Financial crisis


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The course of the Dow Jones from July 1987 to January 1988, see Black Monday
The crowd on Wall Street shortly after Black Thursday 1929

Financial crises are major upheavals in the financial system that are characterized by suddenly falling assets (e.g. in the case of company investments - see stock market crash ) and the insolvency of numerous companies in the financial sector and other sectors, and which impair economic activity in one or more countries. The Society for German Language selected the word 2008 as word of the year .

Manifestations

In principle, crises can be differentiated according to their external appearance, whereby a distinction is often made between banking crises , currency crises , financial system crises and crises in which a country or individual countries can no longer service its foreign debts ( debt crises ).

Theories of Economics

Overinvestment theories

According to the monetary overinvestment theory according to Friedrich August von Hayek and Knut Wicksell , there is an increase in the internal interest rate of the company, i.e. the “natural interest rate”, for example through technical progress , above the existing monetary interest rate. The demand for loans to finance new investments is increasing on the capital market. First of all, the additional liquidity feeds the upswing, in the course of which investment projects with lower (expected) returns are also financed.

According to Hayek , greater demand does not lead to an increase in interest rates because banks see the general economic recovery as an incentive to expand the supply of credit with demand. The monetary interest rate adapts to the natural interest rate only after a time lag . Then capital investments can turn out to be oversized. Investment projects that were still profitable at the previous monetary interest rate are canceled. The structural adjustment is pulling companies, consumers and financial institutions into the vortex of the crisis. According to Wicksell, the central bank would have to raise the key interest rate in good time to prevent the overinvestment crisis. Hayek also recommends that the central bank raise the key interest rate in good time, but this does not completely avoid the financial crises. “As far as crisis management is concerned, this can only be achieved, roughly speaking, by reducing excess capacities, i.e. liquidating them. The recommendation for action is simple: doing nothing. "

The monetary overinvestment theory was the dominant concept in the period around 1929. The US President Herbert Hoover largely followed this theory in the Great Depression of the 1930s (Hoover Economics) . Irving Fisher compared this to a doctor who would "leave the cure to nature" for pneumonia . After the dot-com bubble burst , the monetary overinvestment theory, which had since been forgotten, experienced a renaissance.

monetarism

One theory to explain macroeconomic financial crises goes back to Milton Friedman and Anna J. Schwartz . This explains the Great Depression in the United States with a failed policy of the central bank . They consider the 30% reduction in the US money supply between 1929 and 1933 to be crucial for the course of the Great Depression in the 1930s.

Debt deflation

The debt deflation as an explanation of certain financial and economic crises is Irving Fisher on the 1,933th The theory was expanded in 1983 by Ben Bernanke and has since become part of the economic mainstream. Debt deflation occurs when a fall in prices ( deflation ) leads to falling nominal incomes . Since the nominal amount of debt and the interest owed remain unchanged, debt deflation leads to an increase in the real debt burden. This can lead to a spiral of deflation: the increase in the real debt burden causes the bankruptcy of some debtors. This leads to a decrease in aggregate demand and thus to a further decrease in prices (worsening deflation). This in turn leads to a further decline in nominal income and thus to an even greater increase in the real debt burden. This leads to further bankruptcies and so on.

More recent Keynesian and post-Keynesian financial crisis theories

The assessment of some experts, such as the majority view of the Financial Crisis Inquiry Commission , attributed the financial crisis from 2007 to the relatively lax financial regulation of the 1980s and 1990s, among other things. Even previous proponents of this policy, such as Alan Greenspan , abandoned the market efficiency hypothesis after the crisis . As a result, there was a new interest in Keynesian or post-Keynesian explanatory models.

Hyman Minsky

An approach that goes back to the Post-Keynesian Hyman P. Minsky and Charles P. Kindleberger explains financial crises as the result of excessive speculation in a booming economy. In Minsky's theory, investors first pursue secured financing ( hedging ) after a crisis . The income that follows the investment is enough to repay the loans with interest. If economic growth proves to be stable, “speculative financing” appears to be acceptable. The income is now only sufficient to service the interest on the loans taken out. The loans themselves are replaced by newly taken out loans. If this also proves to be stable, the investors finally move on to "Ponzi financing", named after Charles Ponzi . Additional loans are now being taken out even to finance the interest burden. However, investors continue to expect that at the very end the income from the investment will be sufficient to meet all of the obligations that have accrued. Overall, however, the economy has become more and more unstable and a crisis leads to bankruptcies and a balance sheet adjustment for investors. After the crisis, a new cycle begins with the financing (hedging) that has now been secured again.

Minsky took the view that the financing processes of a capitalist economy develop endogenous destabilizing forces. He considered the financial institutions of capitalism to be "inherently ruinous". Therefore, he advised accepting that the area of ​​efficient and desirable free markets is limited.

Marxist explanatory approach

Behavioral economics

In their diagnosis of the causes of financial crises, George A. Akerlof and Robert J. Shiller want to tie in with the idea of ​​" Animal Spirits " presented by John Maynard Keynes . This has been neglected in Keynesianism in favor of a synthesis with the neoclassical mainstream. The development of the economy is more dependent on trust , notions of justice , phased corruption of ethical standards , money illusions and collective narratives or "narratives" that can give market participants orientation to a greater extent than on rational expectations .

activities

Among other things, macro-prudential supervision is recommended as a measure against financial crises or to dampen them . d. H. Supervisory authorities should not only proceed in a microprudential manner, but also keep an eye on the overall system context in macroprudential terms.

history

Ancient crises

Asia (63 BC)
  • Currency devaluation in the seventh century BC by King Midas .

Midas realized that given the limited supply of metals for coin production, he could increase the amount of money by lowering the metal content per coin. The result was a separation of monetary and credit policy and a globalization of the means of payment. Savers who invested their wealth in Midas “Leichtgeld” lost their purchasing power due to this excess of money and the currency cut that was now due . The financial engineering of Midas is symbolically symbolized by the phrase that everything that Midas touched turned into gold, even water. According to Herodotus' story , Midas died because he suffocated on the water that had been turned into gold.

The lawyer and senator Marcus Tullius Cicero described the crisis in 66 BC. Chr .:

“When a great many people lost large fortunes in Asia, the lending business in Rome collapsed due to poor solvency. It is impossible for many people to lose their belongings without dragging others into the same misfortune. Protect the state from this danger! Because believe me, because you can see it for yourself, this credit system and this financial market, which has its center in Rome at the forum, are closely intertwined with the monetary system in Asia. Those things there in Asia cannot collapse without the local financial economy being gripped by the same shock and collapsing as well. "

- Marcus Tullius Cicero : De Imperio Cn. Pompei - 19th

European-Asian liquidity crisis of the 15th century

A global financial crisis in the 15th century which affected Europe and Asia equally caused profound difficulties. The crisis was triggered by a number of factors: oversaturated markets, falling prices and unbalanced balance of payments that got out of hand. Even with the growing demand for silk and other luxury items, there was only a limited amount that China could sell in Europe. Above all, Europe had little to offer for fabrics, porcelain and spices that were paid so dearly. Since China was actually producing more than it could sell abroad in the early 15th century, the consequences were foreseeable once the ability to continue buying goods waned. The result was a "great hunger for precious metal" ( Great Bullion Famine ), as it was often called. From today's perspective, it was deflation as a result of falling prices due to oversupply. This deflation led to the hoarding of silver and gold coins. The simultaneous decline in mining volumes in numerous European gold and silver mines made the situation even worse. This eventually led to a liquidity crisis from Korea to Japan, from Vietnam to Java, from India to the Ottoman Empire . Merchants in the Malay Peninsula took matters into their own hands and minted a strange new currency out of tin, which was abundant locally.

The liquidity bottleneck led directly to new innovations in Europe and to daring expeditions in search of new silver and gold deposits. One of the most important innovations for combating the European shortage of money was the solution to the groundwater problem in silver mining by Martin Claus from Gotha and the segregation in silver mining . The principle of segregation is based on the fact that silver dissolves in lead much better than in copper in the melting process. From then on, large amounts of silver could be extracted from silver-containing black copper. In the 1490s Jakob Fugger established the Sauchter in Schwaz in Tyrol, from where almost half of the European silver soon came, as well as in the Fuggerau in Carinthia (the lead came from Bleiberg ) and shortly afterwards in Neusohl . One of the first precious metal expeditions of that time was the expedition of the Portuguese towards West Africa in search of the legendary Songhai Empire , which has been known for its high gold deposits and riches since the time of King Mansa Musa . But ultimately it was only through the large quantities of silver and gold from the New World that the European-Asian liquidity crisis of the 15th century was finally resolved.

Crises in the 17th and 18th centuries

Brochure from the tulip mania in the Netherlands, printed 1637
  • On February 7, 1637, the tulip bulb speculation in Holland that had been going on since around 1634 bursts . Tulip bulbs became an object of speculation at auctions and on the stock exchange. From 1630 the trading of warrants on tulip bulb shares also flourished . Prices exploded, increasing more than fifty-fold from 1634 to 1637. In Amsterdam a complete house for three tulip bulbs was sold. Many onions cost several thousand guilders, the highest price for the most valuable variety of tulips, Semper Augustus, was 10,000 guilders for a single onion in early 1637, at a time when a carpenter was earning around 250 guilders a year. Speculation had grown into a speculative bubble .
  • South Sea Bubble
  • Mississippi bubble

Crises in the 19th century

A bank run in New York in 1873

Crises at the beginning of the 20th century

  • 1907 panic in the United States
  • The Great Depression of 1929 was a globally observable severe decline in overall economic output. Many companies went bankrupt, there was massive unemployment , social misery and deflation . The social misery contributed to political crises. The simultaneity of the crisis phenomena was promoted by the growing interlocking of the individual economies and financial flows (capital mobility).

Global crises according to Bretton Woods

Cross-border financial crises after the end of the Bretton Woods system were among other things. a. the

See also

literature

  • Frankin Allen & Douglas Gale: Understanding financial crises. Oxford University Press, Oxford / New York 2007, ISBN 978-0-19-925141-4 (comprehensive presentation for readers with a basic knowledge of economics).
  • Marc Bauer: Crisis Management in the Financial Industry. Parallels and differences between the banking crises in Japan (1990–2006) and the USA (1980–1998) (= Japan Analyzes Forecasts. No. 200). Düsseldorf / Munich 2008 ( PDF; 386 KB ).
  • Jens Martignoni: Reinventing money - understanding and using alternative currencies. Versus Verlag, 2018, ISBN 978-3-03909-228-4 .
  • Hyman P. Minsky : John Maynard Keynes. Financing processes, investment and instability of capitalism (= Post-Keynesian economy. Vol. 5). Metropolis, Marburg 1990, ISBN 3-926570-06-7 .
  • Frederic S. Mishkin: The next great globalization. How disadvantaged nations can harness their financial systems to get rich. Princeton University Press, Princeton / Oxford 2006, ISBN 978-0-691-12154-3 (The book primarily takes the perspective of developing and emerging countries; however, fundamental problems of the financial system are also discussed and recommendations for action are formulated.)
  • Nouriel Roubini & Brad Setser: Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies. 2004, ISBN 978-0-88132-371-9 .
  • Walter Wittmann : Financial crises. Where they come from, where they lead, how they can be avoided. Orell Füssli, Zurich 2009, ISBN 978-3-280-05327-0 .
  • Stefan Grundmann, Christian Hofmann, Florian Möslein: Financial crisis and economic order. De Gruyter Law Publishing GmbH, Berlin 2009, ISBN 978-3-89949-651-2 .

Web links

Wiktionary: financial crisis  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. International Monetary Fund: World economic outlook. Financial crisis: causes and indicators . Washington, May 1998, pp. 74 ff.
  2. a b Gunther Schnabl / Andreas Hoffmann: Monetary policy, vagabond liquidity and bursting bubbles in new and emerging markets , download from Wirtschaftsdienst 2007/4
  3. ^ Friedrich August von Hayek: Monetary Theory and Business Theory, Vienna / Leipzig 1929
  4. ^ A b c Hans-Helmut Kotz: The return of the cycle - and the new debate about stabilization policy
  5. a b Marcel V Lähn: Hedge Funds, Banks and Financial Crises: The Significance of Off-Balance Sheet Leverage Effects from Financial Derivatives for Risk Management in Financial Institutions and the Systematic Risk of the Global Financial System . Published by DUV, 2004, p. 7
  6. Randall E. Parker: Reflections on the Great Depression , Edward Elgar Publishing, 2003, ISBN 9781843765509 , p. 14.
  7. See FCIC: The Financial Crisis Inquiry Report , January 2011 ( PDF ).
  8. See Robert Jacob Alexander Skidelsky: Keynes: the return of the master . PublicAffairs, 2009, ISBN 1-58648-827-9 , p. 168.
  9. Marc Schnyder: The hypothesis of financial instability by Hyman P. Minsky. Dissertation at the University of Freiburg i.Ue. , 2002 ( PDF ), p. 72ff.
  10. ^ Gerald Braunberger: Keynes for everyone. The renaissance of the crisis economist. FAZ-Verlag, 2009, pp. 222-230.
  11. Joseph Vogl : The ghost of capital. Diaphanes, Zurich 2010, p. 162.
  12. George A. Akerlof, Robert J. Shiller: Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press, 2010, ISBN 0-691-14592-X , pp. 4 f.
  13. Christian Weistroffer: Macroprudential supervision - In search of an Appropriate Response to systemic risk. In Deutsche Bank db Research, Current issues Global financial markets (www.dbresearch.de), May 24, 2012
  14. ^ Maximilian Pisacane: Financial crisis in ancient Rome. When the world power slipped into the financial crisis . In: Handelsblatt of November 26, 2008.
  15. Peter Frankopan: Light from the East: A New History of the World. Rowohlt, Berlin 2016, ISBN 978-3-87134-833-4 , pp. 288–289.
  16. Larry Allen: The Encyclopedia of Money ( en ). ABC-CLIO, January 1, 2009, ISBN 9781598842517 , p. 188.
  17. ^ MM Postan: Mediaeval Trade and Finance , Cambridge University Press, 1973, ISBN 9780521087452 , p. 171.
  18. Robert Lopez, Harry Miskimin and Abraham Udovitch: "England to Egypt, 1350-1500: Long term trend sand Long Distance Trade," in MA Cook (ed.): Studies in the Economic Historyofthe Middle East, London 1970, p 92- 128
  19. See tulip bulb speculation :