Comparison of the two financial crisis - 1929

and 2008/2009
From MBSIntercultural
Jump to: navigation, search
Contents
1 Introduction
2 The Crises
o 2.1 Financial Crisis of 1929
o 2.2 Financial Crisis of 200!2009
" Conclusion
# $i%liograph&
'edit(
Introduction
In the )orld )e live in toda&, ever&%od& )ants to ma*e mone& %ut no one )ants to %e
responsi%le for the conse+uences. This means that the financial crisis that )e are facing right
no) is due in part, to unhealth& consumption. In other )ords, the financial mar*et )as ma*ing
more and more mone& %ut no one )ondered )here it came from and no one feared that one da&
ever&thing might crum%le do)n. The accurate crisis has forced people to face realit& and to
understand that the financial and economical mar*ets are unsta%le and unpredicta%le and that
mone& doesn,t produce itself. -ntil no), the .all /treet didn,t have to )orr& a%out an&
regulations or ris*s, resulting in non0e1isting fear, leading to ignorance, carelessness and greed.
This is e1actl& )hat caused the unavoida%le crisis )e are in toda& and it should %e a lesson for
the future. $efore the crisis, individuals had plent& of mone& availa%le to %u& corporations, real
estate )as claimed to %e a safe investment and mortgage loans )ere given out to ever&one. The
thought that things )ouldn,t *eep %ooming forever and that a house0price deprivation )as
coming up never entered the people,s minds. 2o), facing the meltdo)n, %an*s and other
financial institutes around the )orld are struggling to pull themselves out of this disaster, )here
no%od& is read& to commit to failures or ac*no)ledge the fact that these are the conse+uences of
their previous actions. The )orld doesn,t face this pro%lem the first time: a similar financial
crisis alread& occurred in 1929. It )as one of the %iggest slumps in the histor&, )hich resulted
into the 3reat 4epression. 5nal&6ing these 2 financial crises, from 1929 and the one from toda&
are there similar factors, )hich triggered them or is not compara%le at all7
'edit(
he Crises
'edit(
Financial Crisis of 1929
The international econom&, )hich had gro)n intensivel& during the nineteenth centur&, came to
a sudden end )ith the out%rea* of the First .orld .ar in 191#. The )ar had massive direct and
indirect economic impacts. International trade, international investment and immigration flo)s
%ro*e do)n and the international pa&ment s&stem )as given up completel&. The leading nations
3erman&, France and $ritain lost their status in the )orld,s econom& and Japan and the -/
%ecame the ne) economic po)erhouses. 4uring the First .orld .ar the -/ e1perienced an
e1port %oom. 8n the one hand from 9uropean countries as their demand for armaments,
ammunition, food and clothing s*&roc*eted due to the )ar and on the other from other non0
9uropean countries, )hich had %een previousl& %een supplied %& 9urope. The favora%le
geographic situation of the -/ )as another important factor for the shift of trade, )hich )as a
serious pro%lem for more distant countries li*e 5ustralia and 2e) :ealand. $ecause of the )ar
shipping around the )orld %ecame ver& difficult. /o at this time the -/ )as more or less the
)orld,s remaining economic po)erhouse. In conse+uence ;e1ports increased from 2. %illion
dollars in 191" to <." %illion dollars in 191,, )hich is a level that )as never reached again.
=>ardach, 19<, p. 2??@
Aoreover, production of the heav& industr& %oomed as the 9uropean 5llies ordered gigantic
amounts of steel and other ra) materials for )ar production. In addition )hen the -/ did enter
the )ar in 191<, -/ producers of manufactured goods faced further increasing demand from
their o)n government. 5s mentioned a%ove %efore the )ar the -/ )as alread& a maBor industrial
nation )ith an important heav& industr& sector and modern production techni+ues. 5lthough
manufacturers %enefited more, the agricultural sector faced advantageous conditions as )ell.
$et)een 191" and 191 the e1ports of )heat and flour rose from 1#2 million dollars to ?0?
million dollars and meat e1ports from C million dollars to CC million dollars =>ardach, 19<,
p.2?C@.
9ven though the )orld econom& )as )ea* in the post0)ar &ears the -/ )ent through its so0
called ;roaring t)enties,. The good performance of the -/ econom& during .orld .ar I led to a
ver& lo) unemplo&ment level and to a rise in real income and rising standards of living.
Throughout the 1920s national income and product increased %& t)o per cent annuall&, )hich is
close to the rate achieved during the first decade of the centur&. Deal earnings of emplo&ees gre)
a%out 2" per cent and the average real income increased %& "0 per cent in this decade. Eeople
had to )or* less )ith an annuall& decline in hours )or*ed per capita %& more than one per cent.
/o one main factor for the success of the -/ during the 1920s )as the higher productivit& of
la%or and capital )ith ne) techni+ues for mass production. $ecause of the mo%ili6ation of the
)ar man& manufacturers learnt to increase production )ithout increasing investment in ne)
plants. In addition to the ne) technologies some ne) organi6ational innovations )ere created.
$udgeted departments )ere designed to develop ne) products and to lessen production costs of
e1isting products. Firms )ere reorgani6ed in speciali6ed divisions to deal )ith the gro)ing
comple1it& of %usiness operations. =$ro)nlee, 19<9, p."91@
Furthermore, there )as a higher demand for s*illed la%or and the ne) restrictions of massive
immigration, )hich affected mainl& uns*illed people, led to a raise in )ages of uns*illed
)or*ers. Thus the income and )ealth distri%ution gap %et)een s*illed and uns*illed )or*ers )as
closed. =$ro)nlee, 19<9, p."C@
Conse+uentiall& the %oom stimulated domestic production of consumer goods, machiner& and
e+uipment and transportation. The %ooming sectors )ere automo%iles, household e+uipment,
electrical goods, radio, financial and commercial services and residential and %usiness
construction. /o the share of )orld manufacturing production clima1ed in 1929 at over #2 per
cent in comparison to "C per cent in 191". =Aeredith F 4&ster, 1999, p.?@
Degarding this impressive economic performance since 1922 some %elieved the -/ found the
secret for sustaina%le economic success. >o)ever, this )as not the opinion of economists,
monetar& or other authorities. In fact, the& )ere e1pecting the slump earlier and )ere surprised
a%out the dela&. 5s mentioned earlier the )orld econom& )as a house of cards in the 1920s.
Failures of the 5merican polic& caused the insta%ilit& of the international econom&. 4uring
.orld .ar I the -nited /tates turned from a de%tor to a creditor countr&. $& Januar& 1919 the
5llied 3overnment o)ed the -nited /tates government a%out 9.? %illion dollars, so the -/ pre0
)ar net de%t to foreigners of ".< %illion had turned into a net credit of 12.? %illion dollars. The
-/ supplied the 5llies )ith credits for )ar de%ts and gave loans to 3erman& and its allies for
reparation pa&ments to $ritain, $elgium and France. It,s li*el& that the change of the -/ to a
creditor nation )ould have happened an&)a&, %ut not that fast. /ome argue that 5mericans
couldn,t handle the rapid change and their role in the international econom& of the 1920s and
therefore )ould contri%ute to the )orld)ide collapse at the end of the decade. =$ro)nlee, 19<9,
p."C9@
The -/ could have cancelled the de%ts or modified them and in contrast get the repa&ments
through trade. The results )ould have %een a stronger 9uropean econom& )ith a lo)er and less
urgent demand for -/ capital and )ith a lo)er dependence on a strong economic condition of
the -/. In addition the -/ investment in 9urope )ould have %een healthier. 5 second maBor
structural )ea*ness )as that the )ar and pu%lic polic& led to an overe1pansion of agriculture
resulting in lo) prices and lo) incomes, a heav& de%t and a rising num%er of unproductive land.
=$ro)nlee, 19<9, p.#0?@
>o)ever, the trigger for the economic slump at the end of the 1929s )as the -/ stoc* mar*et,
)hich also faced a %oom from 192C on)ards )ith an increase in domestic savings, and an inflo)
of short0term speculative foreign capital. /ince prices )ere raising all sorts of people, even those
)ho *ne) little a%out securities and )ere ne) to the .all /treet )ere streaming into the mar*et
resulting in a further increase in prices. =Ge)is, 19#9, p.?1@
4ue to the availa%ilit& of credits for stoc*0mar*et transactions, the lo) level of margin
re+uirements =the re+uirements for do)n pa&ments on stoc* purchases@ and the strong %uo&anc&
of stoc* prices investors )ere a%le to increase their num%er of shares )ithout e1pending an&
further amounts of their o)n funds. =$ro)nlee, 19<9, p.#12@
Hno)ing this highl& dangerous development, monetar& authorities tried to restrict this inflo) of
hot mone&, %ut )ith no success. 9ventuall& prices s)elled to over C0 per cent %et)een
4ecem%er 192< and /eptem%er 1929, and the rate of interest of short0term funds or call mone&
dou%led during the %oom and achieved 12 per cent %& the end of 192. The greatest share of this
*ind of mone& had foreign %an* agencies, corporations )ith large cash %alances, and %ro*ers and
individuals. Those *inds of investors %rought a large degree of insta%ilit& to the .all /treet and
the& )ere a%le to pull out their mone& at an& time if a do)nturn %ecame apparent. =$ro)nlee,
p.#12, 19<9@
From 192< on)ards consumer mar*ets )ere %ecoming saturated and the economic gro)th
started to decline graduall& %ut the stoc* mar*et *ept rising and rising. The disastrous result )as
the collapse of stoc* e1change prices in 8cto%er 1929. .ith this the -/ econom& changed from
a slight decline to tremendous economic depression, the 3reat 4epression. The outcome )as
intense. -nemplo&ment increased from " per cent to 2? per cent, the national income rapidl&
dropped %& half, industrial production %& one0third, foreign trade diminished %& t)o0thirds. In
conse+uence consumer demand lessened as )ell. .ea*nesses in several older -/ industries such
as railroads, cotton te1tiles, coal mining and agriculture )ere no) %rought to light %ecause these
parts of the industr& didn,t gro) much during the %oom. /o the& had to face a significant decline
in demand. $ecause these sectors )ere maBor emplo&ers and consumer goods industries )ere
stagnant unemplo&ment increased rapidl&. Ironicall& the slump of the -/ econom& affected
international mar*ets rapidl& %ut not so the %oom of the 1920s. 5s the .all /treet crashed -/
capital, )hich )as invested a%road, )as %rought %ac* home immediatel& and further ne) loans
)eren,t accessi%le. This caused a financial crisis in central 9urope and Gatin 5merica, %ecause
the& had %een %orro)ing massivel& from the -/ in the 1920s. =Aeredith F 4&ster, 1999, p.?@
Degarding these circumstances it is not enough to anal&6e )h& the slump occurred in 1929
%ecause the& had happened %efore. It is more to e1plain )h& the slump )as so severe and lasted
so long. The credit inflation during the 1920s )asn,t greater than previous credit inflations, the
under consumption )asn,t greater than it had %een %efore, the national income and product
)eren,t higher than in the first decade of the centur&I in contrar&, gro)th rates %efore the )ar
had often %een higher. /o none of these factors can e1plain )h& the slump )as that intense. 8ne
reason for the intensive slump )as the failing of the Federal Deserve /&stem to prevent the crash
or at least to stimulate the recover& of the econom&. The federal government )ould have had the
ade+uate po)er to do that. Instead it allo)ed the %oom to continue until it )as too late to stop the
disastrous conse+uences. The Federal Deserve limited the a%ilit& of the -/ %an*ing s&stem
drasticall& to meet domestic demands for currenc& and credit %& ma*ing %orro)ing more
e1pensive and %& reducing the mone& suppl& to an annuall& rate of ca. "1 per cent in 19"2,
)hich is a vast drop. Furthermore, the rate of monetar& contraction increased to < per cent
&earl& in 19"". In conse+uence the stoc* mar*et declined %& one0third from 5ugust 1929 to
Aarch 19"". =$ro)nlee, 19<9, p.#1# ff@
5nother reason )as that in the earl& parts of 19"0 there )as some revival and e1perts proclaimed
that the recession )as over. >o)ever, this )asn,t the case. In the second part of the &ear
agricultural and other ra) material prices dropped rapidl&, )hich )ere the sources of confidence
for recover&. /o %usinessmen )anted to ;)ait and see, rather than ma*ing further ne)
investments. Erimar& production and the volumes of e1ports *ept rising, )hich led to )orld)ide
dumping, import restrictions and stoc*piling. 4uring 1929 and 19"0 the average price of )heat
declined %& 19 per cent, cotton 2< per cent, )ool #C per cent, sil* "0 per cent, ru%%er #2 per cent,
sugar 20 per cent, coffee #" per cent, copper 2C per cent. In addition the inde1 of prices of
commodities for )orld trade dropped %& ?C per cent for ra) materials, # per cent for foodstuffs
and "< per cent for manufacturers. The main source for this price fall of commodities )as over0
investment. The conse+uences of the %rea*do)n of primar& product prices )ere great.
$usinessmen lost their confidence and %ecame even more cautious. Aoreover the price collapse
caused deflationar& effects in destro&ing mone&, in hoarding of currenc&, and in discouraging
further investment. Erimar& product countries faced severe difficultiesI some )ere driven off the
3old /tandard in 19"0, forced to find other )a&s to decrease their international pa&ments, forced
to ta*e measures starting several restrictions on international trade, )hich harmed industrial
producers as )ell. =Ge)is, 19#9, p.?? ff.@
In conclusion the slump )ould not have %een that immense if the federal government )ould
have done things differentl& and if primar& prices )ould not have fallen so severel&. The )orst
economic slump in the histor& of the -/, )hich follo)ed after &ears of economic success, came
ver& une1pected for -/ citi6ens =not so for economists and monetar& authorities as mentioned
a%ove@. Aan& %elieved that their econom& had fundamental )ea*nesses, structural pro%lems.
>o)ever, the economic realit& )asn,t that %ad, although it had its )ea*nesses. $& using the right
economic instruments and policies things )ould have %een different. /o the 3reat 4epression
forced an increase of the search for a successful management of a modern, industrial econom&.
/ho)n %elo) is a graph of the 4o) Jones of the &ears %et)een 1920019"C, )hich displa&s ho)
drasticall& the stoc* )ent up and then Bust slumped do)n. It hit "C in /eptem%er of 1929 and
dropped to #0.?C in Jul& 19"2, )hich is 9J. =.al*er, Jeff, 199<0200?@
/ource: http:!!))).lo)ris*.com!29crash.htm
Financial Crisis of 2008/2009
/ource: Erofessor Fraugere, 200
In the first instance, it is important to ac*no)ledge that also toda&,s crisis )as not something
that occurred from one da& to the other, %ut that it has %een the conse+uences of different actions
and mista*es that have %een made over the past &ears in the financial mar*ets in the -nited
/tates, as )ell as )orld)ide. It %egan that mortgage credits )ere given to ever& person in the
-./., also the ones )ho receive the minimum )age in order to %u& or %uild real estate. In this
process all participating financial institutions failed verif&ing the credit)orthiness. 4uring that
time there )as a huge real estate %oom in the -nited /tates, so that credits, )hich dropped out,
)ere still lucrative. >ere the house )as sold for a higher price and %ecause of that it came to a
higher return than the actual credit.
In addition the interest level )as ver& lo) and the guaranteed mortgage loans underla& a varia%le
interest rate. .ith the smallest change of the interest rate man& de%itors couldn,t pa& an&more,
and %ecause of that man& credits dropped out. The resulting ris*s and also the alread& e1isting
ones )ere securiti6ed into %onds and %ought from man& %an*s, including 3erman %an*s. /ince
the real estate %oom stopped and the de%itors )eren,t a%le to sell their houses an&more, all the
%onds lost their value. 2o) there is an oversuppl& in houses, )hich can %e %ought for e1treme
lo) prices. To fight this issue the Fed is setting in a 6ero interest polic&. $ecause of this it,s
easier for investors to get the needed mone&. It starts )ith the fact that for man& months, the -/
government has failed to understand that Fannie Aae and Freddie Aac )ere ta*ing huge ris*s
that could lead the )orld into a financial %rea*do)n. =Erofessor Fraugere, 200@
Fannie Aae stands for The Federal 2ational Aortgage Corporation and )as created in 19" and
is since 19C a private shareholder0o)ned compan&. The& strengthen the -./. housing and
mortgage mar*ets and suppl& it )ith li+uidit&. =2.2. a, 200@
Fredd& Aac stands for The Federal >ome Aortgage Corporation and their %usiness is to
com%ine the residential mortgage mar*ets )ith the .all /treet dealer and investors. The
compan& does mortgage purchases, credit guarantees and portfolio investment activities. =2.2. %,
2009@
Instead of setting up regulations for these organi6ations to regulate their actions, the& *ept on
promoting su%prime mortgage loans, even if the loans should have not %een made in the first
place, presenting to %e the heart of toda&,s crisis. Furthermore the free mar*et as )ell as the
greed of man& C98s can %e held responsi%le for the accurate situation and man& su%prime
%orro)ers had to find out that their homes )ere )orth less then their mortgages, due to the house
price depreciation. The crisis found its starting point )ith the %an*ruptc& of Gehman,s $rothers,
)hich occurred in /eptem%er 200. It is a *e& e1ample of ho) using %orro)ed mone& can end
up in a complete disaster. Gehman $rothers )anted to compensate for its merel& small si6ed
capital %ase and too* large ris*s, such as %orro)ing sums that ended up to %e thirt& five times the
si6e of its capital and heavil& plunged into real estate ventures that cratered. The compan& relied
on investments in derivatives in order to produce profits and to hold up )ith competitors such as
3oldman /achs. 9ven the %orro)ing programs that have %een set up for Gehman as )ell as other
financial institutions after the forced sale of $ear /tearnes to JE Aorgan in Aarch this &ear,
couldn,t prevent the do)nfall of the organi6ation, as the mar*et moved against it. =Erofessor
Fraugere, 200@
In addition 5.I.3., one of the pioneers of credit0default s)aps, had to e1perience a do)ngrade of
their credit and pro%lems in its investment mortgage securities, )hich resulted in the necessit& to
post huge sums of collateral, )hich the compan& o%viousl& didn,t have. The conse+uence )as
that the Fed e1tended K ? %illion in credit, preventing the firm from %rea*ing do)n. 5s 5.I.3.,s
si6e and glo%al reach in )riting millions of auto, home and other insurance policies that )ere
considered to %e safe and profita%le Bust a fe) months ago )as enormous, a %an*ruptc& )ould
have caused a huge chaos and therefore the government decided to %ailout the organi6ation,
ta*ing over 0J o)nership sta*e in the firm in return. =2e) Lor* Times, 200@
5fter the %an*ruptc& of Gehman $rothers, the forced sale of Aerrill G&nch and the 5.I.3. crisis
there has %een a general panic facing the actual financial mar*ets. =2e) Lor* Times, 200@
9ven if the governmentMs e1traordinar& rescue of the group =K ?%n emergenc& Fed loan@ gave
the -/ stoc*s a little %it of comfort, the an1iet& and fear of the investors )as still omnipresent.
The panic in )orld credit mar*ets has reached historic intensit& and the measurement of financial
related stress hit record pea*s across the glo%e. Detailers and investors pulled out their mone& in
conse+uence to the panic of further mar*et collapses. Furthermore, the t)o largest independent
-/ investment %an*s, 3oldman /achs and Aorgan /tanle&, fell 1# J and 2# J, resulting in a
ne) thread of %eing a%le to finance themselves. The -/ financial mar*et )as standing upside
do)n and the stoc* mar*et crash is " J higher then the $lac* Aonda& of 19<. =2e) Lor*
Times, 200@
2ot onl& -/ investment %an*s %ut also >$8/, a leading -H mortgage lender, agreed to the half
of the original %idding price of C %illion pounds ta*eover %& Glo&ds after it share price )ent
do)n. =4uncan, >ugo, 200@
The financial sector fell on a dail& %asis and the mar*et sun* in )hat anal&st call one of the most
e1traordinar& series of developments in financial histor&. 2ot onl& $an*s such as Citigroup or
3en)orth financial %ut also 3eneral 9lectric, 4elta, 2orth)est, 2ortel and man& other firms in
different sectors presented a maBor drop in their stoc* prices. The crisis is affecting millions of
5merican as )ell as people around the )orld presenting crucial financial and economical
conse+uences. 5 series of government interventions )ere in the process as investors and
politicians reali6ed that 9urope is also facing a %an*ing crisis of its o)n. The financial crisis also
had a heav& effect on the 3erman Deal estate %an* N>&po Deal 9stateO, )hich in got another 10
%illions 9uro Fe%ruar& 2009, that is a total of ?2 %illion 9uro from state guarantees. =2.2. c,
2009@
/toc* inde1es from Earis to Fran*furt plunged as much as 9 percent on 8cto%er Cth 200 =2.2.
d, 2009@, due to the fear of a spreading financial crisis among 9uropean %an*s a series of
government interventions, pursuing previous )ee*,s sudden %ailouts and guarantees, onl&
seemed to fan the flames of an1iet&. Investors and politicians reali6ed that 9urope is underl&ing
not onl& a financial %ut also an economical crisis of its o)n. It is o%vious a result to the .all
/treet disaster and %ad -/ su%prime de%t, ho)ever this is not the onl& reason. /ince the credit
crunch first hit in 200<, lending in the 8ld .orld has gotten tenser and tenser and no) the lac*
of capital flo) is affecting %an*s glo%all&, threatening %usinesses )ith credit starvation. $o%
Ac4o)all, 9uropean research director at financial0services consultanc& To)er 3roup in Gondon
states that P3overnments and regulators are tr&ing to demonstrate firm leadership and sho)
confidence, %ut %an*s donMt trust each otherP. =2.2. d, 200<@
5nd that is in m& opinion e1actl& the pro%lem that %an*s and financial institutes are facing
)orld)ide: ever&one )ishes to get out of this crisis as fast and %est as possi%le, %ut the lac* of
mutual trust Bust ma*es the )hole situation even )orse. Instead of )or*ing on Boined solutions,
financial institutions are s*eptical to)ards their partners and competitors and the loss of trust
doesn,t seem to decrease an&time soon. The financial crisis also has sho)n its effect on the
econom&. The econom& as a )hole in the 9uro 6one has contracted and no real signs of
improvement are presented. In other )ords, as a result to the financial crisis, the 9uro 6one
econom& has slide into a recession. 5fter 3erman&, the %iggest econom& in the 9uropean -nion
has announced that it )as in recession on 2ovem%er 1#th, the fifteen states that use the euro
reported a shrin* in the third +uarter. The poor performance of the 3erman econom& )as the
main factor, stating a contraction of 0.? percent in relation to the previous +uarter. Furthermore
due to a sharp glo%al do)nturn, the demand for oil has declined, contri%uting to pushing inflation
in the 9uropean 6one do)n to 6ero. =2.2. e, 200@
These facts demonstrate the devastating conse+uences of the financial crisis not onl& in the
/tates, %ut )orld)ide. It has %ecome not onl& a matter that concerns financial mar*ets, %ut the
glo%al econom&. The crisis also presents to have long0term conse+uences for the relation of the
-nited /tates )ith the rest of the )orld, in terms of financiall&, economicall& and politicall&. .e
could alread& see that there )as a severe constraint against a revival of the $ush administration
after $arac* 8%ama )as elected president, see*ing for a change in 5merica. >o)ever, the crisis
)ill have serious conse+uences of the international po)er and status of the -nited /tates and it
)ill have to pa& the price for its misBudgments: PThe last eight &ears have seen -/ political and
economic leadership reach a nadir in the ratio of cognitive capa%ilities to destructive capa%ilities.
There is a great un)illingness to recogni6e this limitation, particularl& )ithin 5merican culture.
The $ush &ears have all the appearance of a 3ree* traged&. 3reed, hu%ris, and short0sighted
pursuit of political advantage have %een placed in the pressure coo*er and the heat turned on
high. The result is not that it )ould %oil over %ut that it )ould e1plode. The economic empire is
unraveling +uietl& %ut at a faster and faster clip. This process )ill eventuall& *noc* out the
underpinnings of 5merican militar& po)er and %ring a%out a maBor reduction in overseas
entanglements. This is to sa& that Bust as the deleveraging in financial assets has turned into an
uncontrolla%le process, so, too, ma& the un)inding of the -/ strategic0militar&
net)or*s.P=9dsall Thomas $., 200@
This displa&s us ho) disastrous the conse+uences of the crisis are on a financial and economical
level, affecting not onl& the -nited /tates, %ut economies )orld)ide. Insolvent %an*s and large
lenders see* for governmental help in order to survive as )ell as %an*s in 3erman&, $ritain and
man& other countries across 9urope had to %e rescued %& capital inBections, partial or outright
nationali6ation or even ta*eovers. 4espite hundreds of %illions %eing pumped into the %an*ing
s&stem %& central %an*s around the )orld to restore li+uidit& and confidence, no real solution is
presented in order to regulate the crisis. The un)illingness of %an*s to lend each other mone& is
omnipresent and the different nations have not &et agreed on a common rescue plan for the crisis.
$ac* in 8cto%er the -nited /tates see* for help from 9urope and )anted the o* to involve
foreign %an*s in order to sustain the K <00 %illion loan to cover for the %ad de%ts of the .all
/treet, )hich got reBected %& 3erman& and other countries. 5ngela Aer*el critici6ed the -/
government and stated that $ushMs administrations have failed to handle their financial mar*et,
%ecause the& )ouldn,t admit to stricter rules. =3authie0 Qillars, 4avid and Aar*us .al*er,
200@
This sho)s us that 9uropean countries are heavil& critici6ing the old -/ government, ma*ing it
responsi%le for dragging their countries into the financial crisis. 5s 9urope alread& has stricter
rules concerning their financial mar*ets, such as the $asel II agreement, )here a set of
international standards are presented in order to tighten capital re+uirements for credit
institutions. .hile almost all of the 9-, including 3erman& has signed up for it, .ashington on
the other hand still hasn,t even set a date for )or*ing these principles into the 5merican la). 2ot
onl& 3erman& %ut also the other mem%ers of the 3< central %an*s do not plan on follo)ing up
)ith the -/ rescue plan. 9urope,s reaction to the %ailout proposal sho)s ho) pro%lematic it is to
come up )ith suggestions in order to solve the crisis. 5s stated a%ove, -/ and 9urope do not
agree on a common solution &et. .hile 3erman& calls for Nmore transparenc& and a %etter set of
rulesO. =/piegel /taff, 200@
France proposed a significantl& stronger role for the International Aonetar& Fund =IAF@ and the
-./ still )ishes to remain the dominant force on the capital mar*et, opinions of the different
nations remain divided. The nations all have different approaches and visions for the solution of
the crisis: $ritish and /)edes consider the specific for individual mar*ets too detailed and rules
to control the %an* activities too strict. The C6ech finance minister refers to the crisis as a N
revolution and not evolution N of the financial s&stem. 3ermans see* for more tid& rules and
clearness of the mar*ets, )hereas France favors stronger interventions =/piegel /taff, 200@.
'edit(
Conclusion
5fter the financial crisis of 1929, the 9nron meltdo)n and the present financial and economical
crisis, it is vital for governments to see* for a solution that )ill prevent such as disaster to
reoccur. 2e) regulations must %e implemented and nations must )or* closel& together in order
to improve the glo%al mar*et situation. It is important to understand that a solution must involve
an aim for long0term goals and that coordination and cooperation should %e the *e& terms
leading the propositions. It,s hard to compare toda&,s financial crisis to the one of 1929. Toda&
the triggers and econom& is different. Aoreover, the glo%ali6ation pla&s an important role of the
difference %et)een toda& and 0 &ears ago. Toda& all )orld economies are connected in one )a&
or the other to each other and it has a definitel& %igger effect on the entire )orld )hen one
countr& has financial or economic pro%lems. There are surel& similarities in reactions and, %ut
)ithin 0 &ears the )orld changed too much and it is more interconnected. Furthermore toda&
there are rescue pac*ages and state guarantees, )hich can support institutions li*e in financial
trou%le, )hich didn,t e1ist %ac* in 1929. >o)ever toda&, even through the support from the
states and central %an*s, it,s not certain )hat the outcome )ill %e. 5 situation li*e this )ith this
support )as never e1isting %efore, and for this reason it,s difficult to determine )hat the long0
term effect )ill loo* li*e, the )orld )ill onl& see in the future if the reactions )ere the right one.
The onl& thing in m& opinion, )hich can %e compared, is that in 1929 and toda& as also sho)n in
the graph %elo), there )as an e1traordinar& %oom %efore the crises, )hich then led to a complete
slump of the econom&. =$lodget, >enr&, 2009@
/ource: http:!!))).%usinessinsider.com!henr&0%lodget0great0crash0of02000no)0)orse0than0
great0crash0of01929020090"
Bi!lio"raph#
$rticles and Boo%s
$ro)nlee, ..9. =19<9@: ;4&namics of 5scent: 5 >istor& of the 5merican 9conom&,, 2nd ed.
5lfred 5. Hnopf, Inc, 2e) Lor*.
3authie0 Qillars, 4avid and Aar*us .al*er =200@: ;9uro :one 9conomies to 4rop -p $an*s,,
Financial Times.
>ardach, 3. =19<@: ;The First .orld .ar 191#0191,, 1st ed. Eenguin $oo*s, Ding)ood,
Qictoria.
>o%s%a)m, 9. J. =19C9@: ;Industr& and 9mpire,, " ed. Eenguin $oo*s, Ding)ood, Qictoria.
Hen)ood, 5. 3., Gougheed, 5. G. =19"@: ;The 3ro)th of the International 9conom& 1200
190,, 1st ed. 3eorge 5llen 5nd -n)in Gtd, Gondon.
Ge)is, ..5. =19#9@: ;9conomic /urve& 1919019"9,, 1st ed. 3eorge 5llen 5nd -n)in Gtd,
Gondon.
Aeredith, 4., 4&ster, $. =1999@: ;5ustralia in the 3lo%al 9conom& R Continuit& and Change,, 1st
ed. Cam%ridge -niversit& Eress, Eort Ael%ourne, Qictoria.
Internet Sources
$lodget, >enr& =2009@: Crash of 200 no) )orse than crash of 1929,
http:!!))).%usinessinsider.com!henr&0%lodget0great0crash0of02000no)0)orse0than0great0crash0
of01929020090", 1C.0".2009
4uncan, >ugo =200@: >$8/ shares plummet after Glo&ds T/$ halves %id price,
http:!!))).dail&mail.co.u*!mone&!article010<<102!>$8/0shares0plummet0Glo&ds0T/$0halves0
%id0price.html, 1.02.2009
9dsall Thomas $. =200@: 3lo%al 9conomic Crisis Gi*el& To >ave Erofound Conse+uences For
-/ Eolitics, .orld Delations, http:!!))).huffingtonpost.com!200!10!1"!glo%al0economic0
crisis0liSnS1"#"9".html
2.2. c =2009@: >&po Deal 9state erhaelt erneut 6ehn milliarden 9uro
3arantien,http:!!))).spiegel.de!)irtschaft!0,1?1,C0C9?,00.html ,=200@, Finan6*rise,
http:!!)issen.spiegel.de!)issen!do*ument!#9!"<!do*ument.html7
titelTFinan6*riseFidTC0C0<"9#FtopTGe1i*onFsuch%egriffTFinan6*riseF+uellenTF+cru%ri*T
)irtschaft, 1.02.2009
N.N. d, (2007): Misstrauische Banken,
http://wissen.spiegel.de/wissen/dokument/dokument.htmltop!"e#$
dokname!"om%erg&'(&
000)2007000*7000+)00$such%egri##!,inan-krisetitel!.lo%ale/,inan-krise/l0sst/1
reditmarkt
/austrocknen/22345"/'(65.57/8om/)0.0+.200722+, ).02.0+
2.2. e, =200@: Finan6*rise, http:!!)issen.spiegel.de!)issen!do*ument!#9!"<!do*ument.html7
titelTFinan6*riseFidTC0C0<"9#FtopTGe1i*onFsuch%egriffTFinan6*riseF+uellenTF+cru%ri*T
)irtschaft, ".02.2009
2.2. a =200@: Fannie Aae, http:!!))).fanniemae.com!a%outfm!inde1.Bhtml7
pT5%outUFannieUAae, 1.0".2009
2.2 % =2009@: Freddi Aac,
http:!!))).freddiemac.com!corporate!compan&Sprofile!ourS%usiness!inde1.html, 1.0".2009
2e) Lor* Times =200@:N Credit Crisis0 The 9ssentialsO,
http:!!topics.n&times.com!topics!reference!timestopics!su%Bects!c!creditScrisis!inde1.html,1.02.20
09
Erofessor Fraugere =200@: NThe 200 Financial Crisis: Cause, Conse+uences and Eolic&
DeactionsO 5 forum hosted %& the -5l%an& Finance 4epartment, 9conomics 4epartment and
Center for Institutional Investment Aanagement, Eresentation 1! 2< 8cto%er 200:
http:!!))).al%an&.edu!Vfaugere!FinForum/ummar&.htm, 2<.02.2009
/piegel /taff =200@: Can the $ailout prevent an economic
Aeltdo)n7,http:!!))).spiegel.de!international!%usiness!0,1?1,??"2#,00.html, 2.02.2009
.al*er Jeff =199<0200?@: 1929 Crash, http:!!))).lo)ris*.com!29crash.htm, 1.0".2009
Detrieved from Phttp:!!))).munich0%usiness0
school.de!intercultural!inde1.php!ComparisonSofStheSt)oSfinancialScrisisS0
S1929SandS200!2009P