A second lesson-once again, familiar to financial historians-is that financial disruptions do not respect borders. The problems has been global, without major country having been immune. History is filled with examples in which the policy responses to financial crises have been inadequate and slow, resulting eventually in greater economic damage and increased fiscal costs often.
In this event, by contrast, policy makers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation. Looking forward, we must address structural weaknesses in the economic climate urgently, specifically in the regulatory framework, to ensure that the tremendous costs of the past two years will never be borne again. September-October 2008: The Crisis Intensifies When we met last year, financial markets and the economy were continuing to suffer the consequences of the ongoing crisis. We know now that the National Bureau of Economic Research has determined December 2007 as the beginning of the tough economy.
The U.S. by July unemployment rate experienced increased to 5-3/4 percent, about 1 percentage point above its level at the beginning of the problems, and home spending was weakening. Ongoing declines in residential house and construction prices and rising mortgage defaults and foreclosures continuing to consider on the U.S. 85 billion line of credit, enough to avert its imminent failure.
1 trillion, was pressured to merge with Lloyds TSB. 1 trillion. The same day, German government bodies provided assist with Hypo PROPERTY, a sizable commercial real property lender, and the British authorities nationalized another mortgage lender, Bradford and Bingley. 700 billion, and the Irish government guaranteed the deposits & most other liabilities of six large Irish financial institutions.
Soon thereafter, the Icelandic authorities, missing the resources to rescue the three largest banking institutions for the reason that country, put them into receivership and requested the help of the International Monetary Fund (IMF) and from other Nordic governments. In mid-October, the Swiss federal government announced a recovery deal of capital and asset guarantees for UBS, one of the world’s largest banking institutions.1 The growing pressures were not limited by banks with significant contact with U.S. U.K real estate or even to securitized assets. 400 billion from so-called perfect money money.3 Conditions in short-term financing markets, including the interbank market and the commercial paper market, deteriorated sharply. Equity prices precipitously fell, and credit risk spreads jumped.
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The turmoil also began to influence countries that got so far escaped its most severe effects. Notably, financial markets in rising market economies were whipsawed as a trip from risk led capital inflows to those countries to swing abruptly to outflows. The Policy Response Authorities in the United States and around the globe relocated quickly to react to this new stage of the crisis, although the facts differed based on the character of financial systems.
700 billion to support the stabilization of the U.S. Markets remained highly volatile and pressure on financial institutions intense through the first weeks of October. Certainly, fundamentals played a crucial role in triggering those events. As I earlier noted, the economy was already in downturn, and it experienced weakened further over the summertime.