Global Financial Crisis A Catalyst for change in Global ：全球金融危机改变全球催化剂

1、Global Financial Crisis: A Catalyst for change in Global Economic ParadigmProfessor B. P. SinghChairmanDelhi School of Professional Studies & ResearchFormerly, Head & Dean Faculty of Commerce & BusinessDelhi School of EconomicsUniversity of DelhiDelhiAgenda For PresentationAnatomy of the Downturn :

2、Cause and EffectHow it has been managed?Factors affecting Economic Supremacy of a Country Position of USA till 2008 and current predictions in the wake of current meltdownChanging outlook for 2009 10 ContGlobal Financial Crisis: A Catalyst for change in Global Economic ParadigmCost of BankruptcyRest

3、ructuring of the Economy: A RemedyDimensions of RestructuringAcquisitions and RestructuringPolicy Goals: What States Want From Restructuring Anatomy of the downturnA closer look at the global credit crunchThe credit crunch may have its roots in the US, but its now a global problemThe Rudd Government

4、 has moved to protect bank deposits for the next 3 yearsGovernments in Great Britain, Belgium, the Netherlands & even Iceland have been forced to bail out some of their biggest banksImportantly, the Australian banking system, which is more regulated than that in the US, has held up very wellJanuary

5、2008March 2007Anatomy of a downturna closer look at the global credit crunchUS Federal Reserve cutsinterest rates to 0.75% amidfears the US economy could fall into recessionJP Morgan buys US investment bank Bear Stearns in an emergency rescue deal US Federal Reserve provides US$200 billion to commer

6、cial banks in another bid to free up market liquidity in addition to $700 billion announced by US Govt. to rescue wall street.Cont.April 2008International Monetary Fund warns losses related to the credit crunch could top US$1 trillionCont.September 20087 September 2008: US government seizes control

7、of mortgage lenders Fannie Mae and Freddie Mac15 September 2008: Lehman Brothers files for bankruptcy. Merrill Lynch is bought by Bank of America for US$50 billion16 September 2008: American International Group (AIG), the USs biggest insurer, receives an US$85 billion loan from the US Federal Reserv

8、e to stave off bankruptcy28 September 2008: US bank, Washington Mutual, is seized by US regulators in the biggest US bank failure in historyCont.September 200828 September 2008Britain, Belgium & the Netherlands are forced to bail out several major banks. US govt Announces US$700 billion plan to resc

9、ue Wall StreetUS House of Representatives narrowly rejects the US$700 billion bailout plan by a vote of 228-205, sending global share markets tumbling29 September 2008Citigroup bids for US bank Wachovia in a deal backed by US authorities30 September 2008$55 billion dollars is wiped off the Australia

10、n share market in a single dayOne day later, the market recovers by more than 4%Cont.3 October 2008: After a second vote, the US House of Representatives passes the US$700 billion bailout plan6 - 10 October 2008: Concerns that bailout plan wont prevent a global recession sends global shares sliding:

11、Japan -24.3%Europe -22.2%UK - 21.0%US -18.2% Australia -15.6%October 2008The list of casualties kept growing.In this way it has been managedEconomic Supremacy of a Country depends upon its state in terms of Hard and Soft PowerIn 20072020, 2030Weight of US Economy on the Skids Since 2000Source: IMF,

12、World Economic Outlook DB, Oct, 2008Growth Rate Predictions.Source: IMF, World Economic Outlook, 2008 Since the early 20th century, the US has been the top economic power in the world.- Worlds largest consumer market The USs economic weight has fallen steadily since 2000. 2000: 32% 2007: around 25%

13、Global Economy is expected to slow down. Despite a rise in productivity driven by technical innovation, global economic growth will slow overall due to aging population and shrinkage in economically active population Position of USA till 2008Predictions in the wake of Current Meltdown Emerging econo

14、mies, including BRICs, are growing rapidly.- Average growth of 6.9% during 2002-2007 (Global economy grew 3.3%)- Weight of BRICs: 5.3% in 1992 12.8% in 2007 Emerging countries will lead the global economic growth. US: 2-3% growth (inflow of immigrants and productivity improvement) Euro: 2-3% 1-2% gr

15、owth (shrinking labor population) Japan: 1-2% growth (rapidly aging population) China: 6-7% growth 4-5% growth from 2020 (declining economically active population & slowing productivity growth)Position of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont) China showed especially

16、fast growth.- Annual average growth of 10% since entering WTO in 2001- IMF predicts China will overtake Japan in 2010 to become the No. 2 economy - India: 6-7% growth (growing population and productivity improvement) As early as 2026, China may replace the US as the worlds largest economy. India is

17、expected to overtake Japan in 2023. Economic weight of BRICs will continue to rise. 16.1% in 2010 25.1% in 2020 31.7% in 2030 Position of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont) US holds dominant position in all areas that create financial power; financial hub, center

18、of financial assets & institutions. US holds 56.1% of the worlds financial assets 34% of bonds (as of 2006) Stock market capitalization: 4.5 times that of Japan, the worlds second-largest market Financial power of Europe and emerging countries will strengthen.- Significant advancement expected in so

19、vereign wealth funds and emerging countriesPosition of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont) Among the worlds ten major banks, three are US banks New York is the global financial hub Except for London, most other financial hubs specialize in narrow financial services

20、 Absolute financial power of the US will weaken but its superior status will continue.- In the wake of the financial crisis, the US financial industry will undergo a temporary contraction Position of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont) US maintains financial power

21、based on its key currency status and advanced financial acumen. US Dollar Recycling Mechanism USs current account deficit Increasing liquidity in countries with current account surplus Swelling foreign currency reserves of these countries Investment in the US US will continue to hold competitiveness

22、 thanks to large comprehensive financial groupsCommercial banks & investment banks combinedPosition of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont) US has quality workforce, core factor of financial industry Financial crisis caused contraction in US investment banks. Financ

23、ial power will be divided between the US and Europe. Impact of Chinas rapidly growing financial power will be limited to AsiaPosition of USA till 2008 (Cont)Predictions in the wake of Current Meltdown (Cont)Changing outlook for 2009Source : “The Implications of the Global Financial Crisis for Low-In

24、come Countries”, International Monetary Fund, March 2009.LICs = Low Income Countries (WEO: World Economic Outlook)*Cont.Source : “The Implications of the Global Financial Crisis for Low-Income Countries”, International Monetary Fund, March 2009.LICs = Low Income CountriesNote : The Economic Power In

25、dex (EPI) represents scores based on the sum of comparative outlook in seven areas (US=100) economic scale, key currency, financial power, resource-securing capability, science & technology, regional leadership, and global governance.An Emerging Polarity in Global Structure by 2030Economic Power Ind

26、exGlobal Financial Crisis: A Catalyst for Change in Global Economic ParadigmThe global financial crisis paved the way for China to shorten by more than two years, from the time necessary to catch up with industrialized countries, including the US. The US and Europe underwent “two lost years” due to

27、the financial crisis and Japan for 4-5 years.( IMF,2008) Change in key currency and international monetary systemCont.Emerging Polarity The US maintains the largest clout in the world : thanks to its defence and technological superiority. Once becomes politically integrated, Europe will emerge as a

28、key force in international peace and mediation work on the back of its soft power and new values. Backed by its huge economic scale, China will likely play the role of the epicentre of Asia and emerging markets.Cont.The next 20 years (2010-2030) will be a period of transition in global economic orde

29、r The US hegemony will gradually weaken Key variable in the shift of global economic order will be the emergence of BRIC countries, especially China.Cont.The biggest uncertainty shall lay on how China and India will evolve in terms of their diplomatic relations in the future The most important varia

30、ble in this relationship would depend upon how Chinas political and economic systems will grow and take shape.Cost of Bankruptcy.Bankruptcy Historical VignettesThe penalty for declaring bankruptcy in Ancient Rome was slavery or being cut to pieces. The choice was left to the creditor. By the Middle

31、Ages, the treatment of insolvent debtors had softened considerably. In Northern Italy, bankrupt debtors hit their naked backsides against a rock three times before a jeering crowd and cried out, “I declare bankruptcy.” In French medieval cities, bankrupts were required to wear a green cap at all tim

32、es, and anyone could throw stones at them. - Source: World Bank, Doing Business in 2004Restructuring of the Economy : A RemedyTo promote recovery in a crisis-affected economy, it is essential to link together a restructuring of the financial and the corporate sectors, a so-called rapid sequencing re

33、structuring of the economy.Dimensions of restructuringsAsset restructuringAcquisitions DivestituresSpin offsCorporate downsizing OutsourcingCont.Restructuring ownership structure, leverageExchange offersShare repurchasesLBO (Leveraged buyouts) LCOs (Leveraged cashouts)Acquisitions and Restructuring Corporate Restru