.jpg){kind=link}
Capitalism, an economic system in which land, labour, production, pricing and distribution are all determined by the market, has a history of moving from extended periods of rapid growth to relatively shorter periods of contraction. The ongoing global financial crisis actually has its roots at the end of the twentieth century, when U.S. housing prices began declining after an uninterrupted, multi-year escalation. By mid-2008, there had been an increase in mortgage delinquencies thatwas striking. This increase in delinquencies was followed by an alarming loss in value of securities backed by housing mortgages, and this loss meant an equallyalarming decline in the capital of America’s largest banks and government-backed mortgage lenders, such as Freddie Mac and Fannie Mae, who held some $5 trillion in mortgage-backed securities.
The $10 trillion mortgage market went into a state of severe turmoil. The Bank of China and France’s BNP Paribas were the first institutions outside of the United States to declare substantial losses from subprime-related securities. The European subprime catastrophe was a close second to the U.S. subprime debacle, with Ireland, Portugal, Spain and Italy the worst hit. The U.S. Federal Reserve, the European Central Bank, the Bank of Japan, the Reserve Bank of Australia and the Bank of Canada all began injecting huge chunks of liquidity into the banking system. France, Germany and the United Kingdom announced more than €163 billion ($222 billion) of new bank liquidity and €700 billion (nearly $1 trillion) in interbank loan guarantees.
It became quite clear in the final quarter of 2008 that the subprime mortgage problems were global in nature. Of the $10 trillion in the mortgage market, around 50% belonged to Freddie Mac and Fannie Mae. In September 2008, the U.S. Department of the Treasury was forced to place both Freddie and Fannie into federal conservatorship. Then on 15 September 2008, Lehman Brothers, one of the largest financial services entities in America, filed for bankruptcy. On September 16, the large U.S. insurer American International Group (AIG), saw its market value drop by 95% (AIG shares fell to $1.25 from a 52-week high of $70).
Germany, the fourth largest economy on the planet, is economically, technologically and politically integrated with the world around it. When financial institutions went belly-up across the globe, the credit institutions, investment firms,insurance companies and pension funds in Germany also came under severe financial stress. Amid other countries' domestic bailouts, the German finance ministry managed to get its €480 billion package through the Bundestag in less than a week: the Financial Market Stabilization Act was Germany’s answer to the global financial crisis, creating a bailout package that would 'stabilize financial markets, provide needed liquidity, restore the confidence of financial market players and prevent a further aggravation of the financial crisis'.
On 11 October 2008, finance ministers from the Group of Seven (G7) of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States met in Washington but 'failed to agree on a concrete plan to address the crisis'. On October 13, several European countries nationalized their banks in an attempt to increase liquidity. On November 14, leaders from twenty major economies gathered in Washington to design a joint effort towards regulating the global financial sector.
Download the complete article as a pdf-file (7 pages, 56 KB)
- Dossier: Wege aus der Weltwirtschaftskrise