POL 102 CHAPTER 7
Terms in this set (31)
The major catalyst in the growth of globalization and national power.
Asian Financial Crisis
Started in Indonesia, caused stock markets to crash, and reversed economic growth
FDIC: Federal Deposits Insurance Corporation
Insures individual deposits for up to $250,000
Removed many government restrictions on financial institutions in the United States and other countries
Global Financial Liberalization
Opening banks around the world to competition
Glass-Steagall Act of 1933
Prohibited commercial banks from underwriting or marketing securities
Sophisticated financial engineering, an outgrowth of revolutions in computer and telecommunications technologies
Financial engineering designed to reduce risk
Bets on the creditworthiness of a particular company, like insurance on a loan.
Credit Default Swaps
Financial innovation used to transfer credit risks away from banks
Collateralized Debt Swaps
Linked to mortgage companies
Enabled wealthy investors to avoid some financial regulations in global financial markets.
Simultaneously buying at a lower price in one market and selling at a higher price in another market to make a profit.
Chairman of the U.S Federal Reserve who kept interest rates low.
Sovereign Wealth Funds
Created by countries to save and recycle surplus revenues.
High-risk credit given to individuals who fail to meet rigorous standards
Fannie Mae and Freddie Mac
U.S government corporations involved in real estate.
A long-term loan that has varying interest rates
Involves excessive risk taking, excessive optimism, and the development of a herd mentality
Taxpayer Relief Act of 1997
Exempted profits from taxes gained from selling one's home.
Brasil, Russia, India and China; emerging global powers.
Yaga Venugobal Reddy
Governor of the Reserve Bank of India; credited with helping India avoid the financial crisis.
U.S Secretary of the Treasury who initiated the stimulus package to rescue banks on Wall Street
Money allocated by governments to financial institutions and selected industries to prevent their collapse and reinvigorate economic growth.
A type of monetary stimulus used by the U.S Federal Reserve. Long-Term Treasury bonds are purchased to decrease interest rates.
The health insurance, pensions, and other programs that European governments provide citizens and that lessen losses in economic hard times.
Ben S. Bernanke
Chairman of the U.S Federal Reserve
Bank for International Settlements
Based in Basel, Switzerland; Created to regulate banking and harmonize banking standards
Causes of Global Financial Crisis
1. Deregulation of financial markets
2. Sophisticated financial technological innovations
3. Excessive executive compensation
4. Low interest rates
5. Subprime loans; especially mortgages
6. Speculation of housing Market
Glass-Steagall Act-Deregulatory Policies
1. Free movement of capital across borders
2. Repeal of legislation that separated commercial and investment banks
3. Decreased regulatory enforcement by the SEC
4. Allowing banks to measure their own risk
5. Failure to update technologies
4 Stages of Speculative Bubbles
1. New technologies change people's expectations
2. Prices or profits continue to rise; draws people in
3. Boom passes into euphoria and rational decision making is suspended
4. Bust is inevitable; prices and profits fall