1. Global Financial Crisis
Globalization Unit Lesson 3

2. Objectives
Explore events leading up to financial crisis that struck the US and the world in 2008.
Interpret political cartoons relating to global economic crisis.
Consider the connections between globalization and the current economic crisis.
Describe current Eurozone crisis.

3. Warm Up Cultural, economic, political?
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).
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 $

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 (TARP) & EU inject billions
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

6. Subprime mortgage crisis
Lessons Learned?
Wall Street Recovery
Market up, individual profits not
Big Banks Are Back & Bigger Than Ever
Dodd-Frank reform barely enacted, No accountability for Big 6
Main Street Stagnant
Investor losses, Unemployment
Debt is dangerous
Personal & Governmental
Go to to finish slide:
the bank takeovers engineered by Paulson and other government officials during the crisis, because they had no choice, have left the survivors bigger and more powerful than ever—and thus even less likely to be allowed to collapse without a bailout. An industry that was once greatly scattered is now dominated by six behemoths: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

7. 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.

12. 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)

13. 5 Years Later Dodd-Frank reforms not widely enacted
Big banks are bigger than ever
$ consolidated in the Big 6
No prosecution for individuals in crisis
Wall Street recovery, Main Street struggles
Big corps seen $, small investors have not
Debt issues persist

14. Eurozone EU v Eurozone Same currency (Euro) Euro. Nat’l Bank
28 v 17 countries
Same currency (Euro)
Euro. Nat’l Bank
Each member has own fiscal policy

15. Eurozone Debt Crisis 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
17 countries had leadership changed

16. Closure How is the current economic crisis related to globalization?
Money is global – invested all over
Economies slow as credit tightened, internatl 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