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Building of closed Inkombank in Nizhny Novgorod, which was one of the city's symbols of the new Russian capitalism

The Russian financial crisis (also called "Ruble crisis") hit Russia on 17 August 1998. It resulted in the Russian government devaluing the ruble and defaulting on its debt.

Background and course of events[link]

Declining productivity, an artificially high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to the crisis. The economic cost of the first war in Chechnya that is estimated at $5.5 billion (not including the rebuilding of the ruined Chechen economy) was also a cause of the crisis. In the first half of 1997, the Russian economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify.

Two external shocks, the Asian financial crisis that had begun in 1997 and the following declines in demand for (and thus price of) crude oil and nonferrous metals, severely impacted Russian foreign exchange reserves: When the East Asian financial crisis break out in 1997, prices for Russia's two most valuable sources of capital flows, energy and metals, plummeted. Given Russia’s fragile economy, the rapid decline in the value of those two capital sources resulted in an economic chaos in the country where GDP per capita fell, unemployment soared, and global investors liquidated their Russian assets.^[1]

A political crisis came to a head in March when Russian president Boris Yeltsin suddenly dismissed Prime Minister Viktor Chernomyrdin and his entire cabinet on 23 March 1998.^[2] Yeltsin named Energy Minister Sergei Kiriyenko, aged 35 then, as acting prime minister. On 29 May 1998, Yeltsin appointed Boris Fyodorov as Head of the State Tax Service. The growth of internal loans could only be provided at the expense of the inflow of foreign speculative capital, which was attracted by very high interest rates.

In an effort to prop up the currency and stem the flight of capital, in June 1998 Kiriyenko hiked GKO interest rates to 150%. The situation was worsened by irregular internal debt payments. Despite government efforts, the debts on wages continued to grow, especially in the remote regions. By the end of 1997, the situation with the tax receipts was very tense, and it had a negative effect on the financing of major budget items (pensions, communal utilities, transportation etc.).

A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market by swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds. This had started to be implemented with some success^{[citation needed]} by 24 July 1998, yet the Russian government decided to keep the exchange rate of the ruble within a narrow band, although many economists, including Andrei Illarionov and George Soros, urged the government to abandon its support of the ruble.

On 12 May 1998, coal miners went on strike over unpaid wages, blocking the Trans-Siberian Railway. By 1 August 1998 there were approximately $12.5 billion in unpaid wages owed to Russian workers. On 14 August 1998 the exchange rate of the Russian ruble to the US dollar was still 6.29. Despite the bailout, July 1998 monthly interest payments on Russia’s debt rose to a figure 40 percent greater than its monthly tax collections.

Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of government anti-crisis plan so that the government was forced to rely on presidential decrees. On 29 July Yeltsin interrupted his vacation in Valdai Hills region and flew to Moscow, prompting fears of a Cabinet reshuffle, but he only replaced Federal Security Service Chief Nikolay Kovalyov with Vladimir Putin.

At the time, Russia employed a "floating peg" policy toward the ruble, meaning that the Central Bank at any given time committed that the ruble-to-dollar (or RUR/USD) exchange rate would stay within a particular range. If the ruble threatened to devalue outside of that range (or "band"), the Central Bank would intervene by spending foreign reserves to buy rubles. For instance, during approximately the one year prior to the Crisis, the Central Bank committed to maintain a band of 5.3 to 7.1 RUR/USD meaning that it would buy rubles if the market exchange rate threatened to exceed 7.1 rubles per dollar. Similarly, it would sell rubles if the market exchange rate threatened to drop below 5.3.

The inability of the Russian government to implement a coherent set of economic reforms led to a severe erosion in investor confidence and a chain-reaction that can be likened to a run on the Central Bank. Investors fled the market by selling rubles and Russian assets (such as securities), which also put downward pressure on the ruble. This forced the Central Bank to spend its foreign reserves to defend the ruble, which in turn further eroded investor confidence and undermined the ruble. It is estimated that between 1 October 1997 and 17 August 1998, the Central Bank expended approximately $27 billion of its U.S. dollar reserves to maintain the floating peg.

It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.^[3][4]

On 13 August 1998, the Russian stock, bond, and currency markets collapsed as a result of investor fears that the government would devalue the ruble, default on domestic debt, or both. Annual yields on ruble denominated bonds were more than 200 percent. The stock market had to be closed for 35 minutes as prices plummeted. When the market closed, it was down 65 percent with a small number of shares actually traded. From January to August 1998 the stock market had lost more than 75 percent of its value, 39 percent in the month of May alone.^[5]

Crisis and effects[link]

On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors.^[6] On that day the Russian government and the Central Bank of Russia issued a "Joint Statement" announcing, in substance, that:^[7]

1. the ruble/dollar trading band would expand from 5.3–7.1 RUR/USD to 6.0–9.5 RUR/USD;
2. Russia's ruble-denominated debt would be restructured in a manner to be announced at a later date; and, to prevent mass Russian bank default,
3. a temporary 90-day moratorium would be imposed on the payment of some bank obligations, including certain debts and forward currency contracts.^[8]

On August 17, 1998 in the Joint Statement of the Government of the Russian Federation and the Central Bank of the Russian Federation (CBR) the government declared that the government securities (GKOs and OFZs) with due dates through December 31, 1999, would be rescheduled into new securities. The terms of GKO/OFZ restructuring were also determined in the following acts:

• Decree of the Government of the Russian Federation №1007 of 25 August 1998
• Decree of the President of the Russian Federation №888 of 25 August 1998
• Decree №1787-р of 12 December 1998 on novation of state securities
• Federal Law on Top-Priority Measures in the Field of Budget and Tax Policy^[9]

GKO bondholders made few attempts to pursue litigation in domestic courts.^[10]

At the same time, in addition to widening the currency band, the authorities also announced that they intended to allow the RUR/USD rate to move more freely within the wider band.

At the time, the Moscow Interbank Currency Exchange (or "MICEX") set a daily "official" exchange rate through a series of iterative auctions based on written bids submitted by buyers and sellers. When the buy and sell prices matched, this "fixed" or "settled" the official MICEX exchange rate, which would then be published by Reuters. The MICEX rate was (and is) commonly used by banks and currency dealers worldwide as the reference exchange rate for transactions involving the Russian ruble and foreign currencies.

From 17 to 25 August 1998, the ruble steadily depreciated on the MICEX, moving from 6.43 to 7.86 RUR/USD. On 26 August 1998, the Central Bank terminated ruble-dollar trading on the MICEX, and the MICEX did not fix a ruble-dollar rate that day.

On 2 September 1998 the Central Bank of the Russian Federation decided to abandon the "floating peg" policy and float the ruble freely. By 21 September 1998 the exchange rate had reached 21 rubles to the US dollar, meaning it had lost two thirds of its value of less than a month earlier.

On 28 September 1998 Boris Fyodorov was discharged from the position of the Head of the State Tax Service.

The moratorium imposed by the Joint Statement expired on 15 November 1998, and the Russian government and Central Bank did not renew it.

inflation[link]

Russian inflation in 1998 reached 84 percent and welfare costs grew considerably. Many banks, including Inkombank, Oneximbank and Tokobank, were closed down as a result of the crisis. The salaries of miners alone were to consume $919 million, more than 1 percent of the federal budget. By August 1998, the government had paid $4 billion to settle miners’ strikes. Prices for almost all Russian food items had gone up by almost 100%, while imports had quadrupled in price.

Many citizens were stocking up for bad times and throughout the country shop shelves were being emptied, leaving a shortage of even the most basic items, such as vegetable oil, sugar or washing powder. The crisis reduced demand for food and lowered food consumption, because substantial depreciation of the ruble significantly raised domestic prices for food stuffs. The crisis also increased social tension. The middle class that was already forming by that time had some hope for stability.

The confidence of crisis prevention ceased to exist as millions of people lost their life savings from the bank closures. On 7 October 1998, demonstrations were held in many cities: around 100,000 took to the streets in Moscow, In Vladivostok 4,000, in Krasnoyarsk 3,000 and in Yekaterinburg 6,000. Defence Minister Igor Sergeyev cancelled his scheduled visit to Greece in the first week of October 1998, in order to be at hand should matters get out of control. Similarly select military units were placed in a state of readiness. On 20 October 1998, President Boris Yel’tsin also signed a presidential decree barring "mass protests" in Moscow between the hours of 10 pm and 7 a.m.and limiting them to a maximum of five days.

As the crisis deepened, regional governors had been introducing emergency measures: In Krasnoyarsk Krai in Siberia, governor Aleksandr Lebed, had signed a resolution to hold down prices "using administrative methods", a television report said. The authorities in the far eastern city of Vladivostok had banned deliveries of food to areas beyond the port city, and there had been talks of introducing rationing there. In Russia's Kaliningrad enclave on the Baltic, the governor announced a suspension of tax payments to the federal authorities.

fiscal[link]

The regional budgets also suffered from the 1998 crisis. The spending of the regions^[specify] declined from 18.2% of the GDP in 1997 to 14.8% of the GDP.^{[citation needed]} Spending on the economy (by 1.5% of the GDP) and social expenditures (by 1.6% of the GDP) were especially heavily reduced. The expenditures continued to decline in the following period. They^[specify] dropped another 1% of the GDP in 1999 to 13.8% of the GDP, and to 10.8% of the GDP in the first quarter of 2000. One of the main factors in the reduction was the decline in subsidies for housing and municipal services, from 3.5% to 2.7% of the GDP.^{[citation needed]}

agriculture[link]

The main effect of the crisis on Russian agricultural policy has been a dramatic drop in federal subsidies to the sector, about 80 percent in real terms compared with 1997, though subsidies from regional budgets fell less.^[11]

Political fallout[link]

The financial collapse resulted in a political crisis as Yeltsin, with his domestic support evaporating, had to contend with an emboldened opposition in the parliament. A week later, on 23 August 1998, Yeltsin fired Kiriyenko and declared his intention of returning Chernomyrdin to office as the country slipped deeper into economic turmoil.^[12] Powerful business interests, fearing another round of reforms that might cause leading concerns to fail, welcomed Kiriyenko's fall, as did the Communists.

Yeltsin, who began to lose his hold on power as his health deteriorated, wanted Chernomyrdin back; in a televised address to the nation, Yeltsin said that “heavyweights” such as Chernomyrdin, who was ousted as prime minister in March 1998 for failing to vigorously promote economic reforms, were needed to stem the nation's financial collapse. Yeltsin also suggested that Chernomyrdin would be named his successor as president when Yeltsin's term expires in 2000. But the legislature refused to give its approval. After the Duma rejected Chernomyrdin's candidacy twice, Yeltsin, his power clearly on the wane, backed down. Instead, he nominated Foreign Minister Yevgeny Primakov, who on 11 September 1998 was overwhelmingly approved by the Duma.

Primakov's appointment restored political stability, because he was seen as a compromise candidate able to heal the rifts between Russia's quarreling interest groups. There was popular enthusiasm for Primakov as well. Primakov promised to make the payment of wage and pension arrears his government’s first priority, and invited members of the leading parliamentary factions into his Cabinet.

Communists and the Federation of Independent Trade Unions of Russia staged a nationwide strike on 7 October 1998 and called on President Yeltsin to resign. On 9 October 1998, Russia, which was also suffering from a bad harvest, appealed for international humanitarian aid, including food.

Recovery[link]

Russia bounced back from the August 1998 financial crash with surprising speed. Much of the reason for the recovery is that world oil prices rapidly rose during 1999–2000 (just as falling energy prices on the world market helped to deepen Russia's financial troubles), so that Russia ran a large trade surplus in 1999 and 2000. Another reason is that domestic industries, such as food processing, had benefited from the devaluation, which caused a steep increase in the prices of imported goods.^[13][14]

Also, since Russia's economy was operating to such a large extent on barter and other non-monetary instruments of exchange, the financial collapse had far less of an impact on many producers than it would had the economy been dependent on a banking system. Finally, the economy has been helped by an infusion of cash; as enterprises were able to pay off arrears in back wages and taxes, it in turn allowed consumer demand for the goods and services of Russian industry to rise.

For the first time in many years, unemployment in 2000 fell as enterprises added workers. Since the 1998 crisis, the Russian government has managed to keep social and political pressures under control, and this has played a vital role in bringing about the current recovery.

Effects on countries in the world[link]

The financial crisis spread panic throughout the world financial system.

Baltic states[link]

The Russian crisis affected Baltic countries more than was expected. Estonia, Latvia and Lithuania sank into recession. The figures for 1999 showed a heavy decline in Baltic's exports to Russia and a significant decline in the growth rates of these economies. Food and beverage as well as processing industries as a whole have suffered the most.

Belarus[link]

Overall, economic activity slowed down substantially in the immediate aftermath of the Russian crisis, with output growth falling from about 8.5 percent in 1998 to 3.4 percent in 1999. Both exports and imports contracted substantially, resulting in a drop in the current account deficit from 6.1 percent of GDP in 1998 to 2.2 percent of GDP in 1999. Externally, exports to Russia, which accounted for more than 60 percent of total exports, fell during the second half of 1998 by 10 percent.

Demand for Belarusian products was weak through 1999, showing signs of recovery only during the final quarter, with the revival of economic activity in Russia. Also, in the first quarter of 1999 as compared with 1998, except for investments, all the budget expenditures were smaller. The biggest cuts were done in national security (1.9 percent of GDP compared with 2.5 percent of GDP in the first quarter of 1998) and social policy (1.5 and 2.4 percent of GDP, respectively) where the expenditures were lowered almost by one third.

Kazakhstan[link]

The Russian crisis was a hard hitting blow to the Kazakh economy. Kazakhstan lost its price competitiveness and its exports were in shambles. On the other hand, cheap Russian goods were flowing into the economy that was killing the domestic industries. There was huge downward pressure on the tenge, the Kazakh currency, and Kazakhstan's balance of payments worsened. However, the NBK continued to maintain the value of the tenge. In fact, they had spent close to a billion dollars to maintain the level of tenge. Their foreign exchange reserves halved.

Moldova[link]

Moldova received an IMF special mission advising the government on how to cope with the effects of the Russian crisis. Russia bought at that time 85% of Moldova's wine and brandy and most of its canned goods and tobacco. After the ruble crashed, most Russian importers put deals with Moldova on hold. Moldovan president Petru Lucinschi was quoted as saying that the Russian crisis had cost Moldova as much as five per cent of its GDP. The country's parliament was discussing a programme aimed at reducing imports and searching for new markets outside Russia.

Ukraine[link]

The crisis cost a lot for Ukraine: the Hryvnia devaluated by 60%, domestic prices increased by 20%, the National Bank of Ukraine lost 40% of its gross reserves.

United States[link]

The U.S. stock market, following a decade of rapid and accelerating increases, began to slip in early August of 1998, amid fears about Asia and Russia. The Dow Jones Industrial Average fell 984 points, or 11.5%, in 3 days at the end of August, to a level 19% below its July peak. This more than erased the year's market gains. The U.S. stock market remained depressed until October, when a series of interest rate reductions by the Federal Reserve propelled it back upward.^[15]

Uzbekistan[link]

In the central Asian state, the government banned the free unlicensed sales of food, most of which is imported from Russia, as a preventative measure against price rises and panic.

See also[link]

• Long-Term Capital Management
• GKO-OFZ
• 1997 Asian Financial Crisis
• Flight-to-liquidity
• Sovereign default

References[link]

External links[link]

• The Crisis in Russia: Some Initial Observations by Brian Henry and James Nixon, Economic Outlook, Vol. 23, No. 1, November 1998 (subscription required).
• An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals by Homi Kharas, Brian Pinto and Sergei Ulatov, Brookings Papers on Economic Activity, #1, 2001 (subscription required).
• Lessons from the Russian Crisis of 1998 and Recovery by Brian Pinto, Evsey Gurvich, and Sergei Ulatov, The World Bank, February 2004.
• Why Did the Ruble Collapse in August 1998? by Padma Desai, The American Economic Review Vol. 90, No. 2, 2000 (subscription required).
• The Bank of Russia and the 1998 Rouble Crisis by William Tompson. In Vladimir Tikhomirov (ed.), Anatomy of the 1998 Russian Crisis (Melbourne: CERC, 1999).
• A Case Study of a Currency Crisis: The Russian Default of 1998 by Abbigail J. Chiodo and Michael T. Owyang.
• Chronology of the Russian Financial Crisis 1998 by Clifford Chance.
• Lessons of the Russian Crisis for Transition Economies by Yegor Gaidar, Finance and Development, Vol. 36, No. 2 (June 1999).
• Welfare Impacts of the 1998 Financial Crisis in Russia and the Response of the Public Safety Net by Michael Lokshin and Martin Ravallion, The Economics of Transition 8 (2), July 2000 (subscription required).
• Overview of Structural Reforms in Russia after 1998 Financial Crisis by S.A. Vasiliev, International Monetary Fund, 16 February 2000.
• International investors, contagion and the Russian crisis by Alexei Medvedev, BOFIT #6, 2001.
• Financial crisis in the Russian Federation by Thierry D. Buchs, Economics of Transition 7 (3), 1999 (subscription required).
• The Russian Default by Saul Estrin, Business Strategy Review 9 (3), September 1998 (subscription required).
• Russia's Tax Crisis: Explaining Falling Revenues in a Transitional Economy by Daniel Treisman, Economics & Politics 11 (2), July 1999 (subscription required).
• 1999 IMF World Economic Outlook, Interim Assessment, Ch. II: The Crisis in Emerging Markets, International Monetary Fund, December 1999.
• Russia and the IMF by Nigel Gould-Davies and Ngaire Woods, International Affairs 7 (1), January 1999 (subscription required).
• Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints by Enrico Perotti, International Finance 5 (3), 2002 (subscription required).
• Russia's Silent Middle Class, by Carol Clark, CNN, September 1998

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Russian financial crisis can refer to:

• 1998 Russian financial crisis
• 2008 Russian financial crisis

This disambiguation page lists articles associated with the same title. If an internal link led you here, you may wish to change the link to point directly to the intended article.

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The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value^[1]. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.^[2][3] Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows.

Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world.

Types of financial crisis[link]

Banking crisis[link]

When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run may leave the bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widespread is called a systemic banking crisis or just a banking panic. A situation without widespread bank runs, but in which banks are reluctant to lend, because they worry that they have insufficient funds available, is often called a credit crunch. In this way, the banks become an accelerator of a financial crisis.^[4]

Examples of bank runs include the run on the Bank of the United States in 1931 and the run on Northern Rock in 2007. The collapse of Bear Stearns in 2008 has also sometimes been called a bank run, even though Bear Stearns was an investment bank rather than a commercial bank.

Banking crises generally occur after periods of risky lending and heightened loan defaults. ^[5] The U.S. savings and loan crisis of the 1980s led to a credit crunch which is seen as a major factor in the U.S. recession of 1990–91.

Speculative bubbles and crashes[link]

Economists say that a financial asset (stock, for example) exhibits a bubble when its price exceeds the present value of the future income (such as interest or dividends) that would be received by owning it to maturity.^[6] If most market participants buy the asset primarily in hopes of selling it later at a higher price, instead of buying it for the income it will generate, this could be evidence that a bubble is present. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to tell in practice whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur.^[7]

Black Friday, 9 May 1873, Vienna Stock Exchange. The Panic of 1873 and Long Depression followed.

Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the Dutch tulip mania, the Wall Street Crash of 1929, the Japanese property bubble of the 1980s, the crash of the dot-com bubble in 2000–2001, and the now-deflating United States housing bubble.^[5][8][9]

International financial crises[link]

When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency because of a speculative attack, this is called a currency crisis or balance of payments crisis. When a country fails to pay back its sovereign debt, this is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight.

Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in 1992–93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997–98. Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds.

Wider economic crises[link]

Negative GDP growth lasting two or more quarters is called a recession. An especially prolonged recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Since these phenomena affect much more than the financial system they are not usually considered financial crises as such though there are clearly links between the two.

Declining consumer spendings.

Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depression, which was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and the bursting of other real estate bubbles around the world also led to recession in the U.S. and a number of other countries in late 2008 and 2009.

Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartz argued that the initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve^[10], a position supported by Ben Bernanke.^[11]

Causes and consequences of financial crises[link]

Strategic complementarities in financial markets[link]

It is often observed that successful investment requires each investor in a financial market to guess what other investors will do. George Soros has called this need to guess the intentions of others 'reflexivity'.^[12] Similarly, John Maynard Keynes compared financial markets to a beauty contest game in which each participant tries to predict which model other participants will consider most beautiful.^[13] Circularity and self-fulfilling prophecies may be exaggerated when reliable information is not available because of opaque disclosures or a lack of disclosure.^[14]

Furthermore, in many cases investors have incentives to coordinate their choices. For example, someone who thinks other investors want to buy lots of Japanese yen may expect the yen to rise in value, and therefore has an incentive to buy yen too. Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw too. Economists call an incentive to mimic the strategies of others strategic complementarity.^[15]

It has been argued that if people or firms have a sufficiently strong incentive to do the same thing they expect others to do, then self-fulfilling prophecies may occur.^[16] For example, if investors expect the value of the yen to rise, this may cause its value to rise; if depositors expect a bank to fail this may cause it to fail.^[17] Therefore, financial crises are sometimes viewed as a vicious circle in which investors shun some institution or asset because they expect others to do so.^[18]

Leverage[link]

Leverage, which means borrowing to finance investments, is frequently cited as a contributor to financial crises^[14] . When a financial institution (or an individual) only invests its own money, it can, in the very worst case, lose its own money. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has. Therefore leverage magnifies the potential returns from investment, but also creates a risk of bankruptcy. Since bankruptcy means that a firm fails to honor all its promised payments to other firms, it may spread financial troubles from one firm to another (see 'Contagion' below).

The average degree of leverage in the economy often rises prior to a financial crisis^{[citation needed]}. For example, borrowing to finance investment in the stock market ("margin buying") became increasingly common prior to the Wall Street Crash of 1929. In addition, some scholars have argued that financial institutions can contribute to fragility by hiding leverage, and thereby contributing to underpricing of risk.^[14]

Asset-liability mismatch[link]

Another factor believed to contribute to financial crises is asset-liability mismatch, a situation in which the risks associated with an institution's debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts which can be withdrawn at any time and they use the proceeds to make long-term loans to businesses and homeowners. The mismatch between the banks' short-term liabilities (its deposits) and its long-term assets (its loans) is seen as one of the reasons bank runs occur (when depositors panic and decide to withdraw their funds more quickly than the bank can get back the proceeds of its loans).^[17] Likewise, Bear Stearns failed in 2007–08 because it was unable to renew the short-term debt it used to finance long-term investments in mortgage securities.

In an international context, many emerging market governments are unable to sell bonds denominated in their own currencies, and therefore sell bonds denominated in US dollars instead. This generates a mismatch between the currency denomination of their liabilities (their bonds) and their assets (their local tax revenues), so that they run a risk of sovereign default due to fluctuations in exchange rates.^[19]

Uncertainty and herd behavior[link]

Many analyses of financial crises emphasize the role of investment mistakes caused by lack of knowledge or the imperfections of human reasoning. Behavioral finance studies errors in economic and quantitative reasoning. Psychologist Torbjorn K A Eliazonhas also analyzed failures of economic reasoning in his concept of 'œcopathy'.^[20]

Historians, notably Charles P. Kindleberger, have pointed out that crises often follow soon after major financial or technical innovations that present investors with new types of financial opportunities, which he called "displacements" of investors' expectations.^[21][22] Early examples include the South Sea Bubble and Mississippi Bubble of 1720, which occurred when the notion of investment in shares of company stock was itself new and unfamiliar,^[23] and the Crash of 1929, which followed the introduction of new electrical and transportation technologies.^[24] More recently, many financial crises followed changes in the investment environment brought about by financial deregulation, and the crash of the dot com bubble in 2001 arguably began with "irrational exuberance" about Internet technology.^[25]

Unfamiliarity with recent technical and financial innovations may help explain how investors sometimes grossly overestimate asset values. Also, if the first investors in a new class of assets (for example, stock in "dot com" companies) profit from rising asset values as other investors learn about the innovation (in our example, as others learn about the potential of the Internet), then still more others may follow their example, driving the price even higher as they rush to buy in hopes of similar profits. If such "herd behavior" causes prices to spiral up far above the true value of the assets, a crash may become inevitable. If for any reason the price briefly falls, so that investors realize that further gains are not assured, then the spiral may go into reverse, with price decreases causing a rush of sales, reinforcing the decrease in prices.

Regulatory failures[link]

Governments have attempted to eliminate or mitigate financial crises by regulating the financial sector. One major goal of regulation is transparency: making institutions' financial situations publicly known by requiring regular reporting under standardized accounting procedures. Another goal of regulation is making sure institutions have sufficient assets to meet their contractual obligations, through reserve requirements, capital requirements, and other limits on leverage.

Some financial crises have been blamed on insufficient regulation, and have led to changes in regulation in order to avoid a repeat. For example, the Managing Director of the IMF, Dominique Strauss-Kahn, has blamed the financial crisis of 2008 on 'regulatory failure to guard against excessive risk-taking in the financial system, especially in the US'.^[26] Likewise, the New York Times singled out the deregulation of credit default swaps as a cause of the crisis.^[27]

However, excessive regulation has also been cited as a possible cause of financial crises. In particular, the Basel II Accord has been criticized for requiring banks to increase their capital when risks rise, which might cause them to decrease lending precisely when capital is scarce, potentially aggravating a financial crisis.^[28]

International regulatory convergence has been interpreted in terms of regulatory herding, deepening market herding (discussed above) and so increasing systemic risk.^[29] From this perspective, maintaining diverse regulatory regimes would be a safeguard.

Fraud[link]

Fraud has played a role in the collapse of some financial institutions, when companies have attracted depositors with misleading claims about their investment strategies, or have embezzled the resulting income. Examples include Charles Ponzi's scam in early 20th century Boston, the collapse of the MMM investment fund in Russia in 1994, the scams that led to the Albanian Lottery Uprising of 1997, and the collapse of Madoff Investment Securities in 2008.

Many rogue traders that have caused large losses at financial institutions have been accused of acting fraudulently in order to hide their trades. Fraud in mortgage financing has also been cited as one possible cause of the 2008 subprime mortgage crisis; government officials stated on September 23, 2008 that the FBI was looking into possible fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group.^[30] Likewise it has been argued that many financial companies failed in the recent crisis because their managers failed to carry out their fiduciary duties.^[31]

Contagion[link]

Contagion refers to the idea that financial crises may spread from one institution to another, as when a bank run spreads from a few banks to many others, or from one country to another, as when currency crises, sovereign defaults, or stock market crashes spread across countries. When the failure of one particular financial institution threatens the stability of many other institutions, this is called systemic risk.^[32]

One widely-cited example of contagion was the spread of the Thai crisis in 1997 to other countries like South Korea. However, economists often debate whether observing crises in many countries around the same time is truly caused by contagion from one market to another, or whether it is instead caused by similar underlying problems that would have affected each country individually even in the absence of international linkages.

Recessionary effects[link]

Some financial crises have little effect outside of the financial sector, like the Wall Street crash of 1987, but other crises are believed to have played a role in decreasing growth in the rest of the economy. There are many theories why a financial crisis could have a recessionary effect on the rest of the economy. These theoretical ideas include the 'financial accelerator', 'flight to quality' and 'flight to liquidity', and the Kiyotaki-Moore model. Some 'third generation' models of currency crises explore how currency crises and banking crises together can cause recessions.^[33]

Theories of financial crises[link]

Marxist theories[link]

Recurrent major depressions in the world economy at the pace of 20 and 50 years (often referred to as the business cycle) have been the subject of studies since Jean Charles Léonard de Sismondi (1773–1842) provided the first theory of crisis in a critique of classical political economy's assumption of equilibrium between supply and demand. Developing an economic crisis theory become the central recurring concept throughout Karl Marx's mature work. Marx's law of the tendency for the rate of profit to fall borrowed many features of the presentation of John Stuart Mill's discussion Of the Tendency of Profits to a Minimum (Principles of Political Economy Book IV Chapter IV). The theory is a corrollary of the Tendency towards the Centralization of Profits.

In a capitalist system, successfully-operating businesses return less money to their workers (in the form of wages) than the value of the goods produced by those workers (i.e. the amount of money the products are sold for). This profit first goes towards covering the initial investment in the business. In the long-run, however, when one considers the combined economic activity of all successfully-operating business, it is clear that less money (in the form of wages) is being returned to the mass of the population (the workers) than is available to them to buy all of these goods being produced. Furthermore, the expansion of businesses in the process of competing for markets leads to an abundance of goods and a general fall in their prices, further exacerbating the tendency for the rate of profit to fall.

The viability of this theory depends upon two main factors: firstly, the degree to which profit is taxed by government and returned to the mass of people in the form of welfare, family benefits and health and education spending; and secondly, the proportion of the population who are workers rather than investors/business owners. Given the extraordinary capital expenditure required to enter modern economic sectors like airline transport, the military industry, or chemical production, these sectors are extremely difficult for new businesses to enter and are being concentrated in fewer and fewer hands.

Empirical and econometric research continue especially in the world systems theory and in the debate about Nikolai Kondratiev and the so-called 50-years Kondratiev waves. Major figures of world systems theory, like Andre Gunder Frank and Immanuel Wallerstein, consistently warned about the crash that the world economy is now facing^{[citation needed]}. World systems scholars and Kondratiev cycle researchers always implied that Washington Consensus oriented economists never understood the dangers and perils, which leading industrial nations will be facing and are now facing at the end of the long economic cycle which began after the oil crisis of 1973.

Minsky's theory[link]

Hyman Minsky has proposed a post-Keynesian explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis, Minsky defines three approaches to financing firms may choose, according to their tolerance of risk. They are hedge finance, speculative finance, and Ponzi finance. Ponzi finance leads to the most fragility.

• for hedge finance, income flows are expected to meet financial obligations in every period, including both the principal and the interest on loans.
• for speculative finance, a firm must roll over debt because income flows are expected to only cover interest costs. None of the principal is paid off.
• for Ponzi finance, expected income flows will not even cover interest cost, so the firm must borrow more or sell off assets simply to service its debt. The hope is that either the market value of assets or income will rise enough to pay off interest and principal.

Financial fragility levels move together with the business cycle. After a recession, firms have lost much financing and choose only hedge, the safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore, they are ready to lend to firms without full guarantees of success.

Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed.

Coordination games[link]

Mathematical approaches to modeling financial crises have emphasized that there is often positive feedback^[34] between market participants' decisions (see strategic complementarity).^[35] Positive feedback implies that there may be dramatic changes in asset values in response to small changes in economic fundamentals. For example, some models of currency crises (including that of Paul Krugman) imply that a fixed exchange rate may be stable for a long period of time, but will collapse suddenly in an avalanche of currency sales in response to a sufficient deterioration of government finances or underlying economic conditions.^[36][37]

According to some theories, positive feedback implies that the economy can have more than one equilibrium. There may be an equilibrium in which market participants invest heavily in asset markets because they expect assets to be valuable, but there may be another equilibrium where participants flee asset markets because they expect others to flee too.^[38] This is the type of argument underlying Diamond and Dybvig's model of bank runs, in which savers withdraw their assets from the bank because they expect others to withdraw too.^[17] Likewise, in Obstfeld's model of currency crises, when economic conditions are neither too bad nor too good, there are two possible outcomes: speculators may or may not decide to attack the currency depending on what they expect other speculators to do.^[18]

Herding models and learning models[link]

A variety of models have been developed in which asset values may spiral excessively up or down as investors learn from each other. In these models, asset purchases by a few agents encourage others to buy too, not because the true value of the asset increases when many buy (which is called "strategic complementarity"), but because investors come to believe the true asset value is high when they observe others buying.

In "herding" models, it is assumed that investors are fully rational, but only have partial information about the economy. In these models, when a few investors buy some type of asset, this reveals that they have some positive information about that asset, which increases the rational incentive of others to buy the asset too. Even though this is a fully rational decision, it may sometimes lead to mistakenly high asset values (implying, eventually, a crash) since the first investors may, by chance, have been mistaken.^{[39][40][41][42][43]}

In "adaptive learning" or "adaptive expectations" models, investors are assumed to be imperfectly rational, basing their reasoning only on recent experience. In such models, if the price of a given asset rises for some period of time, investors may begin to believe that its price always rises, which increases their tendency to buy and thus drives the price up further. Likewise, observing a few price decreases may give rise to a downward price spiral, so in models of this type large fluctuations in asset prices may occur. Agent-based models of financial markets often assume investors act on the basis of adaptive learning or adaptive expectations.

History[link]

The bursting of the South Sea Bubble and Mississippi Bubble in 1720 is regarded as the first modern financial crisis.

A noted survey of financial crises is This Time is Different: Eight Centuries of Financial Folly (Reinhart & Rogoff 2009), by economists Carmen Reinhart and Kenneth Rogoff, who are regarded as among the foremost historians of financial crises.^[44] In this survey, they trace the history of financial crisis back to sovereign defaults – default on public debt, – which were the form of crisis prior to the 18th century and continue, then and now causing private bank failures; crises since the 18th century feature both public debt default and private debt default. Reinhart and Rogoff also class debasement of currency and hyperinflation as being forms of financial crisis, broadly speaking, because they lead to unilateral reduction (repudiation) of debt.

Prior to 19th century[link]

The Roman denarius was debased over time.

Philip II of Spain defaulted four times on Spain's debt.

Reinhart and Rogoff trace inflation (to reduce debt) to Dionysius of Syracuse, of the 4th century BCE, and begin their "eight centuries" in 1258; debasement of currency also occurred under the Roman empire and Byzantine empire.

Among the earliest crises Reinhart and Rogoff study is the 1340 default of England, due to setbacks in its war with France (the Hundred Years' War; see details). Further early sovereign defaults include seven defaults by imperial Spain, four under Philip II, three under his successors.

Other global and national financial mania since the 17th century include:

• 1637: Bursting of tulip mania^* in the Netherlands – while tulip mania is popularly reported as an example of a financial crisis, and was a speculative bubble, modern scholarship holds that its broader economic impact was limited to negligible, and that it did not precipitate a financial crisis.
• 1720: Bursting of South Sea Bubble (Great Britain) and Mississippi Bubble (France) – earliest of modern financial crises; in both cases the company assumed the national debt of the country (80–85% in Great Britain, 100% in France), and thereupon the bubble burst.
• Crisis of 1772
• Panic of 1792
• Panic of 1796–1797

19th century[link]

• Danish state bankruptcy of 1813
• Panic of 1819 – pervasive USA economic recession w/ bank failures; culmination of U.S.'s 1st boom-to-bust economic cycle
• Panic of 1825 – pervasive British economic recession in which many British banks failed, & Bank of England nearly failed
• Panic of 1837 – pervasive USA economic recession w/ bank failures; a 5 yr depression ensued
• Panic of 1847 – a collapse of British financial markets associated with the end of the 1840s railroad boom.
• Panic of 1857 – pervasive USA economic recession w/ bank failures
• Panic of 1866 – the Overend Gurney crisis (primarily British)
• Panic of 1873 – pervasive USA economic recession w/ bank failures, known then as the 5 yr Great Depression & now as the Long Depression
• Panic of 1884
• Panic of 1890
• Panic of 1893 – a panic in the United States marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures
• Australian banking crisis of 1893
• Panic of 1896 – an acute economic depression in the United States precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard

20th century[link]

• Panic of 1901 – limited to crashing of the New York Stock Exchange
• Panic of 1907 – pervasive USA economic recession w/ bank failures
• Panic of 1910–1911
• 1910 – Shanghai rubber stock market crisis
• Wall Street Crash of 1929, followed by the Great Depression – the largest and most important economic depression in the 20th century
• 1973 – 1973 oil crisis – oil prices soared, causing the 1973–1974 stock market crash
• Secondary banking crisis of 1973–1975 – United Kingdom
  

  

  Wall Street on the morning of May 14 during the Panic of 1884.
• 1980s – Latin American debt crisis – beginning in Mexico in 1982 with the Mexican Weekend
• Bank stock crisis (Israel 1983)
• 1987 – Black Monday (1987) – the largest one-day percentage decline in stock market history
• 1989–91 – United States Savings & Loan crisis
• 1990 – Japanese asset price bubble collapsed
• early 1990s – Scandinavian banking crisis: Swedish banking crisis, Finnish banking crisis of 1990s
• 1992–93 – Black Wednesday – speculative attacks on currencies in the European Exchange Rate Mechanism
• 1994–95 – 1994 economic crisis in Mexico – speculative attack and default on Mexican debt
• 1997–98 – 1997 Asian Financial Crisis – devaluations and banking crises across Asia
• 1998 Russian financial crisis

21st century[link]

• 2000–2001 – Turkish Crises
• 2001 – Argentine Crises
• 2001 – Bursting of dot-com bubble – speculations concerning internet companies crashed
• 2007–11 – Financial crisis of 2007–2011, followed by the late 2000s recession and the 2010 European sovereign debt crisis

See also[link]

Literature[link]

General perspectives[link]

• Walter Bagehot (1873), Lombard Street: A Description of the Money Market.
• Charles P. Kindleberger and Robert Aliber (2005), Manias, Panics, and Crashes: A History of Financial Crises(Palgrave Macmillan, 2005 ISBN 978-1-4039-3651-6).
• Gernot Kohler and Emilio José Chaves (Editors) "Globalization: Critical Perspectives" Hauppauge, New York: Nova Science Publishers ISBN 1-59033-346-2. With contributions by Samir Amin, Christopher Chase Dunn, Andre Gunder Frank, Immanuel Wallerstein
• Hyman P. Minsky (1986, 2008), Stabilizing an Unstable Economy.
• Reinhart, Carmen; Rogoff, Kenneth (2009). This Time is Different: Eight Centuries of Financial Folly. Princeton University Press. pp. 496. ISBN 978-0-691-14216-6 
• Ferguson, Niall (2009). The Ascent of Money: A Financial History of the World. Penguin. pp. 448. ISBN 978-0-14-311617-2 

Banking crises[link]

• Franklin Allen and Douglas Gale (2000), 'Financial contagion'. Journal of Political Economy 108 (1), pp. 1–33.
• Franklin Allen and Douglas Gale (2007), Understanding Financial Crises.
• Jean-Charles Rochet (2008), Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation.
• R. Glenn Hubbard, ed., (1991) Financial Markets and Financial Crises.
• Douglas Diamond and Philip Dybvig (1983), 'Bank runs, deposit insurance, and liquidity'. Journal of Political Economy 91 (3).
• Luc Laeven and Fabian Valencia (2008), 'Systemic banking crises: a new database'. International Monetary Fund Working Paper 08/224.

Bubbles and crashes[link]

• Didier Sornette (2003), Why Stock Markets Crash, Princeton University Press.
• Robert J. Shiller (1999, 2006), Irrational Exuberance.
• Markus Brunnermeier (2008), 'Bubbles', New Palgrave Dictionary of Economics, 2nd ed.
• Markus K. Brunnermeier (2001), Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding, Oxford University Press. ISBN 0-19-829698-3.

International financial crises[link]

• Paul Krugman (1995), Currencies and Crises.
• Craig Burnside, Martin Eichenbaum, and Sergio Rebelo (2008), 'Currency crisis models', New Palgrave Dictionary of Economics, 2nd ed.
• Maurice Obstfeld (1996), 'Models of currency crises with self-fulfilling features'. European Economic Review 40.
• Stephen Morris and Hyun Song Shin (1998), 'Unique equilibrium in a model of self-fulfilling currency attacks'. American Economic Review 88 (3).
• Barry Eichengreen (2004), Capital Flows and Crises.
• Charles Goodhart and P. Delargy (1998), 'Financial crises: plus ça change, plus c'est la même chose'. International Finance 1 (2), pp. 261–87.
• Jean Tirole (2002), Financial Crises, Liquidity, and the International Monetary System.
• Guillermo Calvo (2005), Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?
• Barry Eichengreen (2002), Financial Crises: And What to Do about Them.
• Charles Calomiris (1998), 'Blueprints for a new global financial architecture'.

The Great Depression and earlier banking crises[link]

• Milton Friedman and Anna Schwartz (1971), A Monetary History of the United States.
• Ben S. Bernanke (2000), Essays on the Great Depression.
• Robert F. Bruner (2007), The Panic of 1907. Lessons Learned from the Market's Perfect Storm.

Recent international financial crises[link]

• Barry Eichengreen and Peter Lindert, eds., (1992), The International Debt Crisis in Historical Perspective.
• Lessons from the Asian financial crisis / edited by Richard Carney. New York, NY : Routledge, 2009. ISBN 978-0-415-48190-8 (hardback) ISBN 0-415-48190-2 (hardback) ISBN 978-0-203-88477-5 (ebook) ISBN 0-203-88477-9 (ebook)
• Robertson, Justin, 1972– US-Asia economic relations : a political economy of crisis and the rise of new business actors / Justin Robertson. Abingdon, Oxon ; New York, NY : Routledge, 2008. ISBN 978-0-415-46951-7 (hbk.) ISBN 978-0-203-89052-3 (ebook)

2007–2010 financial crisis[link]

• Roubini N., Mihm S. (2010), Crisis Economics: A Crash Course in the Future of Finance. ISBN 978-0-14-104593-1.
• Fengbo Zhang (2008): 1. Perspective on the United States Sub-prime Mortgage Crisis , 2. Accurately Forecasting Trends of the Financial Crisis , 3. Stop Arguing about Socialism versus Capitalism .
• Robert J. Shiller (2008), The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do About It. ISBN 0-691-13929-6.
• JC Coffee, ‘What went wrong? An initial inquiry into the causes of the 2008 financial crisis’ (2009) 9(1) Journal of Corporate Law Studies 1
• Fratianni M., Marchionne F. (2009), The Role of Banks in the Subprime Financial Crisis available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1383473
• Markus Brunnermeier (2009), 'Deciphering the liquidity and credit crunch 2007–2008'. Journal of Economic Perspectives 23 (1), pp. 77–100.
• Paul Krugman (2008), The Return of Depression Economics and the Crisis of 2008. ISBN 0-393-07101-4.
• "The myths about the economic crisis, the reformist left and economic democracy" by Takis Fotopoulos, The International Journal of Inclusive Democracy, vol 4, no 4, Oct. 2008.
• Nitasha Kaul (2009), "The economics of turning people into things". Open Democracy 20 April, Available online http://www.opendemocracy.net/article/the-economics-of-turning-people-into-things
• Funnell, Warwick N. In government we trust : market failure and the delusions of privatisation / Warwick Funnell, Robert Jupe and Jane Andrew. Sydney : University of New South Wales Press, 2009. ISBN 978-0-86840-966-5 (pbk.)
• Read, Colin, 1959– Global financial meltdown : how we can avoid the next economic crisis / Colin Read. New York : Palgrave Macmillan, c2009. ISBN 978-0-230-22218-2
• The American housing crisis / Susan Hunnicutt, book editor. Farmington Hills, Michigan : Greenhaven Press, c2009. ISBN 978-0-7377-4310-4 (hbk.) ISBN 978-0-7377-4309-8 (pbk.)
• United States. Congress. House. Committee on the Judiciary. Subcommittee on Commercial and Administrative Law. Working families in financial crisis : medical debt and bankruptcy : hearing before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary, House of Representatives, One Hundred Tenth Congress, first session, July 17, 2007. Washington : U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2008. 277 p. : ISBN 978-0-16-081376-4 ISBN 016081376X http://purl.access.gpo.gov/GPO/LPS99198
• Davis Polk Financial Crisis Manual
• Williams, Mark T. (March, 2010). "Uncontrolled Risk: The Lessons of Lehman Brothers and How Systemic Risk Can Still Bring Down the World Financial System". Mcgraw-Hill. http://books.google.com/books?id=HSkjB_PGp98C&printsec=frontcover&dq=Uncontrolled+Risk:+The+Lessons+of+Lehman+Brothers+and+How+Systemic+Risk+Can+Still+Bring+Down+the+World+Financial+System&source=bl&ots=eRQHV1Q-C7&sig=K7GU1cPw9YZ9Q80anKOTLLUEeB0&hl=en&ei=4W2BTMKDIoegsQOKkJj3Bw&sa=X&oi=book_result&ct=result&resnum=3&ved=0CB4Q6AEwAg#v=onepage&q&f=false. 
• Dwyer, Gerald P. and Paula Tkac. 2009. "The Financial Crisis of 2008 in Fixed-income Markets" Journal of International Money and Finance 28 (December 2009), 1293–1316, available in working paper version at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464891.

Notes[link]

External links[link]

• NYU Stern on Finance – Blog explaining the Financial Crisis (follow link to research blog run by Stern faculty members which deals with financial economics)
• Crisis Talk - World Bank blog offering information on the unfolding crisis
• Financial Crises: Lessons from History. BBC.
• Rescuing our Jobs and Savings: What G7/8 Leaders Can Do – policy proposals from leading economists, sponsored by Centre for Economic Policy Research at VOXEU.org.
• Dossier on 2008 financial crisis by Radio France International's English-language service
• OECD response to the economic crisis. OECD.
• Academic paper about the effect of the financial crisis on the venture capital industry .
• Academic paper, From Newton to Financial Crisis, about how to understand financial crisis from the viewpoint of nature science and science history .
• The Global Financial Crisis, Developing Countries and Policy Responses Institute of Development Studies (IDS) In Focus Policy Briefing 7.1 March 2009
• Davis Polk Financial Crisis Manual

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (May 2007)

10 Years is an American alternative metal band, formed in Knoxville, Tennessee in 1999.

History[link]

[edit] Early Years, Into the Half Moon (1999–2001)

10 Years was initially formed in Knoxville, Tennessee in 1999 with singer Mike Underdown, drummer Brian Vodinh, bassist Lewis Cosby, and guitarists Ryan "Tater" Johnson (also of The American Plague) and Matt Wantland. In 2001, Cosby left and the band recruited Andy Parks on bass. They independently recorded Into the Half Moon the same year.

[edit] Killing All That Holds You, The Autumn Effect (2002–2006)

Lead vocalist Mike Underdown left the band to pursue a career in acting and start up a new band 'Courage, You Bastards' in Los Angeles, Ca. 10 Years soon recruited current vocalist Jesse Hasek from another local band. In 2002, Parks decided to leave the band and Cosby returned. The band then released their independent album Killing All That Holds You in 2004.

10 Years was then signed to Universal Records in 2005 and released their major label debut, The Autumn Effect on August 16, 2005 with the songs "Wasteland" and "Through the Iris" picking up regional radio play. Their first single, "Wasteland" spent over 12 months on the rock charts, finally reaching #1 at active rock radio in December 2005.

That same summer, the band toured with Disturbed and Ill Niño. In the fall of 2005, they toured with Breaking Benjamin and Smile Empty Soul, then followed up with the Masters of Horror tour with Mudvayne and Sevendust. They opened for Korn and Mudvayne on Korn's See You on the Other Side tour. They also toured with Korn and Deftones on the Family Values Tour, which started in late July 2006.

In mid February 2006, "Wasteland" reached #1 on the Billboard Alternative Songs chart. "Wasteland" has been certified Gold by the RIAA.

In mid-2006, the band toured Australia in a lineup which included Hatebreed, Disturbed and Korn.

Their first music video, "Wasteland", addresses the social problem of human rights as well as addiction around the world. The video received a nomination for Best Direction and Best Art Direction at the 2006 MTV Video Music Awards, but did not win either.

On March 27, 2006, an EP was released on iTunes containing acoustic versions of "Wasteland" and other tracks from The Autumn Effect.

[edit] Division (2006–2008)

On November 19, 2006, 10 Years unveiled and confirmed the title Division for their second album.^[1] The band would begin recording Division in late June 2007 after spending the better part of a year writing.

Lewis told in an interview that the album is "so different from the first one [The Autumn Effect], but it's still 10 Years," and, "It just sounds like [the songs] would be from a totally different album, which was, you know, the goal."^[2] It was also revealed that the track titled "Focus" was co-written with Stone Temple Pilots and former Army of Anyone guitarist Dean DeLeo.^[1]

On May 21, 2007 a demo song titled "All Your Lies" from Division was released onto their MySpace along with a post stating the band had chosen producer Rick Parasher to produce the new album.^[3] On September 7, the band announced on their MySpace that the album was finished and would be released in 2008, following a tour with Dir En Grey, Sevendust, Operator, Thousand Foot Krutch and Chevelle.

On January 29, 2008, "Beautiful," the new single from Division, was released to iTunes and a snippet was also posted on the band's MySpace page. Division was released on May 13, 2008 after being pushed back due to finalization of the album's artwork.^[4]

10 Years was featured on the Revolution Stage of Linkin Park's Summer Projekt Revolution 2008 tour with Atreyu, Hawthorne Heights and Armor For Sleep.

They went on tour with Mudvayne until mid December 2008.

[edit] Feeding the Wolves (2009–2011)

10 Years announced that their upcoming third major label album would be entitled Feeding the Wolves. The album was produced by Grammy-nominated producer Howard Benson and mixed by Chris "Lord" Alge. The band has mentioned the album is of their heaviest material to date and "very similar to some of their early songs."

Throughout the first half of 2010, the band went back and forth between putting on live shows and working in the studio. Before the album was released, the band debuted new songs at live performances such as "Dead in the Water", "Now is the Time", and the new album's first single ""Shoot It Out" ". ^[5][6]

On June 12, 2010, ""Shoot It Out" " was featured on Sirius/XM Radio. The track was released to radio later that month,^[7] and was made available for download on iTunes July 6.^[8] Feeding the Wolves was released on August 31, 2010.

To promote the album's release, the band opened Shinedown's 2010 Carnival of Madness summer tour alongside Chevelle, Puddle of Mudd, and Sevendust.^[9] In the fall they joined Sevendust again on the Hard Drive Live tour with support from Since October and Anew Revolution.

In December, the band went on a mini-headline tour,^[10] where they played some older songs that they had not played in some time. February 2011, their new single "Fix Me" releases to radio while they headline a spring tour with Hollywood Undead.

On June 17 and 18 the band shot a music video for "Fix Me" in Columbus, Ohio with production company Thunder Down Country.^[11] The video was released via YouTube on August 9, 2011.^[12]

[edit] Minus The Machine Palehorse Records (2012-present)

On twitter the band has shown pictures of Brian Vodinh's home basement turned studio for future workings on their next album.

On April 2nd, 2012, the band announced on Facebook that their upcoming record, Minus The Machine, is to be released on July 30th on their own independent label, Palehorse Records, which the band stated is a part of Warner Music Group's Independent Label Group. They also announced a 4-week headlining tour to support the record, which begins on June 27th in New Orleans.

On May 11th, the band unveiled the cover art of the album and it was announced that the album's release has been pushed back to July 31st.^{[citation needed]} 10 Years will release their first single "Backlash" on radio and iTunes on June 21st.

Band members[link]

Current

• Jesse Hasek – Vocals (2002–present)
• Ryan "Tater" Johnson – Lead Guitar, Backing Vocals (1999–present)
• Lewis "Big Lew" Cosby – Bass (1999–2001, 2002-present)
• Brian Vodinh – Rhythm Guitar, Backing Vocals (2009–present) Drums (1999–present)

Live

• Matt Brown – Drums (2010-present)
• Sam Anderson – Drums (2010)
• Kyle Mayer – Drums (2010)
• Brandon Estelle - Drums (2010-2011) and select dates.

Former

• Mike Underdown – Vocals (1999–2001)
• Andy Parks - Bass (2001–2002)
• Matt Wantland – Guitar (1999–2009)

Timeline[link]

id:Vocals value:red legend:Vocals
id:Bass value:orange legend:Bass
id:Rhythm_Guitar value:blue legend:Rhythm_Guitar
id:Lead_guitar value:green legend:Lead_Guitar
id:drums value:yellow legend:Drums
id:lines value:black legend:Studio Albums

at:01/01/2001 color:black layer:back
at:27/08/2004 color:black layer:back
at:16/08/2005 color:black layer:back
at:01/05/2008 color:black layer:back
at:31/08/2010 color:black layer:back

bar:mike text:"Mike Underdown"
bar:jesse text:"Jesse Hasek"
bar:tater text:"Ryan Tater Johnson"
bar:wantland text:"Matt Wantland"
bar:andy text:"Andy Parks"
bar:lewis text:"Lewis Cosby"
bar:brian text:"Brian Vodinh"
bar:kyle text:"Kyle Mayer"
bar:sam text:"Sam Anderson"
bar:matt text:"Matt Brown"

width:10 textcolor:black align:left anchor:from shift:(10,-4)
bar:mike from:start till:01/01/2001 color:Vocals
bar:jesse from:02/01/2001 till:end color:Vocals
bar:tater from:start till:end color:Lead_Guitar
bar:wantland from:start till:03/05/2009 color:Rhythm_Guitar
bar:brian from:start till:31/08/2010 color:Drums
bar:brian from:05/05/2009 till:end color:Rhythm_Guitar
bar:lewis from:start till:01/01/2001 color:Bass
bar:lewis from:02/01/2002 till:end color:Bass
bar:andy from:02/01/2001 till:01/01/2002 color:Bass
bar:kyle from:06/06/2010 till:05/07/2010 color:Drums
bar:sam from:06/07/2010 till:31/07/2010 color:Drums
bar:matt from:01/08/2010 till:end color:Drums

Discography[link]

Studio albums[link]

Extended plays[link]

• 2006: Acoustic EP

Singles[link]

References[link]

External links[link]

• Official Site
• 10 Years on Myspace

James Beeland Rogers, Jr.
Born	(1942-10-19) October 19, 1942 (age 69) Baltimore, Maryland, USA[1]
Alma mater	Balliol College, Oxford Yale University
Occupation	Chairman of Rogers Holdings and Beeland Interests, Inc. Co-founder of the Quantum Fund
Website
www.jimrogers.com

James Beeland Rogers, Jr. (born October 19, 1942) is an American investor and author. He is currently based in Singapore. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI).

Rogers is an outspoken proponent of the free market, but he does not consider himself a member of any school of thought. Rogers acknowledged, however, that his views best fit the label of Austrian School of economics.^[2][3]

Early life and education[link]

Rogers was born in Baltimore, Maryland and raised in Demopolis, Alabama.^[1][4] He started in business at the age of five by selling peanuts and by picking up empty bottles that fans left behind at baseball games. He got his first job on Wall Street, at Dominick & Dominick, after graduating with a bachelor's degree in History from Yale University in 1964. Rogers then acquired a second BA degree in Philosophy, Politics and Economics from Balliol College, Oxford University in 1966.

Business career[link]

1970-2002[link]

In 1970, Rogers joined Arnhold and S. Bleichroder. In 1973, Rogers co-founded the Quantum Fund with George Soros. During the following 10 years, the portfolio gained 4200% while the S&P advanced about 47%.^[5] The Quantum Fund was one of the first truly international funds.

In 1980, Rogers decided to "retire", and spent some of his time traveling on a motorcycle around the world. Since then, he has been a guest professor of finance at the Columbia Business School.^[6]

In 1989 and 1990, Rogers was the moderator of WCBS' The Dreyfus Roundtable and FNN's The Profit Motive with Jim Rogers. From 1990 to 1992, he traveled through China again, as well as around the world, on motorcycle, over 100,000 miles (160,000 km) across six continents, which was picked up in the Guinness Book of World Records. He tells of his adventures and worldwide investments in Investment Biker, a bestselling investment book.

In 1998, Rogers founded the Rogers International Commodity Index. In 2007, the index and its three sub-indices were linked to exchange-traded notes under the banner ELEMENTS. The notes track the total return of the indices as an accessible way to invest in the index. Rogers is an outspoken advocate of agriculture investments.

Between January 1, 1999 and January 5, 2002, Rogers did another Guinness World Record journey through 116 countries, covering 245,000 kilometers with his wife, Paige Parker, in a custom-made Mercedes. The trip began in Iceland, which was about to celebrate the 1000th anniversary of Leif Eriksson's first trip to America. On January 5, 2002, they were back in New York City and their home on Riverside Drive. His route around the world can be viewed on his website, jimrogers.com. He wrote Adventure Capitalist following this around-the-world adventure. It is currently his bestselling book.

2002 to present[link]

On his return in 2002, Rogers became a regular guest on Fox News' Cavuto on Business and other financial TV shows.^[7] In 2002, Rogers said that Fed Chairman Alan Greenspan's "reaction to the stock-market bubble has caused two more bubbles to grow: a real-estate bubble and a consumer-debt bubble."^[8] In 2006, Rogers said he was shorting US financials, home builders and Fannie Mae.^[9][10]

In 2005, Rogers wrote Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. In this book, Rogers quotes a Financial Analysts Journal academic paper co-authored by Yale School of Management professor, Geert Rouwenhorst, entitled Facts and Fantasies about Commodity Futures. Rogers contends this paper shows that commodities investment is one of the best investments over time, which is a concept somewhat at odds with conventional investment thinking.

In December 2007, Rogers sold his mansion in New York City for about 16 million USD and moved to Singapore. Rogers claimed that he moved because now is a ground-breaking time for investment potential in Asian markets. Rogers's first daughter is now being tutored in Mandarin to prepare her for the future. He is quoted as saying: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." In a CNBC interview with Maria Bartiromo broadcast on May 5, 2008, Rogers said that people in China are extremely motivated and driven, and he wants to be in that type of environment, so his daughters are motivated and driven. He also stated that this is how America and Europe used to be. He chose not to move to Chinese cities like Hong Kong or Shanghai due to the high levels of pollution causing potential health problems for his family; hence, he chose Singapore. He has also advocated investing in certain smaller Asian frontier markets such as Sri Lanka and Cambodia, and currently serves as an Advisor to Leopard Capital’s Leopard Sri Lanka Fund.^[11] However, he is not fully bullish on all Asian nations, as he remains skeptical of India's future - "India as we know it will not survive another 30 or 40 years".^[12] In 2008 Rogers endorsed Ron Paul for President of the United States.^[13]

Rogers has two daughters with Paige Parker. Hilton Augusta (nicknamed Happy) was born in 2003, and their second daughter Beeland Anderson in 2008. His latest book, A Gift To My Children, contains lessons in life for his daughters as well as investment advice and was published in 2009.

On November 4, 2010, at Oxford University’s Balliol College, he urged students to scrap career plans for Wall Street or the City, London’s financial district, and to study agriculture and mining instead. “The power is shifting again from the financial centers to the producers of real goods. The place to be is in commodities, raw materials, natural resources."^[14]

In February 2011 Rogers announced that he has started a new index fund which focuses on "the top companies in agriculture, mining, metals and energy sectors as well as those in the alternative energy space including solar, wind and hydro."^[15] The index is called The Rogers Global Resources Equity Index and according to Rogers, only the best and most liquid companies go into the index.

Bibliography[link]

• 1995: Investment Biker: Around the World with Jim Rogers. - ISBN 1-55850-529-6
• 2003: Adventure Capitalist: The Ultimate Road Trip. - ISBN 0-375-50912-7
• 2004: Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. - ISBN 1-4000-6337-X
• 2007: A Bull in China: Investing Profitably in the World's Greatest Market. - ISBN 1-4000-6616-6
• 2009: A Gift to My Children: A Father's Lessons For Life And Investing. - ISBN 1-4000-6754-5

Further reading[link]

• Schwager, Jack D. (1993). Market Wizards: Interviews with Top Traders. Collins; Reissue edition. ISBN 0-88730-610-1. 
• Train, John (2003). Money Masters of Our Time. Collins; Reprint edition. ISBN 978-0-88730-970-0. 

External links[link]

This article's use of external links may not follow Wikipedia's policies or guidelines. Please improve this article by removing excessive or inappropriate external links, and converting useful links where appropriate into footnote references. (September 2010)

Wikiquote has a collection of quotations related to: Jim Rogers

• The Millennium Adventure, Official Jim Rogers website
• The Rogers International Commodity Index A site for information on the RICI

Articles

• "An Early Christmas for Jim Rogers". - BusinessWeek - December 8, 2004.
• "Invest In Commodities – and Keep Your Shirt". - November 23, 2006.
• "We Want Our Kids To Learn Chinese". - MySinchew. - July 19, 2008. - (article about Rogers' life in Singapore)
• "Adventure Capitalist". - PODER Magazine. - April 2010.

Interviews

• Curated Interview With Jim Rogers From Market Wizards
• Jim Rogers on the British Pound, US Dollar, And China
• Jim Rogers, The Adventure Capitalist
• Jim Rogers and George Soros Started the Quantum Fund
• rediff.com: The Money Interview/Jim Rogers, investor, globetrotter
• Financial Sense Newshour's Ask The Expert: Jim Rogers:
  • 2003.
  • May 6, 2004.
• Riverside Conversations: a 3 Part TV Series with Marc Faber
• SCMP video interview, September 8, 2008.
• Investors Chronicle interview. - (on the decline of the US/Europe, emerging markets, commodities). - November 2008.
• Bloomberg Night Talk interview. - November 24, 2008.
• Jim Rogers on The Lew Rockwell Show:
  • "The Crash of '08". - December 12, 2008. - (*.MP3 audio)
  • "Economic Advice to My Children (and You)". - May 17, 2009. - (*.MP3 audio)
• Bloomberg TV Jim Rogers Special. - December 24, 2008.
• TIME Q&A: Jim Rogers:
  • April 28, 2009.
  • October 31, 2008.
• Interview from March 2009 on Channel 4
• Jim Rogers Sat 3 Interview German TV Sat 3
• Euro is not to blame for crisis, BBC News, 26 December 2011.

References[link]