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FINCRISISCLASS - Panics Manias Bubbles and Crises"The four...

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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 square6 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 boxshadowdwn EXTRA CREDIT due by 12/20 – submit as .doc file in ASSIGNMENTS in sakai boxshadowdwn LRC boxshadowdwn FINAL EXAM Thurs 12/22 8am CAC Gym square6 Review Guide, Essential Questions square6 Chat Room, Study groups boxshadowdwn Q&A Weds 12/21 10am SC 123 boxshadowdwn SIRS COURSE EVAL -now boxshadowdwn FINAL EXAM CONFLICTS –resolved boxshadowdwn POST-EXAM survey and post-test boxshadowdwn GRADES – by 12/24 midnight
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2 Etc square6 Invgame square6 Shazam 4 Manias, Bubbles, Panics square6 1637 Tulip Mania – speculative bubble boxshadowdwn Netherlands, tulip prices rose to 10x annual incomes, then collapsed square6 1720 South Seas Bubble, boxshadowdwn stock speculation in British stock company boxshadowdwn Company established to fund gov’t debt boxshadowdwn 10 fold increase in stock price in year square6 John Law and Mississippi Bubble boxshadowdwn Scottish economist -became French Comptroller Generale boxshadowdwn First central bank of France 5 Speculative Bubbles square6 Rapid and unjustified (by fundamentals) increase in an asset’s price boxshadowdwn Fundamentals- present value of cash flows square6 Irrational Exuberance – Shiller boxshadowdwn New economy theory boxshadowdwn Simple extrapolation square6 May make sense boxshadowdwn Greater Fools theory boxshadowdwn Behavioral explanations - Herd behavior boxshadowdwn Noise (idiot) traders square6 Rational Bubbles? 6
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3 U.S. Crises square6 Panic of 1893 - railroads, bank failures square6 Panic of 1896– silver reserves square6 Panic of 1901 – NYSE crash – robber barons clash square6 Panic of 1907 – bank failures, recession square6 Wall Street Crash/Great Depression 1929 boxshadowdwn Speculative bubble in stocks, real estate, fed raises rates, depression square6 1987 Black Monday – largest 1 day % decline in stock prices. Quick recover, Greenspan 7 More square6 1994 Tequilla Crisis – Mexico square6 1997 Asian Financial Crisis square6 2001 Dot Com Bubble bursts square6 2007 Subprime Financial Crisis square6 Always This time it’s different square6 Mark Twain History may not repeat itself, but it sure does rhyme 8 Types and Causes square6 Banking crises – liquidity , no lender of last resort, mis-match of maturities of assets and liabilities (borrow short, lend long), solvency
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