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CHAPTER 6 : ISSUES IN INTERNATIONAL BANKING (6.2 SUBPRIME CRISIS (2) ROOTS…
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- :check: Sudden shifts in market expectations and confidence
- :green_cross: Fundamental imbalances caused the currency and financial crisis
:green_cross: Market overreaction and herding caused the plunge and exchange rates, asset prices and economic activity.
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:star: Multifaceted evidence on the structure of incentives under the corporate and financial sectors
:star: Focus in context of regulatory inadequacies and close relations between public and private banking institutions.
:star: Political forces to maintain high rates of economic growth that led to long tradition of public guarantees to private projects.
:star: Common wisdom holds that borrowing from abroad to finance domestic direct investment (DDI) should not raise concerns about external solvency
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:star: Moreover, the ratio of short term external liabilities to foreign reserves, a widely used indicator of financial fragility, above 100% in Korea, Indonesia and Thailand.
:star: Adverse terms of trade fluctuations contributed to the trade balances in region between 1996 & 1997
:star: 1997 : The drop of the real estate and stock markets, where sustained speculative trends in part fuelled by foreign capital inflows, led to the emergence of wide lossess
:star: Rapid reversals of financial capital inflows led to the collapse of regional currencies amidst domestic and international investors panic
✔mid 2007, the crisis would be contained within the arena of mortgage issuers who had overloaded on subprime loans.
✔referred to as near-prime, non-prime, and second-chance lending.
✔mean making loans to people who may have difficulty maintaining the repayment schedule
✔as to threaten the economy to the extent that it has thus far.
✔while downturn in the mortgage and housing markets have caused economic problems
✔have created downturns in the overall economy through a credit crunch in the banking sector.
✔first time downturns are driven by a credit crunch in the non-banking sector of finance.
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✔Economic bubble that occurs in local or global real estate markets.
✔Defined by rapid increases in the valuations of real property until unsustainable levels are reached in relation to incomes and other indicators of affordability
✔Following the rapid increases are decreases in home prices and mortgages debt that is higher than the value of the property.
✔Housing bubbles generally are identified after a market correction :