THE INTERNATIONAL FINANCIAL CRISIS THREATS AND CONSTRAINTS

THE INTERNATIONAL FINANCIAL CRISIS, THREAT AND CONSTRAINTS: “The word” crisis “is often used as a synonym for disease, it can be used in several areas, but what interests us is the economic origin which brings together temporarily crises under one umbrella concept, that of “an imbalance of a crack followed by a fall, fall of productive activity, trade, profits, wages, stock prices, but rising bankruptcies, unemployment, suicide. ” It was on this downward path that is suffering symptoms declare that the accident [...]”
THE INTERNATIONAL FINANCIAL CRISIS  THREATS AND CONSTRAINTS
Introduction
I. Definition of crisis
[...] Down the route that is suffering symptoms declare that the accident is indicative of cyclical dysfunction affecting structures and that the worst premonitions arise.
But the economic crisis is the result of a series of breaks and economic imbalances such as imbalances of the financial system that causes a financial crisis type.
The word crisis is used to designate a rather broad, including these currency crises, banking crises and stock market crises. But the term is also used to refer to public debt crises. A financial crisis may affect only a few countries or initiated in one country can spread by contagion and become international, thereby slowing down the global economy. A financial crisis does at first that the financial markets, the widening will lead to adverse effects on the rest of the economy, causing an economic crisis or recession. These effects are usually a credit crunch and therefore a decline in investment, a crisis of consumer confidence.
Financial crises are repeated, showing each accession, a fundamental similarity of their origins and their conduct, but their specific character. Every financial crisis is taking at least one of the three canonical forms that history has taught us regularly since the 19th century.
The first of its forms, and the oldest, is the crisis of speculation. Why heritage assets (stocks, real estate, gold …) can they be subject to speculative bubbles? Because their prices, unlike that of a good or service industrial or commercial reproducible, does not depend on their cost.
As long as the information is not shared well (between the lender and the borrower, shareholder and management, or between market players themselves) and that the future is difficult probabilisable, these asymmetries of information and this fundamental uncertainty promote actors mimicry. It is then, indeed, very difficult to know the fundamental value of the asset, and thereby to bet on it. In this case, the direction of the market is given by others, because it is the pure product of expression of the majority opinion that emerges then. Therefore rationally imitate the actors to try to anticipate and play market trends, totally self-referential. So, can develop strong and lasting bubbles. Thus, these bubbles burst, they suddenly, with the turning of the majority opinion, in a move even stronger than that which characterized the previous phase.
The second form, the credit crisis, meanwhile, comes from the fact that in a long period of growth, all (banks and borrowers) gradually forget the possibility of occurrence of crises and eventually anticipate an expansion without limit. In the euphoric phase, the level of leverage (debt to wealth or income for households or net assets for business) people increased unreasonably. The financial situation of economic agents is very vulnerable when the next downturn. Often during this phase, lenders dangerously low sensitivity to risk and accept the competitive game, margins that will not cover the cost of future credit risk.
Also, lorsqu’advient the next crisis, lenders (banks and markets) they suddenly reconsider the level of risk, and a symmetrical effect of precedent, they strongly reverse their practice of granting credit to cause a “credit crunch”, which will itself strengthen the economic crisis that has caused.
Third canonical form of crisis: the crisis of liquidity. At some dramatic sequences of financial crises, distrust is contagious, as in the financial and banking crisis that we know today. This distrust led some banks to a fatal stroke of their customers to withdraw deposits. It can also lead to a scarcity or even disappearance, of the intention of banks to lend to each other, by the fear of bank failures in the chain. But the liquidity of interbank funding market – without intervention of central banks as lenders of last resort – Product dreaded bankruptcy. In addition, other forms of liquidity may occur.
Some financial markets, yesterday liquids, may be illiquid suddenly, as the concept of market liquidity, as analyzed by Andre Orlean, is again highly self-referential. A market is liquid if all the players think it is such. If suspicion settles on its liquidity, as the ABS market recently for example, all players will find themselves out of this stock market, causing the same token, endogenously, its liquidity.
These three types of crises intertwine often and train each other in a situation that becomes very critical. The great crisis which emerged in 2007 is the combination of these three forms. A real estate bubble first, including the U.S., UK and Spain.
Then a credit crisis due to a dangerous increase in the rate of household debt in these countries, and a very high leverage investment banks, LBO firms and hedge funds in particular. A liquidity crisis, finally, product markets securitization and wholesale funding.
One of the greatest historians of finance is an American economist Charles Kindleberger, which lists the financial crises since the 17th century in “A history of finance”. He argues that the financial cycle is divided into five phases: development, enthusiasm and excitement, fear and disorder, consolidation, reorganization.