who is willing to do this? three questions should be picked out from 6. shold follow essay format. no plagirism. very spesific in your answer. using your own words. i have attached the slides shown by the professor during the class so you can follow.

Pol 223 The Global Financial Crisis 2007-2009

Road Map

• CBC documentary – Part 1

https://www.youtube.com/watch?v=gy uMT7kwn8I

• Timeline – http://

www.cfr.org/world/crisis-guide-global -economy/p19710?gclid=CJiPz4ux-bwCFVB ffgodgIoAjA

Timeline • In 1995, changes to the Community Reinvestment Act allow mortgage

lenders to receive credit toward their affordable-housing lending obligations for buying subprime securities, thus encouraging the proliferation of risky housing loans during the latter half of the 1990s.

• In September 1999, government-sponsored enterprise Fannie Mae eases credit requirements to encourage banks to extend loans to people whose credit is not good enough to qualify them for conventional loans, further encouraging growth in the subprime lending industry.

Timeline

• In November, the Gramm-Leach-Bliley Financial Services Modernization Act partially repeals the Glass- Steagall Act of 1933, allowing banks to operate other financial businesses such as insurance and investment brokerages.

• One year later, the Commodity Futures Modernization Act exempts credit default swaps and trading on electronic energy commodity markets from regulation.

Timeline

• 2000-2001 - Prompted by the bursting dotcom bubble and the resulting recession, and with policymakers fearing deflation, the U.S. Federal Reserve, led by Alan Greenspan, lowers its benchmark interest rate eleven times.

• Low interest rates lead to an easy-credit environment, encouraging lending practices that will prove to be unsustainable later in the decade.

• The resulting credit bubble plays a large role in the run-up to the financial crisis of 2008.

Timeline • In April, the SEC changes the net capital rule, which had limited broker-

dealers and investment banks to a 12-to-1 leverage (the ratio of debt to equity) on investments. The change allows firms with more than $5 billion in assets to leverage themselves an unlimited number of times.

• Qualifying firms at the time include Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley. In the years that follow, these firms greatly increase the amount of leverage they employ, to a point where in 2007 they routinely use thirty times leverage on investments.

• None of the five firms survive the 2008 credit crisis intact as independent investment banks.

Timeline • In 2006, a boom in U.S. housing prices abruptly reverses course;

between the fourth quarter of 2005 and the first quarter of 2006, median U.S. housing prices fall 3.3 percent. These declines accelerate in 2007.

• The downturn prompts a collapse of the U.S. subprime mortgage industry, which offered loans to individuals with poor credit or no cash for a down payment.

• More than twenty-five subprime lending firms declare bankruptcy in February and March 2007.

• The collapse rattles the Dow Jones Industrial Average, which on February 27 loses 416 points, or 3.3 percent, its biggest one-day point loss since 9/11.

Timeline

• New Century Financial Corporation, the largest U.S. subprime lender, files for bankruptcy following a series of bankruptcies at smaller subprime lending firms. Analysts worry about the impact debt from subprime mortgages will have on the financial sector, which invested heavily in securitized debt from subprime loans.

Timeline • July 31, 2007 - Bear Stearns, one of the largest investment banks

in the United States, announces two of its hedge funds have lost almost all of their investor capital and will file for bankruptcy.

• The bank previously attempted to use money from other parts of its operations to bail out the funds and halted redemptions, but the losses at the funds, which eclipsed 90 percent of original holdings, proved too large.

• This is one of the first signs of major problems in financial markets beyond the subprime loan industry.

Timeline • August 2007 - Subprime mortgage problems go global as hedge

funds and banks around the world reveal substantial holdings of mortgage-backed securities in their investment portfolios.

• France's BNP Paribas announces on August 9 that it cannot value the assets held by three of its hedge funds.

• Other EU banks follow with similar announcements. The European Central Bank immediately steps in offering low-interest credit lines to these banks.

Timeline

• August 10, 2007 - With lending markets drying up around the world, central banks coordinate to inject liquidity into credit markets for the first time since 9/11.

• The U.S. Federal Reserve, the European Central Bank, and the Banks of Australia, Canada, and Japan all inject money.

• On August 15, Countrywide Financial, the largest mortgage lender in the United States, says foreclosures and mortgage delinquencies have risen to their highest levels since 2002.

Timeline

• September 13, 2007 - Northern Rock, a British bank, requests emergency funds from Britain's central bank.

• A run on deposits at Northern Rock ensues, with large lines forming outside bank branches.

• In February 2008, Northern Rock will be taken into state ownership.

Timeline

• September 18, 2007 - The U.S. Federal Reserve makes its first in a series of interest rate cuts, lowering the benchmark federal funds rate from 5.25 percent to 4.75 percent.

• By November 2008, the Fed will cut rates to 1 percent, and in December 2008, they will make another cut, lowering rates to between 0 percent and 0.25 percent.

Timeline

• October 9, 2007 - The Dow Jones Industrial Average, which measures the combined stock values of the thirty largest companies in the United States, peaks at 14,164.

• By February 2009, the Dow will fall to just over 6,500.

Timeline • October 10, 2007 - Following a request from President George W. Bush, U.S. Treasury

Secretary Henry Paulson and Secretary of Housing and Urban Development Alphonso Jackson unveil a plan called the "Hope Now Alliance" aimed at stemming a wave of foreclosures on U.S. subprime mortgages by freezing interest rates on some loans.

• The plan spotlights concerns that variable mortgages, which adjust from a low initial interest rate to higher interest rates over time, will gradually force more homeowners to default on their home mortgages.

• Critics eventually fault the plan for taking too long to implement and not going far enough to stabilize the subprime market.

Timeline • A consortium of banks backed by the U.S. government announces plans for a $100 billion

fund to buy and unwind structured investment vehicles (SIVs), a complicated financial instrument bundling different forms of debt, including debt from subprime mortgages, into tradable securities.

• Citigroup, Bank of America, and JPMorgan Chase agree to form the fund, which will purchase and value existing SIVs, to help restore confidence in interbank lending markets.

• The plan crumbles, however, due to lack of demand for the mortgage-backed assets packaged in the SIVs and difficulties coordinating among participating banks.

• The Treasury abandons the idea on December 24.

Timeline

• The National Association of Realtors releases data for 2007 showing the largest single-year drop in U.S. home sales in twenty-five years, increasing fears that more Americans will default on mortgage debt and other forms of debt, adding to credit market problems.

Timeline • March 14, 2008 – Bear Stearns announces major liquidity problems

and is granted a twenty-eight-day emergency loan from the New York Federal Reserve Bank.

• Investors are fearful that the firm's collapse could spark a collapse of the financial sector.

• Two days later, JPMorgan Chase buys Bear Stearns for $2 per share (later, it will increase its bid to $10 per share).

• The bank traded at a high of $172 per share about two months earlier. • The collapse and sale of one of the most iconic institutions on Wall

Street sparks broad fears about the future of the financial sector.

Timeline

• Treasury Secretary Henry Paulson proposes a broad overhaul of the U.S. financial system.

• The plan calls for the possible merger of two major regulatory bodies, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

• It is also interpreted as giving additional powers to the U.S. Federal Reserve. Many of the long-term regulatory proposals from the plan remain under consideration.

Timeline

• July 15, 2008 - Following the collapse of IndyMac, a major Pasadena commercial bank, and with problems swirling around U.S. mortgage lenders Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson makes reference to his "bazooka" option.

• His comments lead many analysts to believe that the U.S. government will step in to stabilize any financial institution so large that its collapse poses systemic risks.

Timeline

• September 7, 2008 - The U.S. government announces it will seize control of federal mortgage insurers Fannie Mae and Freddie Mac, in what is considered Washington's most dramatic credit crisis intervention to date.

• The two firms are riddled by mortgage defaults, and federal regulators fear their collapse could lead to massive collateral damage for financial markets and the U.S. economy.

Timeline • September 15, 2008 - On September 15, Lehman Brothers, a major global

investment bank and a fixture in the U.S. financial sector for more than 150 years, files for the largest bankruptcy in U.S. history.

• The announcement spooks many investors who had assumed the U.S. Treasury would act to prevent a bank the size of Lehman from failing.

• On the same day, Bank of America announces a $50 billion purchase of the investment bank Merrill Lynch, reassuring investors of Merrill's ability to cover its short-term debts and stave off bankruptcy.

• The following day, credit ratings agencies downgrade AIG, the largest insurer in the United States. On September 17, the U.S. Federal Reserve loans AIG $85 billion.

Timeline • September 19, 2008 - Treasury Secretary Henry Paulson unveils a rescue

plan dubbed the Troubled Assets Relief Program, or TARP. • The plan aims to use $700 billion of U.S. taxpayer assets to stabilize

markets. It also proposes a plan to buy troubled and difficult-to-value assets from the country's largest financial firms, value them, and resell them, in the hopes of restoring confidence in credit markets.

• Later, on November 12, Paulson will abandon the element of the plan aimed at buying toxic assets, focusing the remainder of the TARP assets on recapitalizing financial firms.

Timeline • September 21, 2008 - The two largest U.S. investment banks,

Goldman Sachs and Morgan Stanley, announce they will convert to bank holding companies, exposing them to additional government regulation but also giving them access to more loans from the U.S. Federal Reserve.

• Combined with the collapse of Lehman Brothers and the sales of Bear Stearns and Merrill Lynch, the move marks the end of independent investment banks, symbols of Wall Street's success in the second half of the twentieth century.

Timeline

• September 25-29 - Washington Mutual is seized by the Federal Deposit Insurance Corporation (FDIC) and declares bankruptcy; the next day, the FDIC sells the bank's assets to another bank, JPMorgan Chase.

• On September 29, another major U.S. bank, Wachovia, enters crisis takeover talks with Citigroup. Wachovia is purchased in early October by Wells Fargo.

Timeline

• October 1-3 - After the U.S. House of Representatives rejects Treasury Secretary Henry Paulson's $700 billion rescue package on September 29, the U.S. Senate approves revised legislation on October 1.

• As calls for quick action mount from business leaders, the media, and the U.S. public, the House passes the revised legislation on October 3.

Timeline

• October 2, 2008 - Ireland approves a guarantee of bank deposits, setting off criticism from EU partners of unfair competition and spurring moves by individual European countries to safeguard banks.

Timeline

• October 6-7, 2008 - With equity and credit markets both reeling, the U.S. Federal Reserve moves on October 6 to make an additional $900 billion of short-term lending available to banks.

• The next day, the Fed announces plans to lend approximately $1.3 trillion to companies outside the financial sector.

Timeline • October 10, 2008 - Amid spiraling financial concerns, the Dow Jones Industrial Average

suffers the worst week of losses in its history, dropping 22.1 percent. • During the course of the week, the U.S. Federal Reserve intervenes in loan markets,

extending aid both to banks and nonfinancial firms. The Danish government follows Ireland and guarantees bank deposits; BNP Paribas takes over Fortis, making it the largest bank in the Eurozone; and Iceland passes legislation to nationalize, merge, or force into bankruptcy failing banks.

• The central banks of the United States, the EU, Britain, China, Canada, Sweden, and Switzerland make coordinated interest rate cuts.

Timeline

• October 11, 2008 - Finance ministers from the Group of Seven (G7), which includes Britain, Canada, France, Germany, Italy, Japan, and the United States, meet in Washington.

• They do not agree on a concrete plan to address the crisis, despite growing calls for a coordinated international response.

• Two days later, several European countries move to nationalize banks and increase liquidity.

Timeline

• November 7, 2008 - The United States announces 240,000 jobs were lost in October 2008, the first in a series of announcements of heavy job losses that continues into 2009.

• By March 2009, U.S. unemployment will reach 8.5 percent, its highest level in over twenty-five years.

Timeline • November 14, 2008 - Leaders from the world's Group of Twenty (G20)

major economies gather in Washington for a summit billed by many as the second coming of the 1944 Bretton Woods conference.

• The leaders release a communique outlining plans for further meetings and calling for ambitious reforms to the global financial system.

• The leaders also make firm statements against trade protectionism, though most of the G20 member states will implement protectionist measures in the months following the summit.

Timeline • January 20, 2009 - Barack Obama succeeds George W. Bush to become

the forty-fourth president of the United States. • Obama promises to make addressing economic concerns his top priority

and pledges sweeping policy changes to address the crisis, saying "only government" can lead the United States out of its economic doldrums.

• He appoints former New York Federal Reserve Chair Timothy Geithner to head the U.S. Treasury and Christina Romer, a professor of economics at the University of California, Berkeley, as the chair of his Council of Economic Advisers.

Timeline

• February 17, 2009 - Amid a wave of global spending on fiscal stimulus, President Barack Obama signs a $787 billion stimulus package into law.

• The bill aims to boost vital sectors of the U.S. economy, including energy and health care. It wins praise from some economists, who laud Obama's recognition of the urgency of the moment, but others criticize the bill for inefficiencies.

Timeline • February 25, 2009 - U.S. Treasury Secretary Timothy Geithner unveils the

details of a plan for "stress tests" at big U.S. banks to determine the strength of their balance sheets.

• The move comes as part of Geithner's "Financial Stability Plan," which coordinates action among several U.S. regulators.

• Other parts of the plan include a "Public-Private Investment Program," designed to facilitate private-sector investment in troubled assets, and the "Term Asset-Backed Securities Lending Facility," or TALF, designed to free up credit to consumers and small businesses.

Timeline • March 18, 2009 - The U.S. Federal Reserve announces it will buy an additional

$750 billion in mortgage-backed securities and $300 billion in U.S. treasuries--a move known as quantitative easing--to try to push long-term interest rates down and jumpstart economic activity.

• On November 3, 2010, the Fed announces it will initiate another round of QE by buying up $600 billion in long-term treasuries, to be completed by the end of June 2011.

• The Fed says it will also reinvest between $250 and $300 billion of proceeds from its mortgage-related holdings to buy other government bonds.

Timeline • April 2, 2009 - Following up on Group of Twenty meetings in Washington in November

2008, heads of state from twenty of the world's leading economies meet in London. • At the meetings, the G20 nations pledge to triple funding for the International Monetary

Fund, as well as directing new money to trade financing. • The leaders do not make any major statement on increasing global stimulus spending,

a focus of the United States ahead of the meetings. • Following a major push by France and Germany, the leaders do, however, announce

their intention to crack down on tax havens and improve international regulation of financial flows.

Timeline • June 17, 2009 - Having already moved to tighten regulation on specific aspects of

financial markets, including the market for complex derivatives, Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers introduce a sweeping proposal to reform the U.S. financial regulatory system.

• The plan calls for giving additional oversight powers to the U.S. Federal Reserve, aimed at better enabling the Fed to monitor systemic risk.

• The plan also calls for higher capital and liquidity requirements for banks, new reporting requirements for issuers of asset-backed securities, and the creation of a council of regulators aimed at coordinating among different existing regulators.

Timeline • Nearly a year after the financial crisis began, G20 leaders meet again, in Pittsburgh.

The meeting firmly establishes the G20 as the supreme coordinating body for global economic affairs, supplanting the G8.

• Leaders agree to at least a 5 percent shift in voting rights in the International Monetary Fund from developed countries to developing countries and that IMF leadership should be chosen based on merit rather than nationality.

• The G20 pledges to develop policies to prevent "the re-emergence of unsustainable global financial flows," acknowledging the need to improve savings rates in high-deficit countries like the United States, while spurring consumer spending in high-surplus countries like China.

Timeline

• Greece's new government vows to overhaul its finances after announcing the 2009 budget deficit will be 12.7 percent of GDP, far in excess of the EU's 3 percent limit.

• Six weeks later, rating agency Fitch cuts Greece's sovereign debt rating to below A grade for the first time in ten years.

• Public sector riots erupt in Athens in response to EU demands for Greece to outline a strict deficit-reducing plan under threat of sanctions.

Timeline

• January 27, 2009 - A financial meltdown in Iceland, a country that had focused its economy heavily on the financial sector, leads the Icelandic government coalition to crumble. The collapse marks the first political casualty of the financial crisis. By the end of February, the governments of Belgium and Latvia also will collapse due in part to domestic financial turmoil.

Timeline

• Dubai government-owned conglomerate Dubai World requests a six-month standstill on $26 billion in loan repayments, amid rising sovereign debt fears in Europe.

• The request draws global attention to Dubai's tenuous financial position in the wake of a massive building boom.

• Nearly three weeks later, fellow emirate Abu Dhabi offers Dubai a $10 billion bailout to avoid a default and allow the investment company to negotiate a debt restructuring.

Timeline

• April 27, 2010 - Standard & Poor's downgrades Greece's credit rating to junk, making the country the first eurozone member to lose investment-grade status. The cost of servicing Greece's short-term debt rises sharply.

• The next day it downgrades Spain's rating because of poor growth prospects.

• German Chancellor Angela Merkel demands Greece toughen its proposed austerity measures before Germany will approve a joint EU-IMF rescue package.

Timeline • On May 2, 2010 - the EU and IMF announce a $146 billion financial

rescue package for Greece to address its sovereign debt crisis in exchange for the country enacting strict austerity measures.

• Less than two weeks later, the EU and IMF agree to create a temporary eurozone stability mechanism--the European Financial Stability Facility--worth $1 trillion.

• The move comes in conjunction with a decision by the European Central Bank to buy eurozone government bonds on the open market in an effort to provide an added safety net for the euro area.

Timeline • July 21, 2010 - President Barack Obama signs into law a financial reform bill giving the federal

government new powers to regulate Wall Street and prevent financial crises. • The bill includes creation of a Consumer Financial Protection Bureau and a Financial Services Oversight

Council of existing regulators to monitor market stability. • The Federal Deposit Insurance Corporation gains power to seize and dismantle troubled financial firms

deemed "too big to fail," and proprietary trading (when banks invest for their own profit) is banned. • The bill also limits the scope of banks' investments in hedge funds and private equity funds and

requires most derivatives to be traded through public clearinghouses or exchanges.

Timeline

• November 28, 2010 - The EU and IMF agree to provide Ireland with a $114 billion rescue package.

• The fund will help Ireland to manage its sovereign debt and recapitalize its insolvent banking sector, after having been forced into debt as a result of insuring its banks against all losses at the peak of the crisis in 2008.

Timeline

• May 5, 2011 - The EU and IMF agree to provide Portugal with a $116 billion rescue package. Portugal's dependence on foreign debt--demonstrated by a current account deficit that was over 10 percent of GDP in 2009--makes it susceptible to sovereign debt contagion.

• Credit rating agencies predict Portugal's exposure to the debt crisis will become unsustainable, and investors agree, ultimately making it too prohibitive for the country to finance itself on global debt markets.

Timeline • July 21, 2011 - Mounting fears over sovereign debt contagion to Italy and Spain

force an emergency eurozone summit, where EU and IMF officials agree to provide Greece with a second financial rescue package worth $156 billion.

• The plan calls for an additional $55 billion in contributions by private bondholders, which could lead to a Greek default.

• Eurozone leaders also agree to an expansion of the temporary European Financial Stability Facility, which will now be authorized to buy eurozone bonds on secondary markets and to lend directly--at lower rates--to troubled countries before they lose access to market financing.

Timeline

• The European Central Bank announces it will "actively implement" its Securities Market Program to buy up Spanish and Italian government debt.

• The moves come amid a worsening eurozone sovereign debt crisis and soaring yields on Spanish and Italian bonds.

Timeline • September 21, 2011 - The U.S. Federal Reserve announces a new

measure to stimulate the beleaguered economy--known as "Operation Twist," a Fed policy originally enacted in the 1960s--by which it will sell $400 billion in short-term treasuries in exchange for longer-term bonds.

• The move is part of a continuing effort to keep long-term interest rates down and generate borrowing. The controversial plan provokes a backlash from Republican lawmakers. The Fed also faces internal dissent, as three regional bank presidents vote against the policy.

US Treasury Metrics Bundle

• http:// www.treasury.gov/resource-center/da ta-chart-center/Documents/20120413_ FinancialCrisisResponse.pdf

The canadian case

The Canadian Case

• Initially spared the major effects of the crisis

• Banks were not as exposed to bad debt and had considerable capital reserves

• Housing market was sustained and high energy prices kept economy moving forward

• Credit squeeze that was occurring internationally were evident also in Canada

The Canadian Case

• Energy prices fell in 2008 which negatively affected the economy

• Government worked with other countries under G-8 then G-20 to mitigate the effects within the Canadian economy

The Canadian Case

• Canada in many ways was spared the worst of the crisis. No banks failed. Our governments never had to buy shares of key financial institutions to keep them alive. The Bank of Canada never had to resort to the full-on money printing that harder-hit countries undertook. Our recession was sharp, but growth resumed quickly.

The Canadian Case

• Canadian Imperial Bank of Commerce, the one bank that found itself holding large amounts of derivative securities tied to U.S. subprime mortgages, started taking what amounted to billions of dollars of losses tied to that portfolio in 2007.

• It sold $2.75-billion of stock in early 2008 to shore up its balance sheet, at a time when the bank’s share price had not yet taken the beating it would later that year.

The Canadian Case

• Such events forced Canada to get ready long before the worst arrived. National Bank of Canada CEO Louis Vachon says: “By the time Lehman went under in the fall of ’08, we’d been in crisis mode for a year.”

The Canadian Case

• In the summer - 2007, Canadians hear for the first time about trouble with a particular kind of short-term investment – ABCP, or asset- backed commercial paper.

• In the years leading up to 2007, investors had piled into ABCP, which consisted of 30-day and 60-day notes that paid interest earned from bundling assets like mortgages and auto loans together.

The Canadian Case

• As fears spread that U.S. subprime mortgages would result in massive defaults, new buyers of ABCP disappear.

• That means existing holders of the notes – companies, banks and private investors – are unable to cash them in, putting $33-billion of securities in limbo. Almost overnight, trading in ABCP freezes.

The Canadian Case • As Canada comes to grips with its ABCP crisis, the U.S. gets a shock of its

own. • Behind closed doors at a gathering of the Asia-Pacific Economic Co-operation

in Australia in September, leaders begin voicing concerns about the problems surfacing in the mortgage market, particularly in the U.S.

• As problems emerge, many of Canada’s top financial executives are consumed with putting out the ABCP fire. The institutions most affected by the crisis include National Bank of Canada, the Caisse de dépôt et placement du Québec and Canaccord Financial.

The Canadian Case

• By December, it becomes clear that ABCP won’t be the only crisis Canada endures.

• After already writing off $753-million from its exposure to U.S. subprime mortgages, Canadian Imperial Bank of Commerce admits that another $2-billion could vanish – a number that will grow.

• In January, 2008, the bank sells nearly $3-billion in new shares to a group of investors that includes Hong Kong billionaire Li Ka-shing.

The Canadian Case

• Although other banks get caught in the same mess – Citigroup writes off $18.1-billion (U.S.), Bank of Montreal writes off $490-million (Canadian) – the problems appear contained. That is, until March, 2008, when Bear Stearns, the venerable Wall Street investment bank, flirts with bankruptcy after suffering heavy losses on mortgage securities.

The Canadian Case

• To save the ailing bank, JPMorgan Chase buys Bear for just $2 a share on March 17, 2008, down from $170 a year earlier. To facilitate the deal, the U.S. Federal Reserve promises to provide up to $30-billion to backstop Bear Stearns’ riskiest assets.

The Canadian Case

• The initial shock from the Bear Stearns deal subsides and nerves calm. The Dow Jones industrial average climbs back to more than 13,000. In Canada, the S&P/TSX composite index hits a record high above 15,000 in June, 2008, on the back of a boom in commodities, particularly oil, which is headed toward $150 (U.S.) a barrel. Many people think the problems of the previous few months are in the past.

The Canadian Case

• Investors start to catch on. The TSX composite sheds 9 per cent from the peak it set in June, and the S&P 500 falls 10 per cent from its peak in May. In the U.S., speculation grows that the U.S. government will need to bail out mortgage finance giants Freddie Mac and Fannie Mae.

• That finally happens on the first weekend of September, when the U.S. government seizes control of both companies.

The Canadian Case

• With the filing of Lehman Brothers’ bankruptcy in September the reality begins to sink in that the crisis is far bigger than just the failure of Lehman Bros. While the damage to the Canadian financial sector is still limited, in government and corporate circles, Lehman creates a new urgency. Senior executives and their boards begin preparing for the worst.

The Canadian Case

• Unlike U.S. banks, which sell off most of the mortgages they underwrite, Canadian banks keep them on their balance sheets. Mr. Flaherty instructed Canada Mortgage and Housing Corp., the federal mortgage insurer, to buy up to $25-billion in mortgages from the banks, allowing the financial institutions to swap the loans for cash that could then be lent to Canadian businesses and households.

The Canadian Case

• Other industries start to feel the pain. The automotive sector is one of the hardest hit as nervous consumers stop buying cars. Oil prices plummet, sending Canadian energy producers scrambling to rework ambitious projects. It is clear that a major recession is unfolding, and unemployment quickly rises as one company after another announces layoffs.

The Canadian Case

• Recognizing that the crisis was becoming unmanageable, the Bank of Canada gets involved. All of the major policy makers in Ottawa are in regular contact with bank CEOs, pension fund executives and others to deal with problems and ensure co-operation.

• But the central bank could only do so much to lift confidence as the economy deteriorates. The TSX ends the year below 9,000, down 30 per cent since the collapse of Lehman.

The Canadian Case

• Amid the loss of confidence, companies start racing to find new money to protect themselves against a severe downturn.

• TransCanada Corp. is the first to test the Canadian equity market in late November, raising just over $1-billion. Manulife Financial Corp. soon follows, as do five major banks.

• However, they do this at a steep cost: All are selling new shares at rock-bottom prices that hadn’t been seen in years.

The Canadian Case • Early in 2009, stock markets and economic activity continue to drop. After surviving a political

crisis in which three opposition parties try to take it down, Stephen Harper’s minority government in Ottawa assembles a plan to boost the economy as unemployment soars.

• Ultimately, the Bank of Canada keeps interest rates at ultralow levels but holds off on more extreme measures. Starting in March, 2009, the markets hand the policy makers a much- needed gift: a massive rebound. From its low on March 9 to June 30, the TSX composite index skyrockets 37 per cent.

• Some major companies still must prove they can survive. In early 2009, governments in the U.S. and Canada engineer a taxpayer-funded rescue of General Motors and Chrysler.

The Canadian Case • By the end of 2009 the economy enters a prolonged period of

sluggish growth and the central bank holds down interest rates, hoping to spur consumer spending and stimulate the economy.

• Signs of life are seen in the auto sector, as sales begin to rebound, and in the housing market, where mortgage lending grows. But though the world looks upon Canada as having weathered the storm, there is still unease among government and business leaders about resting on those laurels.

The Canadian Case

• Harper government identified 3 major challenges coming out of the crisis:

– The high cost and reduced availability of Lnancing caused by the global financial market crisis.

– Declining demand for Canadian exports caused by the slowdown in the U.S. and other key economies.

– Reduced profits and incomes due to the sharp drop in commodity prices.

The Canadian Case

• Canada was one of the first countries to inject major fiscal stimulus into its economy to offset the downturn and encourage continued growth.

• On October 30, 2007, the Government introduced $65 billion in permanent tax reductions over five fiscal years.

The Canadian Case

• 5 steps under the first “Action Plan” – Action to Help Canadians and Stimulate

Spending: Providing $8.3 billion for the Canada Skills and Transition Strategy to help Canadians weather today’s economic storm and to provide them with the necessary training to prosper in tomorrow’s economy. In addition, $20 billion will be provided in additional personal income tax reductions over 2008–09 and the next five fiscal years.

The Canadian Case – Action to Stimulate Housing Construction: Providing $7.8

billion to build quality housing, stimulate construction, encourage home ownership and enhance energy efficiency

– Immediate Action to Build Infrastructure: Accelerating and expanding the recent historic federal investment in infrastructure with almost $12 billion in new infrastructure stimulus funding over two years, so that Canada emerges from this economic crisis with more modern and greener infrastructure.

The Canadian Case – Action to Support Businesses and Communities: Protecting

jobs and supporting sectoral adjustment during this extraordinary crisis with $7.5 billion in extra support for sectors in need—automotive, forestry and manufacturing— regions and communities.

– Action to Improve Access to Financing and Strengthen Canada’s Financial System: Providing up to $200 billion through the Extraordinary Financing Framework to improve access to financing for Canadian consumers, households and businesses.

http://www.oecd.org/eco/50543310.pdf

Canadian Stats

• http:// www.oecd.org/eco/50543310.pdf

The Canadian Case

https ://www.youtube.com/watch?v=d DzmMwwtKik – Paul Martin