Globalisation Lecture

Failure of Globalisation
(this is what i understand)

Credit crunch, first time after Great Depression.
Banks are lending money 5times more than people's income.
Since the house prices are decreased, people have to sell their houses to the lower prices than they used to. For example if someone ( Jack ) loaned £150.000 last year to buy a house and could not effort to pay anymore, bank force him to sell his house. The problem is because there is a financial crises going on, no one wants to pay £150.000 pound anymore so the value of the houses are started to lessening. For this reason, Jack has to sell his house to £100.000 (way cheaper than he bought) and still owe £50.000 to the bank. When jack told to the bank that he can't pay his debt anymore , bank people has to talk to the other people ,whom they bought jack's loans from the bank (CDOs), that they cant pay their debts because Jack can't give them the money. And then those people who bought the loan from the Bank, has to talk to the people whom again bought that loan of jacks and so on.

If jack couldn't pay his debt the chain of buying and selling loans delay and that will create a big problem because of this global trading system.

*these are my lecture notes

sub-prime mortgages => credit/$ <= Bank => CDOs/$ <= asset-backed securities sold globally -Mortgages defaults increase -Flow of money stops -Banks concerns over asset-backed securities interbank lending stops *Global effect : usa (CDOs) => uk(CDOs) => europe (CDOs) => china(CDOs) =>india (CDOs)

financial markets are global effects are also becomes global

Joseph Stiglitz thought that globalisation is contegious. If something happens in one country it will be spread to entirely different country because of the global markets.


Liquidity crises => not enough money for us and also for businesses
and because of the liquidity crises everyone started to suffer. Businesses go to bankruptcy , they can't expand, people lose their jobs, living costs are getting higher etc.

Banks in turmoil
in UK, northern rock and in USA, bear stearns are collapsed
stock market roller coaster ( failing month by month)

Philosophy of globalisation
- Liberalization : Whatever you do is OK as long as you're making money

Liberalization: trade, finance, production
- All the laws specified for globalization, trade agreements etc. everything is free up the movement of goods and services
- They removed the rules and regulations but it had side effects of course like air pollution , cheap labour.

Free trade becomes rid of restrictions and brings no obligations
not for everyone though, somebody had to pay
only big multinational companies like Coca Cola , Gap , Zara can use the advantages