1. Global Financial Crisis GLOBALIZATION LESSON 3

2. Objectives  Review events leading up to financial crisis that struck the US in 2008.  Explore the reverberations of said crisis on Europe and the global economy.  Identify if we have learned any lessons in the past 5 years.

3. Warm Up  What have we learned about globalization so far?  Cultural, economic, political?  Effects on people?  Benefits?  Downsides?

4. Subprime Mortgage Crisis  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).CDS  US Housing Bubble Bursts  Speculative – drove up prices, artificial values  Extended mortgages to subprime borrowers  Adjustable-rate mortgage (ARM’s), NINA loans  Bubble bursts 06-07 – Values fall, ppl underwater or default on loan payments, banks see cash flow dry up, investors withdraw $

5. 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.  Fed Reserve (Troubled Asset Relief Program=TARP) & EU inject billions  Decline in production = loss of jobs = decline in spending  Global Effects  Banks unwilling to lend, economies slow as credit tightened  International trade declines (decline US imports = decline global GDP = decline US exports = decline US GDP…)  Drop in US demand hurts rising economies  Stock values all over world drop w/loss confidence  Low interest rates = weaker $ = less profit trade partners  Too Big To Fail Explains It All Too Big To Fail Explains It All

6. Lessons Learned?  Dodd-Frank reforms not enacted  Big Banks Bigger  No prosecutionprosecution  Wall St Recovery, Main St Struggles  Debt Persists  Debt Ceiling Crisis

7. Eurozone  EU (28)  European Commission  Eurozone  Same currency (euro)  European Central Bank (monetary policy)  Separate national fiscal policies (budgets)

8. Eurozone Debt CrisisCrisis  When: Late 2009  Why: Government Debt, Banking & Housing Crisis  (similar to US- pool & securitize investments) & Slow Economic Growth  Where: PIIGS and others  Who’s In Charge: European Commission, European Central Bank, IMF  Relief: Bailout, Loans, Lower Interest Rates, Budgets  Consequences: Economic & Political Changes, Social Upheaval  https://www.youtube.com/watch?v=35X3Odv4_bo#t=150 https://www.youtube.com/watch?v=35X3Odv4_bo#t=150

9. Activity “Read” Interactive Charts on NY Times.com “It’s All Connected: An Overview of the Euro Crisis” http://www.nytimes.com/interac tive/2011/10/23/sunday- review/an-overview-of-the-euro- crisis.htmlhttp://www.nytimes.com/interac tive/2011/10/23/sunday- review/an-overview-of-the-euro- crisis.html and “Datapoints: It’s All Connected: A Spectator’s Guide to the Euro Crisis” http://www.nytimes.com/image pages/2011/10/22/opinion/2011 1023_DATAPOINTS.html?ref=sund ay-review Identify and define any terms with which you are unfamiliar! I know there will be some!  WHO called the euro zone “the ultimate contagion machine”?  WHAT are the major components of the debt crisis in Europe?  WHAT does “debt exposure” mean?  WHERE in Europe and around the world is the crisis having impact?  WHEN was the euro established as a form of currency?  WHY might rising borrowing costs, runs on banks and other financial troubles happen in certain European countries?  HOW much do borrowers in various European countries owe to banks of other nations?

10. Pressures of Globalization  Video

11. If time remains….  Read!!!

12. Closure  How is the current economic crisis related to globalization?  Money is global – invested all over  Economies slow as credit tightened, international trade declines  Drop in US demand hurts rising economies  Loss investor confidence hurts global markets  Lower interest rates = weaker dollar = declining profits for trade partners