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Dr. Mohamed Eskandar Shah Mohd Rasid
Deputy Dean of Graduate Studies - INCIEF
Financial Crises
Hotlist of Crises
PANIC OF 1907, A U.S. ECONOMIC
RECESSION WITH BANK FAILURE
PANIC OF 1907, A U.S. ECONOMIC
RECESSION WITH BANK FAILURE
Wall Street Crash of 1929 - Black Tuesday and
Great Depression 1929 - 1945
Wall Street Crash of 1929 - Black Tuesday
and Great Depression of 1930 - 1945
Black Monday (1987)The largest one-day percentage decline in stock market
history
Black Monday (1987)The largest one-day percentage decline in stock market
history
1997 – 98 Asian Financial Crisis
1997 – 98 Asian Financial Crisis
THE PANIC OF
1907Bankers' Panic or Knickerbocker Crisis
attempt to corner the
market on stock of the
United Copper
Company
October 1907
by
Heinze, Moors, Otto & Barney
Fall Effects
Sto
ck
Ex
ch
an
ge
50
%
Pro
du
ctio
n 1
1%
Imp
orts
26%
Un
em
plo
ym
en
t 8%
Later to the downfall of the
Knickerbocker Trust CompanyNew York City's third-largest trust.
who pledged large sums of his own
money, and convinced other
New York bankers to do the same,
to shore up the banking system
J. P. Morgan
Some believed Engineered Panic
Others believed Morgan took advantage of
the panic to allow his U.S. Steel company to
acquire TC&I.
Despite Morgan’s role was significant, but still
he lost $21M, & lots of Criticism & Scrutiny
Black Tuesday & Great Depression
1929 - 1945
Originated in the U.S., after the fall in stock prices
that began around September 4, 1929, and became
worldwide news with the stock market crash of
October 29, 1929 (known as Black Tuesday)
United
StatesGreat Britain France Germany
Industrial
production–46% –23% –24% –41%
Wholesale
prices–32% –33% –34% –29%
Foreign trade –70% –60% –54% –61%
Unemployment +607% +129% +214% +232%
Keynesian Equilibrium
Great Depression was mainly caused by monetary contraction, the consequence of poor policy-making by the American Federal Reserve System and continued crisis in the banking system
Monetarists, including Milton
Friedman, argue
Irving Fisher, argued
the predominant factor
leading to the Great
Depression was over-
indebtedness and
deflation
Paradoxically, the more the debtors paid, the
more they owed.
Decline in productivity
the decline in productivity that caused the initial
decline in output and a prolonged recovery due to policies that affected the
labour market
Kehoe
& Prescott
Breakdown of
International
Trade
the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign
trade
the unequal distribution of wealth throughout the 1920s caused the Great Depression
Inequality
Economy Produced more, consumed less due to less income by masses;
Abandoning the Gold Standard
WW II – Industrial Revolution &
Employment Opportunities
Black Monday (1987)
The largest one-day percentage decline in stock market history
Black Monday refers to Monday, October 19, 1987,
when stock markets around the world crashed,
shedding a huge value in a very short time.
Market Falls
45.50%
Hong Kong
26.5%
UK
41.8%Australia
31%
Spain22.8%
USA
60%New Zealand
Program Trading
Illiquidity
Overvaluations
1997 Asian Financial Crisis
Thailand Economic Bubble &
Hot Money
Fixed Exchange Rates
Foreign Exchange Risk
Increase in Interest Rate in US
This made US more attractive market for Investment, compared
to, in pegged Asian currencies While US made it much more
attractive for HOT MONEY
Highly Leveraged Societies
Solution
ECONOMIC REFORMS
Asian Crises & Malaysia
Pre-Crisis Malaysia
The KLSE Composite index was above 1,200
Before the crisis, Malaysia had a large
current account deficit of 5% of its GDP
The ringgit was trading above 2.50 to the dollar
The overnight rate was below 7%
Crisis Effects on Malaysia
The KLSE Composite index declined to 600
The ringgit went to 4.57 to the dollar
The overnight rate jumped to 40% from 7%
Ringgit – Dollar Pegging
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