices of companies were so opaque and complex

18. “The far bigger failure – shared by bankers, regulators,
central banks, finance ministers and academics across the
world – was the failure to identify that the whole system was
fraught with market-wide, systemic risk.”
———Adair Turner
chairman of the Financial Service Authority

19. OVERALL EVALUATION OF
SYSTEMIC RISK
• An statutory requirement for analysis of the stability of the
financial system.
• Multiple analytic agencies
• Periodic reports on the stability of financial system

20. CONCLUSION

21. QUESTIONS TIME