Current Economic and Financial Crisis

People Management and Organization Behavior People Management and Organization Behavior Dimensions of Management in the Current Dimensions of Management in the Current

Economic and Financial CrisisEconomic and Financial Crisis..

Synergy Group Presentation

Jagesh Patel Harmeet Kaur Parhar Elena Khoruzhaya Juliet Nabulya Mario Rebello Bousso Niane Vanita Mepani

The moral dimension of the credit crunch.

“A bank is a place that will lend you money if you can prove that you do not need it”.

Bob Hope, English born American comedian

The word “credit” derives from the Latin word “credere” meaning “to believe”.

The market system is based on trust. Therefore the credit crisis can be considered as the crisis of confidence!

Anatomy of crisis.

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Government measures to support financial sector (September/

October 2008)

Government measures to support domestic demand (November

2008 onwards)

Mortgage Crisis (2007)

Banking Crisis(Summer 2008)

Further waves of measures to support financial sectordue to unfavorable developments in real economy

(December 2008 onwards)

Second-roundimpacts on

bankingsector from

real economy

Real Economy Crisis (Autumn 2008)

Key features of the crisis.

It’s been worse than expected.

A financial event has become an economic problem.Financial markets were slow to react to bad news.

US housing slowdown started in 2006, sub prime meltdown didn’t start in earnest until Spring 2007.

Downside risks have emerging simultaneously.

Record oil prices, the lagged effect of past rate hikes, financial stress.

Financial Crisis Consists of:Banking Crisis

Bankruptcy- Inability to pay debts or run on the bank , Credit crunch.

Irresponsible bankers. Fraudulent home buyers and brokers. Underestimated “Pay off “ability.

Economic Crisis An Economic crisis can take form of a recession or an

depression . Economic crisis most likely experience a falling GDP a drying up of liquidity and rising/falling crisis due to inflation/deflation.

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Financial Crisis Consists of: (Cont.)Capital market bubbles/crashes

Market price of stocks are higher than present value of future cash flows.

Currency Crisis

Currency crisis occurs when the value of the currency changes quickly, undermining its ability to serve as medium of exchange or a Store of Value.

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Toxic Assets.

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Toxic Assets.As a result of giving many bad loans, it is clear that

some will end up in default.Toxic assets have uncertain value , and can create

potential loss.

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Kurt Lewin’s Model of management change In the credit crisis.

Lewin’s change management model, which consists of 3 aspects, has been very effective over the past years.

Unfreeze - present way things are done by telling people about the change and its benefits.

Change - the way things are done where people begin to resolve their uncertainty and look for new ways to do things. People start to believe and act in ways that support the new direction.

Refreeze - after the changes have been made, things are done in a new way.

What Will it Take For the Economyto Return to Strong Growth?Reduce the inventory of unsold houses.Open up the market for jumbo home loans.Housing prices must stabilize.Large financial institutions need to write down their assets

to realistic values.Increase the capital at large financial institutions (de-

leveraging of banks). Add liquidity to the mortgage markets (both residential

and commercial).

What Will it Take For the Economyto Return to Strong Growth? (cont.) Liberalization of interest rates. Reduction of controls on credit. Encouraging the development of secondary market

for government securities. Allowing free entry of private banks. Legal infrastructure must be made.

Bank secrecy laws should be improved. Financial supervision and bankruptcy. Deposit insurance scheme is needed.

Actions that business owners take during the crisis.

Know when your business is in crisis! A crisis is when sales in your business is not paying your expenses

and you are eating up your savings at a rate that will drive you into bankruptcy.

Step back and evaluate! Once money is spent that cannot be retrieved by selling your

products, services, or business, then the worth of he money invested is considered to be zero .

Cut the costs! Look at expenses and find every way to cut them.Decide weather to close down! Sometimes it is best to shut down and start something else that has

better possibilities.

What To Do In Economic Crisis?Do not panic!Look at the big, long- term picture!Remember the stock market is as much about

human emotions as it is about financial data! Now is a good time to stock up!Stay focused on the things that really matter in

life!

CONCLUSION. Financial crisis arises from disruptions on financial markets.

So that the financial system can no longer efficiently allocate funds.

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

Financial problems are often followed by emotional

stress and can lead to more complicated psychological effects. It affects behavior of individuals as well as organization behavior.

THANK YOU.

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