The causes, harm and response to the international financial crisis

In 2008, the financial crisis swept across the world, and the world was facing the most serious financial crisis since the "Great Depression" in the 1930s. . Due to the deepening of economic globalization and the long-term imbalance of the global financial system, this financial crisis originating from the United States is unprecedented in its wide scope, strong impact, and rapid chain effects. It has brought great challenges to the economic development of countries around the world. It has had a serious impact on people's lives and caused concern to governments and people around the world. It is foreseeable that the evolution of the crisis and the responses of various countries will have a profound impact on the global financial, economic and even political landscape.

(1) The causes of this financial crisis involve various factors such as the consumption pattern of the United States, financial regulatory policies, the operation of financial institutions, and the economic structure of the United States and the world. Despite the opinions of all parties, There is still no consensus, but the following points are agreed upon by most people.

1. The real estate bubble is the source of the crisis.

In the final analysis, the subprime mortgage crisis is a crisis caused by the bursting of the real estate bubble in the United States. The birth of the real estate bubble is not only related to the "consumer culture" of American society, but also to the improper real estate financial policy and long-term easing of the United States. The monetary environment is directly related.

The U.S. economy has long been characterized by high debt and low savings. Not only do residents borrow lavishly for consumption, but the country also encourages large-scale borrowing and excessive consumption. In recent years, personal consumption expenditures have reached a record high of 70% of U.S. GDP. In the six years from the end of 2001 to the end of 2007, the debt accumulated by individuals in the United States reached the total of the past 40 years. It can be said that the U.S. government and society have been operating in a dangerous state of high debt in recent years.

Americans’ increasing courage to spend in recent years mainly comes from the continued rise in real estate prices. In response to the bursting of the Internet bubble around 2000 and the impact of the "9/11" incident in 2001, the U.S. Federal Reserve (referred to as the Fed) opened the monetary floodgates in an attempt to artificially change the trajectory of the economy and stem the recession. From January 2001 to June 2003, the Federal Reserve lowered the federal funds rate 13 times in a row, bringing the interest rate from 6.5% to a record low of 1%.

Monetary expansion and a low interest rate environment have reduced borrowing costs, prompting Americans to rush into the real estate field. Optimistic expectations that housing prices will continue to rise in the future have led banks to do everything possible to promote housing loans to borrowers with extremely low creditworthiness. Everyone has pinned their hopes on the expectation that housing prices will only rise but not fall. In the five years from 2001 to 2005, U.S. homeowners withdrew an average of nearly $1 trillion in “gains” each year from cash-out activities such as home sales, home equity loans, and mortgage refinancing. When the economy began a cyclical decline, monetary policy was adjusted, interest rates increased, housing prices plummeted, and the bubble burst. The entire chain broke. First, the default rate of the low-credit class increased sharply, triggering the subprime mortgage crisis.

2. Too many financial derivatives cover up huge risks.

Traditionally, lending banks were expected to keep loans on their own balance sheets and accordingly keep credit risk within the bank. However, a large number of lending institutions in the United States, with the assistance of intermediaries, converted a large number of subprime housing loans into securities and sold them on the market, attracting various investment institutions to purchase; and investment institutions used "superior" financial engineering technology , then package, divide, and combine them, transform them into new financial products, and sell them to hedge funds, insurance companies, etc. As a result, the banks that provided subprime mortgages magically wiped off assets such as mortgage loans from their books. On the surface, this is "financial alchemy" that everyone is happy with: home buyers can obtain properties with very low down payments or even zero down payments; financial institutions that provide mortgage loans do not have to wait for the loans to mature, and get them back in advance by packaging and selling the debt. funds; financial intermediaries that provide asset securitization services can earn service fees without taking risks; various new financial products evolved from mortgage loans have met the investment profit-making needs of many investors in the market... According to According to a survey by the U.S. Bureau of Economic Analysis, the total amount of U.S. subprime mortgages is US$1.5 trillion, but nearly US$2 trillion in mortgage-backed bonds (MBS) were issued on the basis of it, which in turn derived more than US$1 trillion in secured debt obligations. (CDOs) and tens of trillions of dollars in credit default swaps (CDS).

The financial derivatives created by asset securitization can originally play a role in diversifying risks and improving the efficiency of banks and other financial institutions. However, once asset securitization is excessive, it will lengthen the chain of financial transactions and make the United States Financial derivatives are becoming more and more complex, and financial markets are becoming less and less transparent, so that in the end no one cares about the real basis of these financial products, nor does they know the huge risks contained in them.

Under the banner of innovation, speculative behavior is pushed to the peak one after another, finance is increasingly disconnected from the real economy, and the bubble of the virtual economy is getting bigger and bigger by "financial innovation". With all kinds of securities, financial resources can come rolling in. Usually, the healthy development of the virtual economy can promote the development of the real economy. However, once the virtual economy is seriously separated from the support of the real economy, it will gradually evolve into a speculative economy.

An initial loan of 1 yuan can be gradually enlarged into financial derivatives of a few yuan, tens of yuan or even dozens of yuan, and financial risks are also sharply magnified. When problems arise in the origin of these innovative products - subprime housing credit assets, the financial derivatives market built on this foundation will collapse like a castle in the air.

3. The U.S. financial regulatory mechanism lags behind, causing "financial innovation" to run amok.

Take the Federal Reserve, which is responsible for maintaining the overall stability of the U.S. economy, as an example. It is only responsible for supervising commercial banks and has no power to supervise investment banks. The U.S. Securities and Exchange Commission, the regulator responsible for investment banks, only It only obtained regulatory rights after difficult negotiations in 2008. This has left a multi-field “giant” like American International Group (AIG) in a gray area with no supervision at all for a long time, allowing them to carry out “financial innovation” freely.

The financial rating mechanism also made serious mistakes during this crisis. There have been problems with the loans of so many financial institutions, and there are so many loopholes in the financial products they issued. Financial rating agencies have actually "turned a blind eye", allowing many problem bonds and problem banks to be evaluated as "excellent" for a long time. An industry insider working in the structured financial products department of a rating agency said vividly that anything can be rated, and we can even evaluate a structured cow. This is tantamount to encouraging Wall Street to practice "financial alchemy" and "trap money" everywhere unscrupulously.

Since the international financial system is dominated by the United States, and the United States has ignored repeated suggestions from some countries to strengthen supervision, there is also a lack of effective financial supervision at the entire international level. In the overall atmosphere of lagging supervision, the greed of financial institutions has rapidly expanded.

(2) This financial crisis is essentially a serious crisis in the American model of market economic governance. David Coates, a professor at the University of Massachusetts, pointed out that the current financial crisis in the United States is the product of a special institutional form of capitalism and the result of the neoliberal form of capitalism. As financial controls are deregulated, the capitalist financial sector becomes inherently unstable without close supervision by the state.

After the end of the Cold War, with the rapid development of economic globalization, neoliberalism is not only the basis of U.S. economic policy, but also a tool for the United States to promote financial liberalization around the world. Although neoliberalism has played a certain role in controlling the stagflation in Western countries in the 1970s and 1980s, it is not a panacea.

The so-called neoliberalism is a set of ideological trends whose main economic policy goals are to revive traditional liberal ideals and to minimize government intervention in the economy and society. Some scholars call it "total non-interventionism". Because it flourished during the Reagan era, it is also called "Reaganism." The "financial tycoon" Soros calls this belief that the market can solve all problems "market fundamentalism." In an interview with French newspaper Le Monde, Soros said, "(The crisis on Wall Street) is the result of what I call market fundamentalism, which is a theory of laissez-faire and letting the market adjust automatically. The crisis is not due to some external factors, nor is it natural. The disaster was caused by the system's internal breakdown."

The neoliberal model emphasizes "minimum government intervention, maximum market competition, financial liberalization and trade liberalization”. Due to the leading role of the United States in the international financial system, neoliberal ideas have also had a great impact on this system. Including accounting systems, market rating systems, risk control procedures, and even financial policies, and even market-applicable language, pricing currencies, etc., all adopt American rules, and the international financial system has actually become the American financial system. Obviously, this is inconsistent with the international principles of equality, fairness and consultation, and ignores the differences in development stages, management levels, economic and social systems of various countries. More and more economists have realized that if the future reform and adjustment of the international financial system is to achieve results, it must touch this ideological foundation.

(3) The financial crisis occurring against the background of rapid economic globalization will inevitably have a stronger impact than before.

First of all, this global impact comes from the international monetary system dominated by the US dollar. In the 1970s, the Bretton Woods system, the US dollar-centered international monetary system established under the leadership of the United States, disintegrated. However, with its strong economic strength, the US dollar is still the main currency for international reserves and trade settlements today. Until now, the proportion of the U.S. dollar in international settlements and foreign exchange reserves of central banks around the world has remained above 60%. If there is a problem with the "leader", a domino effect will inevitably occur, causing the global financial market to quickly fall into extreme panic.

Secondly, financial globalization allows the world to enjoy the dividends brought by globalization, but it also brings corresponding risks. As financial liberalization and economic globalization have developed to a very high level, today all parts of the world are experiencing varying degrees of financial openness. Large amounts of "hot money" are flowing rapidly around the world, and a variety of dazzling financial derivatives will Global financial institutions are intricately connected, and developed countries such as the United States occupy the most advantageous position. The most typical example is that some financial institutions in the United States packaged a large number of real estate mortgage bonds and sold them to many countries.

Because of this, the financial crisis originating from the United States, the world's largest economy and most developed financial system, will have an unprecedented impact.

With the intensification of global financial turmoil, countries around the world have experienced liquidity shortages, stock market crashes, exchange rate fluctuations, export declines, rising unemployment rates and other phenomena to varying degrees. The global financial market and the real economy are experiencing... Facing severe tests.

The financial crisis first severely damaged the U.S. banking system, shattering the myth of "the most complete system in the world." The market concentration of U.S. commercial banks lags far behind that of European countries. There are a large number of state banks and small and medium-sized banks in the United States. These banks have invested heavily in subprime mortgage financial products and other securitized products over the past few years. After the subprime mortgage crisis broke out, they experienced large-scale asset writedowns and losses. These small and medium-sized banks have poor ability to withstand crises and are difficult to obtain bailout from the U.S. government. Therefore, they have a high probability of bankruptcy in the future.

Across the world, European banks have been hardest hit because they rely too heavily on short-term lending markets rather than the usual customer savings. It is also difficult for emerging market economies to be immune. After the outbreak of the financial crisis, a large amount of capital was withdrawn from emerging market economies. Some countries with relatively fragile economic structures and high dependence on foreign investment are facing severe challenges.

The most worrying thing is that the global financial crisis will inevitably be transmitted to the real economy, dragging down or even blocking global economic growth. Currently, U.S. real estate investment has continued to shrink. Affected by the negative wealth effect caused by the alternate declines in real estate market and stock market prices, U.S. household consumption has become increasingly weak. As their own stock prices have fallen, U.S. companies' willingness and ability to invest have declined. And as the value of the collateral that can be provided falls, the amount of bank credit available to U.S. companies has also fallen sharply. It is almost a foregone conclusion that the U.S. economy will fall into recession in 2009. The growth prospects of developed economies such as the Eurozone economy and the Japanese economy and some emerging market economies in 2009 are not optimistic either.

Since the U.S. economy accounts for nearly 30% of the global economy and its imports account for 15% of world trade, the U.S. economic recession will lead to a decline in global merchandise trade, which will in turn affect the exports of some developing countries that are highly dependent on foreign trade. and economic growth. The serious impact of the crisis on the real economy is likely to bring about the rise of trade protectionism on a global scale and form new obstacles to economic recovery. Large-scale bailout measures will also make the U.S. government, which already has a huge fiscal deficit, even worse. Once there is a massive issuance of bonds and money printing, it will inevitably lead to a decline in the credit of the U.S. dollar and push up the global inflation rate.

The unprecedented scale of the financial crisis is a test of the economic governance capabilities of all countries around the world and a test of their sincerity and determination to strengthen international cooperation. Currently, the international community is paying close attention to the trend of this crisis and the response measures of various countries around the world and their effects. One country's subprime mortgage crisis triggered a financial crisis that swept across countries; the global economic crisis called on the entire world to take common actions. An unprecedented scale of international rescue operations was quickly launched around the world. While countries around the world are paying close attention to the effects of the initial bailout, they are actively seeking next steps, thinking deeply about how to fundamentally eliminate hidden dangers, and actively exploring the direction of future reform and adjustment of the international financial system.

(4) The subprime mortgage crisis is first and foremost a credit crisis, and the primary goal of the rescue is to restore confidence in the financial market. The U.S. bailout plan mainly resuscitates the financial industry through government acquisition of non-performing assets of financial institutions and injecting funds to increase liquidity. However, EU countries have adopted the method of injecting capital into financial institutions from the beginning and ensuring that depositors will not suffer losses. ; Many countries have stimulated the economy by cutting interest rates and tax exemptions, while others have adopted the practice of selling dollars to the market to support their own currencies; some have also used national sovereign wealth funds to invest in their own stock markets to save financial companies.

The government injects capital into financial institutions in exchange for partial equity to solve the problem of capital shortage, which is often called "temporary nationalization". Although this traditional method of stabilizing the financial market and preventing the crisis from spreading to the real economy has been effective in history, no one can say whether it can show its power again in this unprecedented global crisis. At least in five aspects, people still have "no bottom in their hearts":

1. The crisis has not yet seen an end. The assets currently written down by U.S. financial institutions are only part of the total deficit estimated by the International Monetary Fund, and it is not known how many "ticking time bombs" are buried in it. Many economists believe that the storm is just the beginning. Market liquidity has not yet been fully restored. Once more banks and other financial institutions fail in the future, or even the country goes bankrupt, the existing rescue plan will only be a drop in the bucket. .

2. The current rescue measures are only short-term and preliminary. Although they have had some positive impacts, it is still difficult to determine to what extent they can prevent the plague of the financial crisis from spreading to the real economy. Although various parties have different assessments of the extent of the recession, most believe that this recession may last longer, and that short-term bailouts must be followed by medium- and long-term "back-up measures."

3. Many countries still rescue the market based on their own national interests, and the world lacks closer cooperation and coordination.

The most typical one is Europe's "three steps": first, it "watches the fire from afar" and asserts that the crisis is "far away" from Europe; a few days later, it becomes an "emergency firefighting", but they still fight independently; finally, the EU calls on all members Join forces to "fight the fire". This is true for the European Union, which has the highest degree of economic integration, and the rest can be imagined. The International Monetary Fund has recently called on all parties to coordinate policies and respond jointly. At the call of the leaders of Britain and France, the United States has begun preparations for an international financial summit. However, from the standpoints of Europe and the United States, there are certain differences between them. The United States is trying to ensure the dominance of the US dollar in the international monetary system, but the EU obviously hopes to use this crisis to carry out drastic reforms in the international financial system led by the United States. .

4. It is still unclear how the bailout will gradually turn into effective and comprehensive reform of the international financial system. The bailout is only a temporary solution. Only by combining the bailout with the reform and adjustment of the international financial system, which is a fundamental solution, can it help to fully restore confidence and truly play an effective role in stimulating the global economy. Therefore, the fundamental issue of market rescue is not only to stabilize the market, but also to help reform the international financial system.

5. The success of the bailout still mainly depends on the policy strength of developed countries, because they still account for a large proportion of the global economy. Although developed countries suffered heavier losses in this crisis, they are at the upper reaches of the international financial system and trade system. They obviously have more means to avoid or transfer risks, and even pass on the crisis. Once this happens, it will cause great harm to the global economy and make recovery even more distant.

Of course, in the face of disaster, people not only see the seriousness of the crisis, but also the possibility of overcoming it. The crisis is unprecedented, and with the development of economic globalization, the current ability of the international community to resist financial risks is also unprecedented. The means are more sufficient than in the past, the experience is richer than before, the strength is stronger than before, and the desire for cooperation is greater than before. It's also stronger than before.

(5) Although people are still thinking about the causes of the current financial crisis and the reform of the international financial system, there is a clear understanding of how to deal with the relationship between openness and regulation, innovation and supervision. The political consciousness has been formed. This means that in the process of reducing financial controls and promoting financial opening up, we must grasp the principle of moderation, properly handle the balance between financial liberalization and financial controls, and properly handle the relationship between the financial industry and the overall development level of the economy. Otherwise, excessive Liberalization and innovation without effective supervision will inevitably bring huge risks and cause serious economic and social problems.

The financial industry is inherently fragile, and supervision is a necessary means to make up for "market failure." From a national level, effective financial supervision is an important factor in promoting economic development and forms the basis of the first line of defense for the global financial system. As the relevance and interactivity of the global financial industry increases, countries and economies should implement supervision from the perspective of managing systemic risks and gradually improve the supervision system by strengthening coordination. Of course, strengthening supervision does not mean giving up food because of choking, or one-sided pursuit of financial industry stability while rejecting openness and innovation. Due to the different development levels of the financial industry in different countries, the attitude towards the opening up and innovation of the financial industry should also be different. The key lies in grasping the balance between liberalization and financial regulation. On the one hand, it is necessary to serve the economy through financial innovation; on the other hand, it is necessary to strengthen financial supervision and ensure financial security.

From an international perspective, the most pressing problem is that the original governance methods have seriously lagged behind, and international financial organizations are using outdated management methods to deal with the new global market. Lack of management and weak management directly led to the emergence of loopholes. As French President Sarkozy said, the world can no longer continue to use the tools of the 20th century economy to operate the 21st century economy. Therefore, how to strengthen management, especially the supervision of major international currency issuance and large banks, is an important issue that needs to be discussed in the future.

At present, the international community is forming more and more political awareness on the necessity and ideas of reforming the international financial system. With the continuous strengthening of market rules and supervision, especially the implementation of some institutional measures, mutual trust among market participants will gradually be restored.

(6) The current global financial system was basically established by developed countries. It mainly reflects the interests of developed countries and is more conducive to safeguarding the interests of developed countries. In particular, the old international economic order allowed a small number of developed countries to control the international economic adjustment mechanism and established the international production system, international trade system, and international financial system on the basis of inequality, which restricted and hindered the development of developing countries in all aspects.

With the end of the Cold War and the rise of developing countries, the entire international economic landscape has undergone great changes, and the "dominance" of a few Western developed countries has been broken. Since the 1990s, especially since the beginning of the 21st century, the overall economic strength of developing countries has continued to grow. From 1990 to 2006, the proportion of developing countries in global GDP increased from 15.9% to 25%, and their contribution to global economic growth increased to 30%, exceeding 50% in terms of purchasing power parity. Against this background, developing countries are increasingly calling for the establishment of a new international financial order.

How the international financial system should be reformed still requires further dialogue, consultation and exploration by the international community. However, one important principle must be made clear, which is that the new system should fully reflect the interests of many developing countries. We should change as soon as possible the current situation in which developing countries are always on the edge of the international financial system and become the target of developed countries' crises.

The specific approach to reform must first start with institutions such as the International Monetary Fund, World Bank and World Trade Organization, which play an important role in global financial and economic operations, to increase the voice of developing countries, and then Work towards establishing a fair, just, inclusive and orderly international financial system.

Developed countries will certainly not give up their traditional dominant position easily. After the financial crisis, some Western scholars pointed out that without the ultra-low interest rates fueled by the "excessive savings" of China and other countries, developed countries such as the United States would not be able to maintain their "crazy and indulgent financial innovation behavior and borrowing and consumption" for a long time. This is There will be no crisis. This argument of putting the cart before the horse appears to be to absolve those financial speculators and negligent regulators of their crimes, but in essence it is to safeguard the West's vested interests in the existing international financial system. This fallacy of confusing right and wrong is just a kind of extreme noise, and even most Western economists find it difficult to agree with it. However, it can be expected that in the future reform of the international financial system, such voices will still appear, and there will be fierce confrontations between developing and developed countries.

The serious international financial crisis occurred in the new context of deepening economic globalization. It once again warns people with facts: Economic globalization is a double-edged sword. It will not automatically ensure the healthy development of the global economy. It needs to be carefully grasped and responded to with new thinking and new methods, otherwise it will have a devastating impact and even cause a global disaster.

The rescue actions of various countries around the world are currently tending to be more proactive. After governments in the first stage ensured liquidity by injecting capital into banks, they have recently increased their efforts and generally adopted the approach of cutting interest rates. Although these measures may not completely solve the problem, they have had some positive effects on restoring market confidence and financing channels.

Global crises also call for global responses. The seventh Asia-Europe Summit that concluded in Beijing not long ago issued an appeal to the world. As the financial crisis intensifies, the international community and governments should continue to strengthen coordination and cooperation and take effective measures firmly, decisively, responsibly and in a timely manner. , comprehensively use effective and feasible economic and financial means to achieve the goals of restoring market confidence, stabilizing global financial markets, and promoting global economic growth.

Currently, countries around the world are paying close attention to the upcoming international financial summit in Washington, USA. People expect that this meeting will not only solve current and future problems in a pragmatic and efficient manner, but also reflect an equal, mutually beneficial and win-win global development partnership, and make a positive contribution to stabilizing the financial market and promoting world economic development.