Two Generations of Asset Price Bubbles: From 1990 Japan to 2007 U.S. Eric Rashi.

Slides:

Advertisements

Similar presentations

The Global Financial Crisis, in Brief..  The root cause was runaway borrowing and debt based on the inflated value of “assets”  Plus the lending of.

Advertisements

Test 1. Currency Crisis Financial Crisis Banking Crisis Foreign Debt Crisis.

Transmission Mechanisms of Monetary Policy

Chapter 25 Transmission Mechanisms of Monetary Policy.

Global Imbalances and their Role in the Global Financial Crisis By John J. Maughan.

Financial Crisis & Protectionism: Have We Been There Before?

THE GREAT MODERATION Good luck? Structure? Policy?

International finance The financial crisis

The Emerging market economies and the Great Recession Ahmad Seyf Regent’s University London 26 March 2015 University of Cambridge.

The shift and the shocks Martin Wolf, Associate Editor & Chief Economics Commentator, Financial Times Leverhulme Globalisation Lecture Series 28 th March.

USA & Global Financial Crisis. What is the Global Financial Crisis? The Global financial crisis is believed to be the largest financial crisis after the.

Chapter 11 and Chapter 12 Part I - Introduction of Banks.

The Great Recession, How Does it Differ From Others? FCCC 7 This ‘great’ vs. “normal” recession How Different; How Similar ?

1 1 THE UNIQUENESS OF THIS RECESSION. 2 2 FORECLOSED PROPERTY INVENTORY Percent of Total Mortgage Loans Date Percent Unsold Foreclosures Source: LoanPerformance-First.

The Russian Default of 1998 A case study of a currency crisis Francisco J. Campos, UMKC 10 November 2004.

The Great Recession Causes & Prospects

Prepared for Dr. Ramon Castillo Econ 462 CALIFORNIA STATE UNIVERSITY, LOS ANGELES Spring 2011 U.S Financial Crisis Present by Huan.

1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial.

CAIJING ANNUAL CONFERENCE 2009 Forecasts and Strategies Beijing December 12, 2008.

International Financial Crises What happened in Asia? Globalization, R. Bonoan & J. Shapiro November 21, 1999.

Lecture 10 Thursday, October 2 Finance. Some Basic Concepts Money Investment Credit Assets and Capital gains Securities: Stocks, bonds, derivatives, etc.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Chapter 23 Modern Monetary Policy and the Challenges Facing Central Bankers.

16 October  Hollowed Out State – does State becomes less relevant  Economic Policy dependence on global sentiments and financial markets  Control.

Global Financial Crisis 1 Don Kopka, PhD Management Dept Towson University.

1 Understanding Financial Crises Franklin Allen and Douglas Gale Clarendon Lectures in Finance June 9-11, 2003.

Student Name Student ID

The role of the land market to provide financial stability in the EU markets Professor Elias Dinenis Neapolis University Pafos.

To Accompany “Economics: Private and Public Choice 13th ed.” James Gwartney, Richard Stroup, Russell Sobel, & David Macpherson Slides authored and animated.

The Economy of Jordan: Problems and Solutions Presented by Dr. Ohan Balian May 03, 2010 Amman.

Financial Crisis: The IMF in Latin America and East Asia Tom Schaller.

1 ERES 2009 Stockholm, Sweden Haven’t Learnt from Past? A Common Symptom of Asset Bubble Implosions section 6-B (1) Cycles and Crises, Room Q34 CY YIU,

Governments, Moral Hazards, and Financial Crises Franklin Allen Wharton School University of Pennsylvania Norges Bank Conference September 1-2, 2010.

Growth & Crises Michael Smitka Fudan University 復旦大學 November 2000.

Perspectives on Emerging Economies Growth Vincenzo D’Apice Observatory on Emerging Economies, Luiss 22-Feb-2011.

1 Global Financial Crisis: Implications For Asia David Burton Director, Asia and Pacific Department International Monetary Fund Presentation to the Government.

The Lessons from the Housing Market Crisis Professor Elias Karakitsos

The Current Global Financial Crisis and Its Impacts on the OIC Countries Dr. Murat Yulek.

Japan Financial Crisis By: Sander Chau Winslow Han.

ＢＯＪ after the burst of the bubble Yoichi Takita, Nikkei.

Multinational Policymaking The International Financial Architecture.

The US Economic Crisis: Causes and Possible Solutions Fred Moseley Economics Department Mount Holyoke College.

The Causes and Cures of the Economic Crisis Dean Baker, Co-Director Center for Economic and Policy Research April 13, 2012.

1 Trends and Developments in Banking Cheryl J. Rathbun Citigroup Chief Operating Officer, Institutional Clients Group, Risk Management U.S. Basel II Implementation.

ASSET BUBBLES AND THE FINANCIAL CRISIS OF 2008? A. G. MALLIARIS Presented to the Xavier EMBA, November 26, 2008 What are Asset Bubbles? Variety of Bubbles.

POLITICAL ECONOMY OF GLOBAL BANKING CRISES MUSTAFA AKAYDIN HALİL BÜLBÜL.

The Economic Crisis March 25. Canadian Real GDP, Annual Change (%)

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 23 Monetary Policy, Output, and Inflation in the Short.

LESSONS THE U.S. CAN LEARN FROM JAPAN AND THE EUROZONE Presented by A.G. Malliaris THE TRANSFORMER ASSOCIATION SPRING MEETING Chicago, May 1, 2013.

5 October 2015 by Sigrid Brevik Wangsness.  The largest economy in the world with a major impact on the global economy  Until October 2008 an economic.

A brief overview of trends in the UK, US and Japanese Financial Markets.

 Great Recession. History  Great Depression  Further Regulation  No Speculating.

Rural Outlook Conference US and Oklahoma Economic Outlook Presentation October 2015.

THE EURO AND THE PROCESS OF DELEVERAGING IN THE EUROZONE Presented by A.G. Malliaris SOCIETY FOR POLICY MODELING Allied Social Science Associations Annual.

BY: MICHAEL D. BORDO DEPARTMENT OF ECONOMICS RUTGERS UNIVERSITY.

Y376 International Political Economy March 10, 2011.

The shift and the shocks: prospects for the world economy Martin Wolf, Associate Editor & Chief Economics Commentator, Financial Times Oxonia 15 th February.

Financial Collapse Background 1997: Global economic community suffered severe downturn 1998: Strain continues with financial crisis in Russia 2001:

Asian Currency Crisis Kaitlin Briscoe Doug Durkalski Allison Gott Jennifer Hooks.

Figure 8.3: Subprime Lending Fiasco – U.S. Housing Bubble U.S. Housing Bubble Unsustainably High House Prices Very Low Interest Rates Excessive Foreign.

Global economic forecast November 1st The economy has started to recover, but growth is heavily driven by short-term factors, such as a stabilisation.

The Financial Sector: Ten Fatal Flaws “When the capital development of a country becomes a by- product of the activities of a casino, the job is likely.

Lecture 10 Thursday, February 16 Finance.

Lost Decade in Japan Lost Decade (失われた10年, Ushinawareta Jūnen)

The Global Financial Crisis

Iceland: From boom to bust and back again

17 October 2016 by Sigrid Brevik Wangsness

Transmission Mechanisms of Monetary Policy

The Lessons from the Housing Market Crisis

Transmission Mechanisms of Monetary Policy

Loyola University Chicago The Catholic University of Leuven,

Presentation transcript:

Two Generations of Asset Price Bubbles: From 1990 Japan to 2007 U.S. Eric Rashi

What are Asset Price Bubbles? 0 An upward price movement over a period of time, unexplainable based on fundamentals, and which eventually implodes 0 Implosion associated to widespread socio-economic distress 0 Not a new phenomenon: 0 Irrationality: mania 0 Human psychology 0 Market manipulation

New More Modern Causes Globalization New Financial Architecture Policy Mistakes 1 2 3

The Current Problem 0 “Greenspan” principle: policy-makers should not intervene in the markets to prevent bubbles, only clean up the mess once they burst BUT… 0 Bubbles are very dangerous: history of leading to banking crises 0 Japan  “Lost Decades” 0 U.S  Global Financial Crisis

Japan: From Asian Miracle to “Lost Decades”

Japan Real Estate Bust… real estate bust put pressure on banks’ balance sheets

Coupled with Equities Bust 0 Full-blown banking crisis: : 21 Big Banks write of ¥42.02 trillion of bad loans 0 Peak capital base during time period was only ¥22.15 trillion in 1994

Causes of Japan’s Financial Bubbles From controlled to competitive market-based system Banking liberalization Financial engineering (zaitech) enabled speculation Financial innovation Cheap credit and high liquidity Prolonged monetary easing

Japanese Government Response 0 Underestimated crisis: too little, too late: 0 Long-term measure: provide subsidies to failing banks

2008 U.S. Crisis : Similar Story?

Spread to Real Economy 0 Full-blown banking crisis: heavily exposed banks are acquired or collapse

Causes of U.S. Housing Bubble Greenspan led deregulation: Gramm-Leach-Bliley Act 1999 Banking liberalization Mortgage market securitisation: tranching, CDOs, MBS, … Financial innovation Cheap credit and high liquidity after 2001 dot-com bust Prolonged monetary easing

U.S. Government Response 0 Immediate and aggressive 0 Pushed for “private sector solution” amongst banks

Main Takeaways 1) The Japanese and U.S. episodes are strikingly similar 2) Bubbles, particularly in real estate, can pose a serious threat to the real economy 3) “Greenspan principle” seems outdated:  Policy-makers need to contain spillovers (ex-post)  Also need to act proactively (ex-ante)

Preventing Future Asset Price Bubbles Continue with efforts: Basel III and U.S. Dodd-Frank Act Re-regulation Understand complex products and reduce systemic risks Keep up with financial innovation Monitor real estate prices and avoid low interest rates Conservative monetary policy

Response to Future Asset Price Bubbles 0 U.S. response was more successful in containing damage from housing collapse and in returning economy to growth: 0 Must act quickly and aggressively 0 Must protect banks

Difficulties to Overcome 0 Preventing and reacting to bubbles is not an easy task: 1) Bubbles are difficult to establish ex-ante 2) Reputational difficulties for policy-makers 0 But… given the threat, these difficulties must be overcome...

Questions?

Bubbles: difficult to establish ex-ante

U.S. Loan Delinquency Rate (% of total)

U.S. Gross Public Debt (% of GDP)

Japan Public Debt (% of GDP)