FINCRISISCLASS

FINCRISISCLASS - 1 1 Panics, Manias, Bubbles and Crises...

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Unformatted text preview: 1 1 Panics, Manias, Bubbles and Crises “The four most expensive words in the English language are, this time it’s different .” Attributed to Sir John Templeton s Bubbles? Mkt mania, greek gods? 2 In the News? "a company for carrying out an undertaking of great advantage, but nobody to know what it is." 3 Course Issues o INVESTMENT GAME Results o CLICKER Results b EXTRA CREDIT due by 12/20 – submit as .doc file in ASSIGNMENTS in sakai b LRC b FINAL EXAM Thurs 12/22 8am CAC Gym s Review Guide, Essential Questions s Chat Room, Study groups b Q&A Weds 12/21 10am SC 123 b SIRS COURSE EVAL -now b FINAL EXAM CONFLICTS –resolved b POST-EXAM survey and post-test b GRADES – by 12/24 midnight 2 Etc s Invgame s Shazam 4 Manias, Bubbles, Panics s 1637 Tulip Mania – speculative bubble b Netherlands, tulip prices rose to 10x annual incomes, then collapsed s 1720 South Seas Bubble, b stock speculation in British stock company b Company established to fund gov’t debt b 10 fold increase in stock price in year s John Law and Mississippi Bubble b Scottish economist -became French Comptroller Generale b First central bank of France 5 Speculative Bubbles s Rapid and unjustified (by fundamentals) increase in an asset’s price b Fundamentals- present value of cash flows s Irrational Exuberance – Shiller b New economy theory b Simple extrapolation s May make sense b Greater Fools theory b Behavioral explanations - Herd behavior b Noise (idiot) traders s Rational Bubbles? 6 3 U.S. Crises s Panic of 1893 - railroads, bank failures s Panic of 1896– silver reserves s Panic of 1901 – NYSE crash – robber barons clash s Panic of 1907 – bank failures, recession s Wall Street Crash/Great Depression 1929 b Speculative bubble in stocks, real estate, fed raises rates, depression s 1987 Black Monday – largest 1 day % decline in stock prices. Quick recover, Greenspan 7 More s 1994 Tequilla Crisis – Mexico s 1997 Asian Financial Crisis s 2001 Dot Com Bubble bursts s 2007 Subprime Financial Crisis s Always This time it’s different s Mark Twain History may not repeat itself, but it sure does rhyme 8 Types and Causes s Banking crises – liquidity , no lender of last resort, mis-match of maturities of assets and liabilities (borrow short, lend long),...
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This note was uploaded on 02/05/2012 for the course 220 103 taught by Professor Sheflin during the Fall '09 term at Rutgers.

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FINCRISISCLASS - 1 1 Panics, Manias, Bubbles and Crises...

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