Financial Meltdown Research Articles

Chasing the Past on the Margins of Greece

This is a tour de force of historical geography and contemporary ethnography of migrant communities in Greece. Translated from French by Jenny Money, the author graciously acknowledges the translator’s skill and patience in making the English version “a clearer and more understandable text than the original” (p.9) – the gold-standard achievement of a brilliant translator. Pierre Sintes states that his key reference-point for the book is the Greek financial meltdown of 2008. The economic crisi...

Islamic Banking and Global Financial Crises: A Review of Liquidity Risk Management

The objective of this conceptual paper is to describe the resilience of Islamic banks during the 2008 and 2009 global financial meltdown. The growth of complex financial instruments which was aimed at spreading risk actually increased instability due to market fluctuations and speculative activities resulted to the Global Financial Crisis (GFC). Inadequate liquidity is the immediate cause of financial meltdown. The paper reviews the causes of liquidity risk in Islamic banks which is based on Shariah (Islamic Law) that prohibits charging of interest in business transactions. The study highlights the challenges of Islamic banks on liquidity in spite of its resilience during the crisis. Major causes of liquidity risk in Islamic banks were also discussed. The paper concludes with managerial and policy implications and the need to address the problem of managing liquidity risk in Islamic banks against possible future financial crisis. DOI: https://doi.org/10.5281/zenodo.4033805

Islamic Banking and Global Financial Crises: A Review of Liquidity Risk Management

The objective of this conceptual paper is to describe the resilience of Islamic banks during the 2008 and 2009 global financial meltdown. The growth of complex financial instruments which was aimed at spreading risk actually increased instability due to market fluctuations and speculative activities resulted to the Global Financial Crisis (GFC). Inadequate liquidity is the immediate cause of financial meltdown. The paper reviews the causes of liquidity risk in Islamic banks which is based on Shariah (Islamic Law) that prohibits charging of interest in business transactions. The study highlights the challenges of Islamic banks on liquidity in spite of its resilience during the crisis. Major causes of liquidity risk in Islamic banks were also discussed. The paper concludes with managerial and policy implications and the need to address the problem of managing liquidity risk in Islamic banks against possible future financial crisis.
 DOI: https://doi.org/10.5281/zenodo.4033805

Avoiding a Health Care Financial Meltdown.

Avoiding a Health Care Financial Meltdown.

Will the Leveraged Loan Market Trigger a Financial Pandemic? Understanding Cov-Lite Loans, CLOs and EBITDA Add-Backs

Even before the coronavirus plunged the world's financial markets, analysts and regulators had been describing the $1.2 to 1.5 trillion leveraged loan market as a ticking time bomb likely to play a role in causing the next financial crisis. Many have been denouncing problematic fundamentals in the current leveraged loan market and comparing them to those that caused the 2007 subprime mortgage crisis to spread into a full-blown financial crisis towards the second half of 2008. Two legal innovations in the world of corporate finance are the main anticipated culprits of a future financial meltdown: covenant-lite (or “cov-lite”) loans and Collateralized Loan Obligations (CLOs). Our paper argues that concerns of a systemic breakdown in the financial system as a result of cov-lite loans and CLOs may be overstated. To do this, we first draw from a seminal working paper by researchers at the Federal Reserve of Philadelphia that demonstrate that cov-lite loans are almost universally part of a syndication structure that binds borrowers to compliance with financial covenants. Secondly, the paper succinctly explains CLOs and compares them with similar structured finance and securitization products, such as Collateralized Debt Obligations (CDOs), CDO-squared and CDO-cubed, as well as with derivatives, such as synthetic CDOs and Credit Default Swaps (CDSs), all of which played a role in obscuring financial market fundamentals in the lead-up to the great financial crisis. Third, the paper briefly analyzes the latest stress test results and financial stability reports by regulators in charge of monitoring systemic risk in the banking and wider financial systems. Finally, the paper explores EBITDA add-backs, a product of contract law and accounting that have played an increasing role in large Leveraged Buyout (LBO) deals and could distort a lender's credit monitoring functions, but concludes that they are currently ignored in the ratings analysis of leveraged loans and CLOs.

Diminishing Dollar Hegemony: What Wars and Sanctions Failed to Accomplish, COVID-19 Has

The United States has turned into an anarchic Hobbesian in part triggered by; weakening dollar’s natural pull as the main reserve currency; China’s massive foreign reserves; fast rise of the renminbi; the failure attempts to dismantle gold and its readiness to reclaim a monetary role at the heart of the next monetary system. President Trump’s selfish “America First” policy and its spinoff actions have debilitated the economies of Iran, Venezuela, China, Russia, Turkey, the Middle East as a whole and a host of other countries in Europe. Coronavirus was the final blow to put the already fragile world economy into state of coma. The world’s nations would have been in a better state financially to fight coronavirus if the United States since 2016 has unjustifiably pushed many economies off the cliff via instability-inflicting policies and engagements in video game like warfare, all of which were purposely strategized with the goal of maintaining American supremacy and preventing the dollar hegemony from further diminishing. Since the Fed creates infinite money through credit expansion, United States unlike any country can engage in more than one war simultaneously, but this time the unusual enemy coronavirus will not be defeated through an arsenal of weapons of mass destruction. The GFC of 2008, originated in the U.S., was a near financial meltdown; with coronavirus, thousands of deaths and the resultant fear may cause many economies including that of the U.S. to collapse.

Towards Extending Dividend Puzzle Debate: What Motivates Distribution of Corporate Earnings in Tanzania?

This paper investigates the determinants of dividend policy in Tanzania. The study employed a panel data of non-financial firms listed on the Dar es Salaam Stock Exchange (DSE) for the period 2008–2017. The paper reports profitability, liquidity, firm size, leverage, firm growth, previous dividend, and GDP as the major determinants of corporate dividend policy. According to the results, leverage, firm growth, and GDP are negatively related to dividend payout ratio while firm size, profitability, liquidity, and lagged dividend are positively related to dividend policy. More specifically, large-sized firms, highly profitable firms, and firms who paid dividend in previous years are more likely to consider paying dividend. However, payment of dividend will all depend on whether the firm is liquid enough to afford that. On the other hand, high-growth and leveraged firms would not probably consider paying dividend, and will, therefore, opt saving money to finance their expansion and honor their debt obligations. Following these results, corporate managers are advised to consider preferences of investors towards developing corporate dividend policy; to strive paying dividend whenever economically viable (as it signals the firm’s reputation), and to limit excessive borrowing to protect firms from getting into financial meltdown (although borrowing is considered a control tool for agency-related problems).

Fluctuations-induced regime shifts in the Endogenous Credit system with time delay

Abstract The model of endogenous credit that exhibits multiple steady states and generates phase transitions with catastrophic abruptness has been investigated. This resembles aspects of financial meltdowns witnessed in global capital markets in 2007. In this paper, time delay and fluctuations (noises) are introduced into the endogenous credit model, and a stochastic asset price dynamics model with time delay is established. The effects of time delay, fluctuations and cross-correlation between two noises on the probability distribution and the mean first passage time (MFPT) are analyzed, and the theoretical results are in agreement with the numerical results. It is shown from time series and probability distribution that the noises and time delay can induce regime shifts between two stable states. For the positive cross-correlation between two noises (λ > 0.0), the MFPT exhibits a maximum for some characteristic values of the noise intensity, which identifies the signature of the noise-enhanced stability (NES) phenomenon for asset price. The cross-correlation between two noises enhances the NES phenomenon for asset price, while time delay weakens it. However for the zero and negative intensity of noise correlation (λ ≤ 0.0), the MFPT decreases as the noise intensity increases, namely, the NES phenomenon disappears for λ ≤ 0.0.

Malaysia: 'Crouching Tiger, Hidden Dragon'

This paper metaphorically suggests that Malaysia could have been the 5th Asian Tiger if it were able to discover its special hidden talents as the idiom from the Chinese mythology “Crouching Tiger, Hidden Dragon” infers. Malaysia’s astounding economic track record (1985-96) underpinned by tamed inflation and high future prospects fell short of expectations in the late 1990s. Malaysia’s autocratic leaders and their instability-inflicting policies augmented uncertainty and undermined any potential recovery efforts in the aftermath of the homegrown Asian crisis of 1997-98. As a result, Malaysia’s promising outlook had abruptly shifted from being a model for the future to Asian myth. Malaysia’s GDP contracted mindboggling -7.4% in 1998 after averaging 9.2% in the period of 1992-96. The unthinkable shrinkage in the steady state output amounted to a loss of about $30 billion, the country’s GDP declined from $101 billion in 1996 to $72.2 billion in 1998. Malaysian people become a lot poorer after the crisis; the per capita income was $4,797 in 1996 as opposed to $3,264 in 1998, a decline of $1,533 in per capita income. Malaysia managed to escape the severe impacts of the near global financial meltdown with a minor dent; unlike the contraction observed in 1998 (-7.4%), Malaysia’s GDP dropped from 6.3% to 4.83% (2007-08) before contracting -1.51% in 2009. Despite the transparent and open economy (ranked 16th place in 2008 GCI) plus fast rise in the Human Development Index ranking (61st out of 190 countries in 2018), Malaysia’s heavy reliance on exports and its elongated addiction to the U.S. dollar made it become more prone to financial, currency, trade, and economic crises. The propagation of contemporaneous crises since the late 1990s have distinctly proved that Malaysia is hardly immune to shocks resulting from the slower economic growth in China and monetary normalizations in Europe and the U.S. which are causing interest rates to rise and exchange rate pressures to increase. Although the remarkable transition of Malaysia into a middle-income country was rather easy fostered by unusually favorable macroeconomic environment, but it seems to have been stuck in the middle-income trap and the next major economic leap to achieve a high-income status will require so much more than cheap labor and “mobilization of resources” based on “perspiration rather than inspiration”. Malaysia is struggling to figure out how to develop comprehensive skills which are essential to support future economic growth. Another problem is that educational institutions in Malaysia are not well aligned with industries to meet their demands; furthermore, a seamless coordination as well as collaboration between them is missing. Accordingly, a decade after the 2008 global financial crisis, Malaysia ranks 44th in pillar 4 (Health and Primary Education) and 41st in pillar 5 (Higher Education and Training). Malaysia also ranks 43rd in pillar 9 (Technological Readiness) due to a lack of lifelong learning programs, weakness in Technical and Vocational Education and Training (TVET), and unready for disruptive technologies. Without significant improvements in these, Malaysia will remain in the middle-income trap.

Do the international economic endeavors affect CO2 emissions in open economies of South Asia? An empirical examination under nonlinearity

Purpose The purpose of this paper to investigate whether trade liberalization and the financial crisis have contributed to altering the pollution level in selected open economies of South Asia in the long run. Design/methodology/approach The study has adopted the panel data framework where results are tested using the generalized method of moments (GMM). The data of five South Asian countries from 1980–2015 have been used for computing results. Findings Owing to the globalization endeavors, the scope of energy consumption and foreign direct investment (FDI) inflows has increased significantly. The outcomes of the study reveal that globalization has significantly intensified the level of carbon emissions in the selected countries. However, the impact of financial crisis on carbon emission is found insignificant in the long run. Therefore, the study reveals that the level of environmental pollution in South Asia economies is more sensitive to positive economic variations than negative. Originality/value Earlier studies have ignored the parallel effect of globalization and financial meltdown on carbon emissions in a country or region. Stating differently, the present study intends to capture the impact of positive (globalization) and negative (financial crisis) global economic movements on carbon emissions in the five open economies. The majority of studies in the past have focused on the relationship between positive economic endeavors and environmental pollution. Furthermore, the study recommends that while framing a trade policy, its possible impact on environmental pollution also needs to be considered.

Comparative Study of Risks in Indian Banks: An Empirical Analysis Using Bank-Dependent Factors and Economic Indicators

The global financial meltdown caused by the sub-prime mortgage crisis of the USA in 2007-2008 and its consequent negative effects on the structure of the financial markets all over the world resulted in a crisis related to the management of capital. The study focuses on the Indian banking sector, and more specifically, on the factors affecting the efficiency of risk management practices in the Indian banks in light of the Basel III provisions. The objective of the study is to analyse the main components and quality of bank assets in India and subsequently identify the effect of risk-taking on banks, economic cycle fluctuations and risk management. Empirical analysis is conducted using panel regression techniques by taking a combination of time series and cross-sectional data of various bank-specific and macroeconomic factors. Capital adequacy is used as a proxy to measure the solvency level of the banks forced by capital depletion as the dependent variable and is measured by dividing regulatory capital with total risk-weighted asset. Macroeconomic indicator economic growth and inflation are found to be significant while capital adequacy of Indian banks is found to be positively associated with credit risk.

P2P Lending: Bridging India’s Credit Gap

With the financial meltdown, new financial innovations and alternative investment products made their way to India. The concept of Peer to Peer lending is an alternative financing option available to the unbanked section of the population or people with limited institutional credit exposure. Developments in new digital tools, alternate credit models enabled bridging of the credit gap. With RBI devising a regulatory framework and stringent policies, these NBFC-P2Ps have been given a needed push to the cause of financial inclusion in the Economy.

A Comparative Study of India and Brics Nations’ Public Health Care with A special reference to India’s Position

Public health care is an important public good in a modern society. At the domestic extent, it has been development in the commitment of the BRICS nations as Brazil, Russia, India, China and South Africa to rise up public health care financing. In the international level, it is observed by the global community progress on the three health-related Millennium Development Goals. In spite of successes in curbing infectious diseases and curtailing CMR and MMR, old risks continues and new challenges emerge, coming post the 2008 global financial meltdown, the present slower economic growth and increasing economic inequality. The BRICS nations see these obstacles and have started cooperation on public health delivery.

The Global Competitiveness Index: A Comparative Analysis between Turkey and G8 Nations

The Basel Committee on Banking Supervision (i.e. Basel I, II & III), the International Monetary Fund and the World Bank (i.e. Financial Sector Assessment Program), the World Trade Organization, the Bank for International Settlements, the US Federal Reserve, the European Central Bank, the European Banking Authority (EBA), Committee of European Banking Supervisors (CEBS), the Financial Services Authority of the UK, the Bank of Japan, the supervisory community and regulators (i.e. domestic and international), practitioners, and bank executives gravely failed to strengthen the global financial stability. On the contrary, financial authorities in many of the advance nations (particularly, the Fed’s expansive policies and the ECB’s reluctance to admit its blindness to the severity of risks that caused near global financial meltdown in 2008) have directly or indirectly contributed to global financial instability. The Global Competitive Index through its twelve pillars is a more complete measurement of financial stability in each country and globally. Analyses throughout this study compared Turkey’s competitiveness rankings with those of the G8 countries. The results show that Turkey’s mean overall ranking is significantly higher than that of Canada, France, Germany, Japan, and the UK; the difference in means was statistically significant. However, even though Turkey’s mean overall ranking was slightly higher than that of Italy, and lower than that of the Russian Federation, nevertheless the difference in means was not statistically significant.

Evaluating Good and Bad News During Pre and Post Financial Meltdown: Nigerian Stock Market Evidence

Abstract The Nigerian stock market, prior to the 2007-09 global financial crisis witnessed growth but the market encountered sharp reversal from 2007 due to the global financial crisis. This study evaluates good and bad news on the Nigerian stock market with regards to the policy responses as a result of the meltdown. The study used the TGARCH, EGARCH and PGARCH models under three error distributional assumptions for data covering January 2010 to December 2016 using the All Share Index to generate the return series. Findings shows that good news impact return more than negative news of the same magnitude before the meltdown while bad news insignificantly impact return more than positive news after the meltdown. The study concludes that there is information asymmetry in the Nigerian stock market. Thus, it is recommended that on-line real time access to share price movement for investors should be introduced to improve liquidity level and enhance free flow of relevant securities information.

Effect of the global financial meltdown on India’s aggregate export volumes

ABSTRACTThis paper sets up a demand-supply model to analyse India’s export performance (in terms of volumes rather than values) between 2000Q1–2014Q4. The main objective is to determine the impact of the financial meltdown of 2008 on India’s export performance. During the meltdown period, decline in price by India’s competitors in the international market resulted in (1) loss of competitiveness of India’s export goods and (2) a complete breakdown of the price mechanism affecting India’s export demand. Though export supply was not significantly affected by the meltdown episode we find evidence that exporting firms turned towards the domestic market to cope with the loss in export. The meltdown episode began to significantly affect India’s export demand and supply equations from 2009Q3. The demand and supply equations after that period became so unstable that ‘nothing worked’ for India’s exporters as they tried to counter the decline in export. Hence there was ample reason for them to panic and seek the government’s help. Government policies aimed at boosting export demand did have a positive impact on India’s export performance. Government policies to boost export supply had no impact except being palliative for the exporters at their moment of crisis

Discerning the impact of disaggregated non-interest income activities on bank risk and profits in the post-Gramm-Leach-Bliley Act era

In the aftermath of the global financial crisis, many analysts have pointed towards the Gramm-Leach-Bliley Act and the associated regulatory changes in the banking industry as one of the key reasons for the financial meltdown in the US. Using an extensive dataset of all 5491 US commercial banks that were operational from June 2001 to March 2016, we examine the impact of aggregate non-interest income and its eleven disaggregated categories on bank-specific risks and profits. We find unequivocal evidence that both aggregate non-interest income and its different constituent categories increase bank risks, which is more pronounced in the post-crisis period. The results for bank profits are more mixed. The results call for a need to improve regulation and supervision of various disaggregated non-interest income activities such that the costs of engaging in these activities do not exceed their benefits for banks.

On Recent Developments in the New Historiography of (Neo)Liberalism

Over the last twenty years or so several new waves of research on the history of liberalism have emerged. The novelty of this should not be exaggerated as broad scholarly interest in liberalism has in fact been increasing at a remarkable rate since the 1980s. Nevertheless, it is clear that the historiography of liberalism has broken much new ground since around the turn of the century. This has been driven partly by the influence of larger developments in the humanities and social sciences. The global and post-colonial turns, for instance, have helped to reshape the historiography of liberalism by provoking debates over the extent of its complicity in slavery and colonialism, while also drawing attention to the contribution of theorists from the global south. But even much of this ‘normal’ innovation has been driven at least indirectly by a growing sense that liberalism is in crisis. The War on Terror, the financial meltdown of 2008 and the global rise of populist authoritarianism are the obvious staging posts in liberalism's journey from post-Cold War triumphalism to contemporary fears for its imminent demise. And it is not a coincidence that the end of the end of history has seen the beginning of a new historiography of liberalism. Since the early 2000s the emergence of new sub-fields like the histories of ‘Cold War liberalism’, human rights and neoliberalism can all be seen in different ways as responding to liberalism's unfolding crisis.

Exchange Traded Funds: Co-Integration and the U-Shape

This paper analyzes the intraday shape of New York Stock Exchange (NYSE) ETFs as well as iShares ETFs cross-traded on both the NYSE and London Stock Exchange (LSE). We found the intraday U-shape pattern for NYSE ETFs and NYSE iShares ETFs for trade price volatility, volume, and depth. However, the LSE iShares ETFs have a shape that is consistent with a double humped pattern. The US and the UK markets are not integrated across the whole day but in the overlapping period there is evidence of integration with limited price discovery outside of the financial meltdown of 2008.

Moralizing about Politics: The White Working-Class “Problem” in Appalachia and Beyond

Abstract Since the global financial meltdown in 2008, moralizing stereotypes of white working-class citizens have proliferated across the United States, the United Kingdom, Australasia, and Europe. Both conservatives and liberals use concepts such as the Appalachian hillbilly, the council estate-dwelling chav, and the outer-suburban bogan to allege white working-class citizens’ failure to adapt to the demands of the globalizing political economy. As recent commentators on the Appalachia “problem” note, such moralizing obscures more than it explains, and does so in the service of economic privilege and political power. Comparative examination of the actors and actions behind the erosion of citizenship as a political category in the United States, the United Kingdom, and Australia helps to link contemporary moralizing about the white working class to reaction against the democratic excess that working-class movements directly and indirectly provoked in the mid-twentieth century. Today in Appalachia and beyond, conservative and liberal moralizing about the white working-class “problem” undermines democrats’ capacity to recognize and respond to these efforts to displace citizenship as a political category with the moral category of the individual.