OVERVIEW OF THE GLOBAL ECONOMIC CRISIS - PowerPoint PPT Presentation

Loading...

PPT – OVERVIEW OF THE GLOBAL ECONOMIC CRISIS PowerPoint presentation | free to download - id: 12df53-OGY1N



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

OVERVIEW OF THE GLOBAL ECONOMIC CRISIS

Description:

'PEOPLE ARE IN A STATE OF CRISIS WHEN THEY FACE AN OBSTACLE TO IMPORTANT LIFE ... CAUGHT MOST PEOPLE ( EXPERTS' INCLUSIVE) UNAWARES, BECAUSE THE WORLD IGNORED THE ... – PowerPoint PPT presentation

Number of Views:43
Avg rating:3.0/5.0
Slides: 57
Provided by: drbiodun
Learn more at: http://www.cenbank.org
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: OVERVIEW OF THE GLOBAL ECONOMIC CRISIS


1
  • OVERVIEW OF THE GLOBAL ECONOMIC CRISIS

2
OUTLINE
  • WHAT IS CRISIS?
  • ABOUT THIS CRISIS
  • SPECIFICS
  • CAUSES
  • IMPLICATIONS
  • WHAT TO DO
  • END NOTES

3
WHAT IS CRISIS?
  • PEOPLE ARE IN A STATE OF CRISIS WHEN THEY FACE
    AN OBSTACLE TO IMPORTANT LIFE GOALS AN OBSTACLE
    THAT IS, FOR A TIME, INSURMOUNTABLE BY THE USE OF
    CUSTOMARY METHODS OF PROBLEM SOLVING.
  • CAPLAN, 1961

4
WHAT IS CRISIS? (CONTD.)
  • AN UPSET IN EQUILIBRIUM AT THE FAILURE OF ONES
    TRADITIONAL PROBLEM-SOLVING APPROACH WHICH
    RESULTS IN DISORGANIZATION, HOPELESSNESS,
    SADNESS, CONFUSION, AND PANIC.
  • LILLIBRIDGE AND KLUKKEN, 1978

5
WHAT IS CRISIS? (CONTD.)
  • CRISIS IS A PERCEPTION OR EXPERIENCE OF AN
    EVENT OR SITUATION AS AN INTOLERABLE DIFFICULTY
    THAT EXCEEDS THE PERSONS CURRENT RESOURCES AND
    COPING MECHANISMS.
  • JAMES AND GILLILAND, 2001

6
WHAT IS CRISIS? (CONTD.)
  • THE LAST OF THESE DEFINITIONS MAKES CLEAR THAT
    CRISIS IS A PERCEPTION, WHICH THEN MAKES IT
    LARGELY A MATTER OF HOW THE INDIVIDUAL RESPONDS
    TO THE TRIGGER OR DEVELOPMENT.

7
ABOUT THIS CRISIS
  • THE BUSINESS CYCLE IS INEVITABLE.
  • THIS MEANS THAT THERE ARE FOUR PHASES TO HUMAN
    ACTIVITIES, WHICH APPLIES TO SOCIETIES,
    ORGANIZATIONS OR INDIVIDUALS.
  • THE FACT IS, RECESSION WILL INEVITABLY FOLLOW A
    BOOM, AND WHEN NOT DEALT WITH PROMPTLY, IT CAN
    PROGRESS TO A BURST BEFORE THERE CAN BE HOPE FOR
    RECOVERY!

8
ABOUT THIS CRISIS (CONTD.)
GDP GROWTH
BOOM
RECESSION
RECOVERY
BURST
TIME
9
ABOUT THIS CRISIS (CONTD.)
  • SINCE THE GREAT DEPRESSION OF THE LATE 1920s AND
    EARLY 1930s, THERE HAS NOT BEEN A CRISIS OF THE
    KIND OF MAGNITUDE, COMPLEXITY AND SPREAD AS THE
    CURRENT ONE THE WORLD IS GOING THROUGH.
  • BETWEEN THEN AND NOW, EPISODES OF FINANCIAL
    CRISIS WERE LIMITED IN SPREAD AND EASILY
    CONTAINED.
  • THIS IS WHY THE CURRENT CRISIS IS UNIQUE AND THAT
    IS IN SIX WAYS.

10
ABOUT THIS CRISIS (CONTD.)
  • THE WORLD HAS BECOME TRULY ONE BIG GLOBAL
    VILLAGE, WHERE DEEP INTERDEPENDENCE MAKES
    EVERYONE FEEL SO SAFE AND YET SO VULNERABLE.
  • THE ADVANCES IN FINANCIAL INNOVATION IN THE LAST
    THREE TO FOUR DECADES CREATED AN ILLUSION OF
    INCREASING CAPACITY TO PREDICT AND THUS
    FORESTALL UPHEAVALS IN FINANCIAL MARKETS.

11
ABOUT THIS CRISIS (CONTD.)
  • MARKET EFFICIENCY THROUGH INFORMATION
    COMMUNICATION TECHNOLOGY HAS HUGELY SHORTENED THE
    TIME FOR POLICY/ACTION TRANSFERENCE.
  • INNOVATIONS AND WIDELY ACKNOWLEDGED CREATIVITY IN
    FINANCIAL MATTERS CREATED A CLASS OF ARROGANT
    EXPERTS IN THE ACADEMIA AND AMONG PRACTITIONERS
    THAT ARE TREATED LIKE ORACLES AND THEREFORE,
    CANNOT BE WRONG.

12
ABOUT THIS CRISIS (CONTD.)
  • THIS CRISIS CAUGHT MOST PEOPLE (EXPERTS
    INCLUSIVE) UNAWARES, BECAUSE THE WORLD IGNORED
    THE GREED FACTOR IN HUMAN DECISIONS AND
    ACTIONS.
  • ITS DEPTH WAS DIFFICULT TO MEASURE, NEITHER IS IT
    EASY TO FORECAST ITS FUTURE EXTENT EVEN NOW!
  • NOBODY COULD HAVE PREDICTED THAT AIG WOULD RECORD
    A LOSS OF 67.1 BILLION IN THE 4TH QUARTER OF
    2008, AND THIS WAS JUST ONE OF THE JAW-DROPPING
    EFFECTS OF THIS CRISIS!

13
ABOUT THIS CRISIS (CONTD.)
  • ACCORDING TO THE LONDON ECONOMIST IN FEBRUARY
    2009
  • MANAGING A CRISIS AS COMPLEX AS THIS ONE HAS SO
    FAR CALLED FOR NUANCE AND PRAGMATISM RATHER THAN
    STRIDENCY AND PRINCIPLEONLY THE FOOLISH AND THE
    PARTISAN HAVE REJECTED (OR EMBRACED) ANY
    SOLUTIONS CATEGORICALLY.
  • OBVIOUSLY, THESE ARE UNUSUAL TIMES THAT POSE THE
    DEEPEST CHALLENGES TO ALL AND SUNDRY.

14
ABOUT THIS CRISIS (CONTD.)
  • THE CRISIS AT FIRST, CREATED CONCERNS ABOUT THE
    WAY NATIONS STARTED TO ADDRESS THE PROBLEM.
  • EVERYONE FOR HIMSELF, AND GOD FOR US ALL!
  • THERE WAS AN EMERGING AND GROWING TENDENCY
    TOWARDS NATIONALISM AND PROTECTIONISM, WHICH
    THREATENED REVERSAL OF THE GAINS OF THE OPEN
    ECONOMY OF THE 20TH AND EARLY 21ST CENTURIES.
  • THE WORLD BANK HAD TO WARN THAT THIS COULD BECOME
    A MAJOR PROBLEM FOR THE WORLD ECONOMY, WHICH
    LARGELY INFORMED THE FORMATION OF THE G20.

15
ABOUT THIS CRISIS (CONTD.)
  • EVERY STAKEHOLDER IN THE WORLD ECONOMIC SYSTEM
    WAS SOMEWHAT RESPONSIBLE
  • GOVERNMENTS AROUND THE WORLD WERE EXCITED ABOUT
    THEIR SEEMINGLY ROBUST AND STEADILY GROWING
    ECONOMIES, AND THE POLITICAL GAINS OF THAT!
  • FINANCIAL SYSTEM REGULATORS WERE CARRIED AWAY BY
    THE ACCOLADES AND AWARDS FOR GETTING IT RIGHT
    OVER A LONG TIME IN THE US, BRITAIN, EUROPE AND
    MORE RECENTLY IN NIGERIA.

16
ABOUT THIS CRISIS (CONTD.)
  • EVERY STAKEHOLDER RESPONSIBLE (CONTD.)
  • MARKET OPERATORS BASKED IN THE EUPHORIA OF
    SUPERLATIVE CORPORATE PERFORMANCE THAT MADE THEIR
    HISTORICAL HIGHS PALE INTO INSIGNIFICANCE.
  • RATING AGENCIES GAVE OPTIMISTIC ASSESSMENTS OF
    CORPORATE AND SOVEREIGN DEBTS, AND THEY BECAME
    ARROGANT EXPERTS THAT EVERYBODY BELIEVED KNEW ALL
    THINGS!

17
ABOUT THIS CRISIS (CONTD.)
  • EVERY STAKEHOLDER WAS RESPONSIBLE (CONTD.)
  • OTHER MARKET PARTICIPANTS WERE ALSO CARRIED AWAY
    BY THE ABNORMAL PROFITS THEY WERE MAKING, AND
    ASSUMED THAT THE SUN WILL ALWAYS SHINE!
  • THE GREED FACTOR LED EVERYBODY ALONG AND CAUTION
    WAS THROWN TO THE WINDS!

18
ABOUT THIS CRISIS (CONTD.)
  • IT ALL APPEARED VERY MUCH LIKE AN AFRICAN PROVERB
    (COMMONLY YORUBA) THAT WHEN A LITTLE BOY IS
    BEATING A DRUM WHOSE SOUND RESONATES SO AS TO
    MAKE DANCERS HIGH, THE EXCITEMENT WILL LIKELY
    MAKE HIM BEAT THE DRUM HARDER UNTIL IT EVENTUALLY
    TEARS!
  • AFTER ALL, THE MEMBRANE IS EITHER REAL OR
    ARTIFICIAL LEATHER, BOTH OF WHICH ARE VULNERABLE!

19
A FEW SPECIFICS
  • ALL THESE DEVELOPMENTS CAME AGAINST THE
    BACKGROUND OF THE REAGANOMICS OF THE 1980s, WHICH
    HAS BEEN EMBRACED BY MOST OF THE WEALTHIEST
    NATIONS AND FORCED DOWN THE THROAT OF MANY
    HEAVILY-DEPENDENT DEVELOPING COUNTRIES.
  • IT IS GENERALLY TERMED THE NEOLIBERAL ECONOMIC
    IDEOLOGY THAT EMPHASIZES FREE MARKET AND
    INDIVIDUALISM, AND ARGUED VEHEMENTLY AS THE ONLY
    ROUTE TO DEVELOPMENT.

20
SPECIFICS (CONTD.)
  • AT FIRST, THE CRISIS WAS THOUGHT TO BE A PROBLEM
    WITH THE USA MORTGAGE LENDERS, ARISING FROM
    SUB-PRIME MORTGAGES AND THEREFORE, A LOCALIZED
    PROBLEM. I.E., THE PROBLEM IS NOT ECONOMY-WIDE,
    BUT LOCALIZED TO THE PROPERTY MARKET.
  • THE RESULTING DELAYED ACTION BY GOVERNMENTS AND
    REGULATORS WAS TO BECOME QUITE EXPENSIVE. THE
    FIRST DECISIVE ACTION ON BANK RESCUE WAS BY THE
    BRITISH PRIME MINISTER, GORDON BROWN, AND ONE
    JUST WONDERS WHAT WOULD BE HAPPENING NOW IF HIS
    INITIATIVE DID NOT COME AT THAT TIME TO SET THE
    TONE AND AN EXAMPLE FOR OTHER WORLD LEADERS TO
    FOLLOW.

21
SPECIFICS (CONTD.)
  • AN IMPORTANT FACT IGNORED INITIALLY WAS THAT
    INVESTMENTS IN REAL ESTATE, STOCK MARKET AND THE
    MONEY MARKET ARE ALTERNATIVES THAT INVESTORS MOVE
    INTO AS CONDITIONS WARRANT.
  • AS SUCH, WHATEVER IS HAPPENING IN ONE OF THESE
    MARKETS INFLUENCES SUBSEQUENT DEVELOPMENTS IN THE
    OTHER TWO.

22
SPECIFICS (CONTD.)
  • EMPIRICAL EVIDENCE PROVIDED BY THE INTERNATIONAL
    MONETARY FUND (IMF) HOWEVER, POINTS OUT THE
    RELATIVE IMPORTANCE OF THE PROPERTY MARKET,
    INDICATING THAT HISTORICALLY, THE COST OF A BURST
    IN THE PROPERTY MARKET WAS ABOUT 8 OF GDP, AND
    THIS IS TWICE THE COST OF A BURST IN THE EQUITY
    MARKET.
  • MOREOVER, PROPERTIES HAVE COLLATERAL VALUE IN
    MODERN DAY FINANCE WHERE A LOT OF DEBT FINANCING
    IS RELIED UPON.

23
SPECIFICS (CONTD.)
  • WITH INTENSE GLOBALIZATION OF THE PAST FEW
    DECADES, THE CONTAGION AND KNOCK-ON EFFECTS
    QUICKLY MADE EVERYBODY VULNERABLE!
  • AS SUCH, POLICY MAKERS AND TOP GOVERNMENT
    FUNCTIONARIES SHOULD HAVE PAID MORE ATTENTION TO
    THE SUB-PRIME MORTGAGE CRISIS IN THE US, RATHER
    THAN THE FURIOUS ATTEMPTS MADE INITIALLY TO DENY
    THE OBVIOUS.

24
CAUSES
  • SO, HOW AND WHERE DID THIS FINANCIAL CRISIS
    BEGIN?
  • THE CURRENT GLOBAL FINANCIAL CRISIS HAD BEEN
    BREWING PRIOR TO 2007, BUT ITS EFFECT STARTED TO
    BE SEEN IN AUGUST 2007 AND BECAME A GLOBAL
    PHENOMENON BY JUNE 2008.

25
CAUSES (CONTD.)
  • LARGE FINANCIAL INSTITUTIONS THAT WERE DEEMED TO
    BE VERY STRONG AND FAILURE-PROOF EITHER FAILED
    (LEHMAN BROTHERS) OR HAD TO BE BOUGHT OVER
    CHEAPLY BY THEIR COMPETITORS (MERRILL LYNCH).
  • THOSE THAT SCRAPPED THROUGH WERE BADLY DAMAGED
    AND HAD THEIR CAPITAL HEAVILY ERODED, AND HAVE
    HAD TO CHANGE THEIR BUSINESS MODELS TO SURVIVE.

26
CAUSES (CONTD.)
  • AT THE HEART OF THE CRISIS WERE CREDIT
    DERIVATIVES, WHICH ARE A FORM OF INSURANCE IN
    WHICH THE INVESTOR UNDERWRITES THE DEFAULT EVENTS
    IN CORPORATE DEBTS.
  • THUS, DERIVATIVES ENABLE THE SHARING OF CREDIT
    RISKS BY BREAKING THEM DOWN INTO SMALLER,
    DIGESTIBLE CHUNKS.

27
CAUSES (CONTD.)
  • AS SUCH, ON THEIR OWN, DERIVATIVES ARE GOOD FOR
    RISK HEDGING.
  • HOWEVER, PROBLEMS AROSE FROM TWO PREMISES
  • WHAT THEY WERE USED FOR SPECULATION!
  • WHAT THEY LED MARKET PARTICIPANTS TO BEGIN TO DO
    BANKERS ESPECIALLY, BECAME CARELESS IN LENDING.

28
CAUSES (CONTD.)
  • BRITISH COMEDIANS, JOHN BIRD AND JOHN FORTUNE,
    PUT THE CRISIS SUCCINCTLY AS
  • A COLLAPSE OF THE US SUB-PRIME MORTGAGE MARKET
    AND THE REVERSAL OF THE HOUSING BOOM IN OTHER
    INDUSTRIALIZED ECONOMIES HAVE HAD A RIPPLE EFFECT
    AROUND THE WORLD. FURTHERMORE, OTHER WEAKNESSES
    IN THE GLOBAL FINANCIAL SYSTEM HAVE SURFACED.
    SOME FINANCIAL PRODUCTS AND INSTRUMENTS HAVE
    BECOME SO COMPLEX AND TWISTED, THAT AS THINGS
    START TO UNRAVEL, TRUST IN THE WHOLE SYSTEM
    STARTED TO FAIL.

29
CAUSES (CONTD.)
  • WE CAN IMMEDIATELY IDENTIFY THE FOLLOWING ISSUES
    IN THIS STATEMENT
  • SUB-PRIME MORTGAGE LENDING
  • LENDING TO THOSE WHO COULD NOT AFFORD MORTGAGES
    OF THE MAGNITUDE OF EXPOSURE.
  • FURTHER LENDING ON EQUITY (BUBBLE) CREATED BY
    SOARING ASSET PRICES.
  • POOR ATTENTION TO CREDIT RISK ANALYSIS, RELYING
    ON THE WINDOW FOR SELLING OFF OR SHARING CREDIT
    RISK.

30
CAUSES (CONTD.)
  • ISSUES ARISING (CONTD.)
  • REVERSAL OF HOUSING BOOM
  • CONTAGION EFFECT OF REAL ESTATE BURST IN THE US
    TRIGGERED CAPITAL MIGRATION, AND THE FEAR
    FACTOR CREPT IN TO FURTHER ACCELERATE THE
    DOWNWARD SPIRAL IN HOUSING PRICES.

31
CAUSES (CONTD.)
  • ISSUES ARISING (CONTD.)
  • INADEQUATE REGULATION OF FINANCIAL SYSTEMS
  • TO ENCOURAGE INNOVATIONS AND IN RECOGNITION THAT
    FINANCIAL EXPERTS HAD CAPACITY TO MANAGE RISKS.
  • RISKS HAVE BEEN PROPERLY IDENTIFIED AND UNIVERSAL
    STRATEGIES DESIGNED IN BASLE 2 ACCORD (UNDER THE
    AUSPICES OF THE BANK FOR INTERNATIONAL
    SETTLEMENT) WILL MAKE BANKERS (ESPECIALLY) ADOPT
    APPROPRIATE BEHAVIOUR.
  • WITH MARKET DISCIPLINE A MAJOR PILLAR OF THE NEW
    ACCORD, BANKERS WILL HENCEFORTH BEHAVE
    RESPONSIBLY.

32
CAUSES (CONTD.)
  • ISSUES ARISING (CONTD.)
  • EXTREME INNOVATIONS THAT CONFOUNDED (POSSIBLY,
    CONFUSED) REGULATORS AND PARTICIPANTS.
  • FINANCIAL DERIVATIVES WERE DRIVEN TO DIZZYING
    HEIGHTS THAT ONLY THE INITIATED IN THOSE COMPLEX
    ESOTERIC PRODUCTS COULD FIGURE OUT WHAT THEY MEAN
    OR IMPLY.

33
CAUSES (CONTD.)
  • THE CAUSES OF THE CRISIS WERE SUMMARIZED IN THE
    TRADE AND DEVELOPMENT REPORT FOR 2008 AS
  • THE GLOBAL FALLOUT FROM THE FINANCIAL CRISIS IN
    THE UNITED STATES.
  • THE BURSTING OF THE HOUSING BUBBLES IN THE US AND
    IN OTHER LARGE ECONOMIES.
  • THE BENEFIT OF HINDSIGHT WAS ARGUED BY BERNANKE
    AND GERTNER (2001) THAT THIS WAS A MAJOR FACTOR
    IN THE ECONOMIC DEPRESSION OF THE LATE 1920s.
  • SOARING COMMODITY PRICES.
  • INCREASINGLY RESTRICTIVE MONETARY POLICIES IN A
    NUMBER OF COUNTRIES.
  • STOCK MARKET VOLATILITY.

34
IMPLICATIONS
  • TILL DATE, NO COUNTRY OR FINANCIAL SYSTEM HAS
    FOUND AN ENDURING SOLUTION TO THE CRISIS.
  • EVERY COUNTRY THAT SHOWED SOME SIGNS OF RECOVERY
    HAD ALSO HAD WORRYING MACROECONOMIC STATISTICS
    (USA) OR DEVELOPMENTS THAT CREATED FRESH PANIC
    (UK).
  • SPECIFICALLY, THE IMPLICATIONS ARE AS FOLLOWS.

35
IMPLICATIONS (CONTD.)
  • FINANCIAL SYSTEMS WENT INTO TURMOIL AND
    ESPECIALLY BANKS SUSTAINED HUGE LOSSES THAT
    THREATENED THEIR EXISTENCE, AND MADE
    RECAPITALIZATION INEVITABLE.
  • NIGERIA IS NOT DIFFERENT FROM THE REST OF THE
    WORLD, AND IT WAS SELF-DELUSION THAT MADE US
    ARGUE THAT BANKING CONSOLIDATION INSULATED OUR
    FINANCIAL SYSTEM FROM THE CRISIS.
  • RATHER, IT WAS THE UNDEVELOPED CREDIT CULTURE
    THAT LIMITED THE IMPACT OF THE CRISIS ON NIGERIA.

36
IMPLICATIONS (CONTD.)
  • EVEN AT THAT, NIGERIAN BANKS HAD ALSO ENGAGED IN
    SUB-PRIME LENDING DURING THE PERIOD OF GROWING
    ASSET BUBBLES IN THE EQUITY MARKET!
  • TO ENSURE THAT BANKS DO NOT FAIL IN LARGE
    NUMBERS, WORLD GOVERNMENTS INTRODUCED FISCAL
    STIMULUS PACKAGES, ESTIMATED BY IMF AT US4.1
    TRILLION!

37
IMPLICATIONS (CONTD.)
  • THE ENSUING CREDIT CRUNCH AFFECTED ADVERSELY
    COMMODITY CONSUMPTION, INCLUDING A SHARP DROP IN
    THE DEMAND FOR CRUDE OIL (BY CHINA AND INDIA
    ESPECIALLY) AND CAUSED THE PRICE OF CRUDE TO DROP
    FROM ITS PEAK OF 147/BBL IN JULY 2008 TO
    SUB-40/BBL BY END-2008.
  • RECOVERY HAS PUSHED IT UP TO ABOUT 70/BBL.

38
IMPLICATIONS (CONTD.)
  • COUPLED WITH REDUCTION IN CRUDE OUTPUT DUE TO THE
    UNREST IN THE NIGER DELTA REGION, GOVERNMENT
    REVENUE IN NIGERIA REDUCED SIGNIFICANTLY. THUS,
    BUSINESS WITH THE GOVERNMENTS WILL NOT BE AS
    USUAL.
  • JOB LOSSES INCREASED, ESPECIALLY IN THE BANKING
    INDUSTRY. THIS ALSO HAS MEANT STOPPAGE OF NEW
    RECRUITMENTS IN FINANCIAL SERVICES.

39
IMPLICATIONS (CONTD.)
  • THE EXCHANGE VALUE OF THE NAIRA WEAKENED AGAINST
    NIGERIAS MAJOR TRADING CURRENCIES (ABOUT 20
    AGAINST THE US DOLLAR), MAKING NIGERIAN IMPORTS
    EXPENSIVE AND TRIGGERING INFLATIONARY PRESSURES.
  • AS WELL, CHEAPER NAIRA HAS MADE INVESTING IN
    NIGERIA ATTRACTIVE TO FOREIGNERS.

40
IMPLICATIONS (CONTD.)
  • SECURITY CHALLENGES HAVE ESCALATED, AS MORE
    PEOPLE HAVE BECOME DESPERATE BECAUSE OF JOB
    LOSSES, DEEMED PROSPECTS OF NEW JOBS OR FURTHER
    SINKING INTO POVERTY.

41
IMPLICATIONS (CONTD.)
  • TYPICAL OF HUMAN BEINGS IN CRISIS, COMMON SENSE
    CAME BACK INTO PLAY, AS DISCRETIONARY INCOME
    SHRINKS.
  • PEOPLE HAVE BECOME MORE RATIONAL IN SPENDING AND
    THAT WILL PUT THOSE IN SELLING OR OFFERING
    NON-ESSENTIAL PRODUCTS AND SERVICES IN STRESS.

42
WHAT TO DO
  • AS OBSERVED IN THE ADVANCED FINANCIAL SYSTEMS,
    THE FIRST THING TO CONSIDER IS STRESS TEST OF
    THE BANKS AND OTHER VULNERABLE FINANCIAL
    INSTITUTIONS.
  • THIS SHOULD HELP DETERMINE THE EXTENT OF TOXIC
    ASSETS A BANK IS CARRYING AND WHETHER ADEQUATE
    PROVISIONS HAVE BEEN MADE IN THE BANKS BOOKS FOR
    THAT.

43
WHAT TO DO (CONTD.)
  • WHERE BANK CAPITAL WAS FOUND TO HAVE BEEN BADLY
    ERODED, RECAPITALIZATION SHOULD BE QUICKLY
    CONSIDERED THROUGH A BAILOUT PACKAGE.
  • SOME BANKS HAVE PLAYED THE OSTRICH IN THIS, WITH
    THE CBN PLAYING ALONG AND THE GOVERNMENT QUITE
    COMFORTABLE.
  • UNFORTUNATELY, THE BANKS THAT TOOK THE RIGHT
    ACTION OF BITING THE BULLET BY PROVIDING FULLY
    FOR DEFICIENT MARGIN LOANS ARE PERCEIVED AS WEAK.
    ON THE CONTRARY, SUCH BANKS HAVE MADE THE
    APPROPRIATE RESPONSE TO THE CRISIS AND SHOULD
    COME OUT STRONGER!

44
WHAT TO DO (CONTD.)
  • IF OUR BANKS DISCLOSE FULLY THE EXTENT OF THE
    LOSSES ON MARGIN LOANS, THE IMPACT ON THEIR
    CAPITAL WILL INDICATE THE NECESSARY ACTIONS,
    WHICH WHEN TAKEN, COULD HAVE US EMERGE FROM THIS
    CRISIS WITH A MORE ROBUST BANKING SYSTEM.
  • ONE IMPORTANT OPTION IS TO ALLOW BANKS
    RESTRUCTURE THE LOANS TO BORROWERS THAT HAVE
    LONG-TERM REPAYMENT CAPABILITY BEYOND THE PRESENT
    LIMIT OF DECEMBER 2009.
  • UNUSUAL TIMES LIKE THIS WILL ALSO ADVISE
    REDUCTION IN THE INTEREST RATE APPLICABLE, RATHER
    THAN CHARGING A HIGH DEFAULT RATE.

45
WHAT TO DO (CONTD.)
  • BUSINESS ORGANIZATIONS SHOULD PURSUE AGGRESSIVELY
    COST EFFECTIVENESS.
  • SEARCH FOR AND IMPLEMENT RELIGIOUSLY STRATEGIES
    FOR REDUCING OPERATING EXPENSES TO LEVELS
    COMMENSURATE WITH VOLUME OF BUSINESS.
  • IT IS A TIME TO CUT OFF THE FAT.

46
WHAT TO DO (CONTD.)
  • ORGANIZATIONS SHOULD REVISIT THEIR BUSINESS
    MODEL, AND ESPECIALLY RETURN TO THEIR CORE
    BUSINESS AND THE BASICS OF IT.
  • THIS GOES BEYOND THE BANKS AND SHOULD BE AN
    ECONOMY-WIDE ACTION.

47
WHAT TO DO (CONTD.)
  • THOROUGH-GOING RESEARCH OF THE CRISIS SHOULD BE
    CONDUCTED AND ALL THE POSSIBLE LESSONS PROPERLY
    DOCUMENTED FOR FUTURE REFERENCE.
  • ONE MAJOR LESSON OF THE CRISIS IS THAT GREED IS
    A KILLER AND WHENEVER THE SIGNS ARE PERVASIVE,
    REGULATORY AUTHORITIES SHOULD MOVE QUICKLY WITH
    COUNTER MEASURES.

48
WHAT TO DO (CONTD.)
  • RECOGNIZE THAT THE CRISIS IS BOTH A DANGER AND AN
    OPPORTUNITY, AS UNDERSCORED IN THE STATEMENTS
    CREDITED TO J.F. KENNEDY AND CHIN-NIN CHU.

49
WHAT TO DO (CONTD.)
  • JOHN F. KENNEDY
  • THE CHINESE USE TWO BRUSH STROKES TO WRITE THE
    WORD 'CRISIS'. ONE BRUSH STROKE STANDS FOR
    DANGER THE OTHER FOR OPPORTUNITY. IN A CRISIS,
    BE AWARE OF THE DANGER-BUT RECOGNIZE THE
    OPPORTUNITY.
  • CHIN-NING CHU
  • WITHOUT THE STRENGTH TO ENDURE THE CRISIS, ONE
    WILL NOT SEE THE OPPORTUNITY WITHIN. IT IS WITHIN
    THE PROCESS OF ENDURANCE THAT OPPORTUNITY REVEALS
    ITSELF.

50
WHAT TO DO (CONTD.)
  • IT IS A TIME TO THINK SERIOUSLY HOW NIGERIAN
    BANKS (AND THE ENTIRE FINANCIAL SYSTEM) WILL
    CONNECT WITH THE REAL SECTOR, AND ULTIMATELY HELP
    TO REDUCE POVERTY AS FINANCIAL CRISIS EXTENUATES
    THE VULNERABILITY OF BOTH THE ACTIVE AND INACTIVE
    POOR.
  • MARTIN RAVALLION, DIRECTOR OF THE WORLD BANKS
    DEVELOPMENT RESEARCH GROUP STATED THAT IF
    THERES ONE THING THAT SHOULD NOT BE MISSED
    DURING THIS CRISIS, ITS THE OPPORTUNITY TO
    CREATE PRO-POOR STABILIZERS IN DEVELOPING
    COUNTRIES, SIMILAR TO THE AUTOMATIC SOCIAL SAFETY
    NETS THAT RICH COUNTRIES ALREADY HAVE IN PLACE,

51
END NOTES
  • IN DEALING WITH THE CRISIS AND ITS EFFECTS,
    GOVERNMENTS AROUND THE WORLD HAVE BEEN PRAGMATIC,
    WHILE NIGERIA HAS BEEN SLOW TO ACT AND APPEARS TO
    BE MOVING AGAINST THE GRAIN OF COMMON SENSE.
  • IF THIS CRISIS HAS DONE ONE THING, IT IS THAT IT
    HAS PROVED THAT THERE ARE NO EXPERTS ANYWHERE ON
    THIS MATTER EVERYBODY IS STILL GROPING AND
    SEARCHING!

52
END NOTES (CONTD.)
  • IT IS THEREFORE, SAFE TO SEEK SOLUTIONS TO THE
    QUAGMIRE OUTSIDE OF THE WELL-WORN WASHINGTON
    CONSENSUS WITH ITS QUESTIONABLE EFFICACY, WHICH
    RATHER DISCOURAGINGLY IS WHAT THE NIGERIAN
    GOVERNMENT IS STILL DOGGEDLY IMPLEMENTING.
  • AS HAS BEEN SUGGESTED IN SEVERAL QUARTERS ACROSS
    THE GLOBE, THIS IS PERHAPS THE TIME TO BEGIN
    RESEARCHING INTO THE NEW ECONOMY THAT WOULD BE
    EXPLAINED BY NEW ECONOMIC THEORIES.

53
END NOTES (CONTD.)
  • ANY ECONOMIC ENTITY, BE IT GOVERNMENT OR PRIVATE
    ENTERPRISE, THAT FAILS TO ADJUST TO THE REALITIES
    OF THE SHRINKING FINANCIAL SPHERE MIGHT BE
    INVITING A NEAR END.
  • THESE ARE TIMES THAT REALITIES MATTER AND MUST
    GUIDE PRIORITIES AT ALL LEVELS.

54
SELECTED REFERENCES
  • BERNANKE S. BEN, ASSET-PRICE BUBBLES AND
    MONETARY POLICY, REMARKS BEFORE THE NEW YORK
    CHAPTER OF THE NATIONAL ASSOCIATION OF BUSINESS
    ECONOMICS (OCTOBER 15 2002).
  • CONTACT GROUP ON ASSET PRICES, TURBULENCE IN
    ASSET MARKETS THE ROLE OF MICRO POLICIES
    (SEPTEMBER 2002).

55
SELECTED REFERENCES (CONTD.)
  • ECONOMIST (LONDON), ISSUE OF 19TH APRIL 2007.
  • KANAGA RAJA, ECONOMIC OUTLOOK GLOOMY, RISKS TO
    SOUTH, SAY UNCTAD, THIRD WORLD NETWORK, SEPTEMBER
    4, 2008.
  • SHAH ANUP, GLOBAL FINANCIAL CRISIS 2008,
    WWW.GLOBALISSUES.COM
  • TRICHET JEAN-CLAUDE, ASSET PRICE BUBBLES AND
    MONETARY POLICY, SPEECH AT MAS LECTURE,
    SINGAPORE, 8TH JUNE 2005.

56
  • THANK YOU
  • GOD BLESS
About PowerShow.com