1. Market Meltdown: Understanding 300 Years of Credit Crises Dr. Mark Mullins Executive Director Fraser Institute January 13, 2009

2. “Prosperity, boom, crisis, slump, and recovery succeed each other with a regularity that suggest(s) inevitability” Professor T. S. Ashton Economic Fluctuations in England 1700-1800 1959

3. “If a panic were to pass a certain height, that system, which rests on confidence, would be destroyed by terror” Walter Bagehot Lombard Street: A Description of the Money Market 1873

4. History Market Meltdown

5. Past Crises Source: Mullins

6. Past Episodes Year StocksEvent 1701-41%Spanish Succession 1721-78South Sea Bubble 1722-43South Sea Bubble 1797-34French Invasion 1803-32Recession 1826-20South America 1837-24Foreign Investments 1848-28Railways 1866-27Bank Collapse 1877-34Depression 1893-27Gold Standard 1900-32Recession 1903-35Rich Man’s Panic 1907-45Bankers’ Panic 1913-24War Threat 1917-38WWI 1920-39Post War Bust 1921-29Post War Bust 1929-48Crash 1930-46Depression 1931-60Sterling 1932-74Depression 1938-48War Threat 1939-22War Threat 1940-27WWII 1941-22WWII 1942-28WWII 1946-23Post War Bust 1962-27JFK and Steel 1966-25Credit 1970-33Recession 1974-41Oil Shock 1978-23Stagflation 1982-22Recession 1987-36Crash 1990-21Recession 1998-19Asian 2002-27High Tech 2008-52Credit Source: Mullins

7. Leading Stock Markets Source: S&P 500, Various Historical Indices

8. Causes Market Meltdown

9. “A previous record of delinquency, foreclosure or bankruptcy; a credit score of 580 or below … and a debt service-to-income ratio of 50 percent or greater” Professor Paul Mizon The Credit Crunch of 2007-2008 Federal Reserve Bank of St. Louis Review Subprime Borrower

10. US Subprime Originations Source: Mortgage Bankers Association

11. US Housing Prices and Rates Source: S&P/Case-Shiller, HSH Associates, US Federal Reserve Board

12. Scale Market Meltdown

13. Global Stock Markets Source: World Federation of Exchanges, Mortgage Bankers Association, Author’s Calculations

14. Credit Crisis Market Meltdown

15. US Commercial Paper Rates Source: US Federal Reserve Board

16. US Commercial Paper Rates Source: US Federal Reserve Board

17. Interbank Lending Rates Source: US Federal Reserve Board, British Bankers Association

18. Risks and Impact Market Meltdown

19. US Bank Loan Losses Source: IMF Global Financial Stability Report

20. Global Asset Writedowns Source: IMF Global Financial Stability Report

21. US Production and Jobs Source: US BEA, Federal Reserve

22. Oil Prices and Inflation Source: US BEA; UNDP

23. Commodity Prices Source: Federal Reserve; CRB

24. Dr. Copper Source: Federal Reserve; CRB

25. Gold and Real Rates Source: Federal Reserve

26. US Trade-Weighted Dollar Source: US FRB

27. Commodity Prices and C$ Source: CRB; Bank of Canada

28. Looking Forward Market Meltdown

29. Leading Economic Indicators Source: OECD

30. Leading Economic Indicators Source: Conference Board; Statistics Canada

31. Indicators of Coming Stability Source: US Federal Reserve Board, British Bankers Association

32. US Yield Curve Prediction Source: Federal Reserve

33. US Real Bill Rate Prediction Source: Federal Reserve

34. The Real Leading Indicator Source: MSCI Barra

35. Stock Market Comparison: I Source: Dow Jones; MSCI

36. Stock Market Comparison: II Source: Dow Jones; MSCI

37. Stock Market Comparison: III Source: Dow Jones; MSCI

38. Stock Market Comparison: IV Source: Dow Jones; MSCI

39. Stock Market Comparison: V Source: S&P; MSCI

40. Policy Market Meltdown

41. Central Bank Assets to GDP Source: Various Central Banks, Author’s Calculations

42. Mining Survey: Policy Potential Source: Fraser Institute

43. Policy Summary Social housing policy, Freddie and Fannie: regulation and underwriting standards The monetary policy cycle 21 st century bank runs: Lehman Brothers and others Central Banks: lend freely to solvent entities at penalty rates Prudential regulation: leverage, maturity matching and risk pricing Market insurance Social banking policy Exit strategy – not “stimulus”

44. Villains and Victims Risky business models: borrowers and lenders Leveraged entities and markets Iceland, Hungary, Serbia, Ukraine, Belarus, Turkey, Pakistan, South Korea, Argentina, Russia – not Canada Central banks Greed and market rhetoric Social policy advocates Banking structure Optimal public policy – and taxpayers

45. What About You? The lessons of history The market outlook The economic outlook Policy and politics

46. Market Meltdown: Understanding 300 Years of Credit Crises Dr. Mark Mullins Executive Director Fraser Institute January 13, 2009