GLOBALIZATION UNIT LESSON 3 GLOBAL FINANCIAL CRISIS

OBJECTIVES Explore events leading up to financial crisis that struck the US and the world in Interpret political cartoons relating to global economic crisis. Consider the connections between globalization and the current economic crisis. Describe current Eurozone crisis.

WARM UP What have we learned about globalization so far? Cultural, economic, political? Effects on people? Benefits? Downsides?

SUBPRIME MORTGAGE CRISISCRISIS Global Pool of Money World’s total investments Doubled 2000 ($35t) – 2006 ($70t) b/c BRICS Invested in US housing market via Mortgage-Backed Securities (MBS). Investments insured via Credit Default Swaps (CDS). US Housing Bubble Bursts Speculative – drove up prices, artificial values Extended mortgages to subprime borrowers ARM’s, NINA loans Bubble bursts – Values fall, ppl underwater or default on loan payments, banks see cash flow dry up, investors withdraw $

SUBPRIME MORTGAGE CRISIS Collapse US Economy Major US investment banks (Lehman Bros, Bear Sterns) assume massive losses, declare bankruptcy. AIG taken over by US govt. People lose retirement invest, jobs, homes, life savings Fed Reserve (TARP) & EU inject billions to restart econ Global Effects Banks unwilling to trade Economies slow as credit tightened, internatl trade declines Stock values all over world drop w/loss confidence Low interest rates = weaker $ = less profit trade partners Too Big To Fail Explains It All

POLITICAL CARTOONS In order to analyze the global impact of the crisis, we are going to work in small groups to evaluate a series of political cartoons. Labels : Identify or name certain things in their cartoons so that it is apparent what the things represent. Symbolism : Use simple objects to represent larger ideas or concepts. Analogy : Compare a simple image or concept to a more complex situation, in order to help the viewer understand the more complex situation in a different way. Irony : Highlighting the difference between the way things are and the way the cartoonist thinks they ought to be.

MAIN IDEAS Economies are so interconnected that failure of bullish US economy led to a series of global events. US economy has the power to destroy the entire global economy. With collapse of US economy, China remains as leading power. Global panic when their market shows slight weakness. In the end, the US public will pay for Wall St errors in one way or another (higher taxes, or increased price consumer goods)

LESSONS LEARNED? Dodd-Frank reforms not enacted Big Banks Bigger No prosecutionprosecution Wall St Recovery, Main St Struggles Debt Persists Debt Debt Ceiling Crisis

EUROZONE EU (28) Free mvmt people, goods, services, & capital European Commission Eurozone (17) Same currency (euro) European Central Bank (monetary policy) Separate national fiscal policies (budgets)

EUROZONE DEBT CRISISCRISIS When: Late 2009 Why: Government Debts, Banking & Housing Crisis (similar to US – pool & securitize investments) & Slow, Uneven Economic Growth Where: PIIGS and others Who’s In Charge: European Commission, European Central Bank, IMF Relief: Bailout, Loans, Lower Interest Rates, Austerity Budgets Consequences: Economic & Political Changes, Social Upheaval

CLOSURE Taking into account everything you’ve learned, should the global economy be better regulated? What impact may these regulations have?