Global financial-crisis-1228410534714358-9-120221063824-phpapp02

December 1, 2008
Global Financial Crisis
Summary of the media’s coverage of the timeline, causes,
implications, impact and recommended path forward

| Copyright © 2008 Grail Research, LLC — ConfidentialNovember 19, 2008 2
Table of Contents
Objective and Methodology
• Timeline of Events
• Causes and Implications
• Future Outlook and Recommendations
Appendixes

Universe of Expert
Opinions and Articles
~100 articles and reports
from preferred sources
~50 Relevant Articles
for analysis
Synopsis
Step 1
Selected 12 publications (e.g., Economist, FT, Wall Street Journal), 8 think tanks
and select sources from other media such as radio
Scanned all sources for coverage of the current global financial crisis between mid
2007 and October 2008
Objective: Provide a rich, yet concise summary of the media coverage on the current global
financial crisis
Step 2
Read ~100 articles and shortlisted them according to the following criteria:
• Analytical insight
• Breadth of coverage
• Uniqueness of opinion
Step 3
Summarized shortlisted articles and incorporated them into the slides that follow
which cover:
• Timeline of events (2007/08)
• Causes and Implications of the Global Financial Crisis
• Global Impact
The synopsis was created using the following methodology:

Table of Contents
• Timeline of Events
• Causes and Implications
Appendixes

The current financial crisis is categorized as the worst since the Great Depression. Some of
the major events related to the crisis are mapped to the Dow Jones Industrial Average
0
12,000
15,000
9,000
DJIA Index Value, June 2007-October 2008
Source: News Releases
Timeline of Events – 2007/08
Nov’ 07 Dec’ 07 Feb’ 08 Mar’ 08 Jun’ 08 Sep’ 08 Oct’ 08Jun’ 07-Jul’07
Two hedge
funds of
Bear
Sterns
forced to
dump
assets,
due to
losses.
Bear
Stearns
funds file
for
bankruptcy
Aug’ 07
Lehman
Brothers
and HSBC
shut some
of their
offices
Sep’ 07
Federal
Reserve
reduces
the fed
fund rates
by half
percentage
point
Oct’ 07
Merrill
Lynch
reports
loss on
USD 8.4
Bn write
down
Morgan
Stanley
suffers
loss of
USD
3.7 Bn
Fed and
other
central
banks
share
~USD 40
Bn in
special
loans to
banks
US
financial
crisis
affects
UBS which
confirms
loss of
USD 18.4
Bn
JP Morgan
and Fed
Reserve
take steps
to rescue
Bear
Stearns
S&P cuts
ratings of
Morgan
Stanley,
Merrill
Lynch and
Lehman
Brothers
Jul’ 08
Merrill has
USD 5.7
Bn of write
downs;
sells
shares
Government
rescues
banks by
nationalizing
Fannie Mae,
Freddie Mac
and giving
AIG an
emergency
loan of USD
85 Bn
Lehman
Brothers
files for
bankruptcy
Russia,
Romania
and Ukraine
close their
stock
exchange
for few days
due to crisis
Iceland’s financial crisis
grows as all three of its
major banks are
nationalized
Governments of many
countries announce
bailouts for their
financial institutions
Housing
bubble
bursts
Financial institutions fall
Stock market collapses
Future
outlook
Henry Paulson
assures investors
that the sub-prime
problem is contained Paulson shares that the
US Treasury has no plans
to bailout Fannie Mae or
Freddie Mac
Paulson rejected the
possibility of the
housing crisis leading to
a broader economic
crisis
Bernanke and
Paulson urge fast
action to approve the
USD 700 Bn bailout
Nouriel Roubini
states that
governments will
have to come up
with even bigger
international rescues
Bank of
America
buys
Merrill
Lynch for
USD 50
Bn; Bank
of China
buys 20%
stake in
Rothschild

Causes: US Housing Market Collapse
Many experts believe that the global crisis was triggered by the US housing market collapse
Note: 1Collateralized Debt Obligations
Source: ‘The Giant Pool of Money’, NPR News and This American Life Episode, Sep 09, 2008; ‘Crazy crisis may herald the end of new derivative folly’, FT, Dec 23, 2007; ‘Rethinking Capital
Regulation’, WSJ, Aug 23, 2008; ‘Central banks and financial crises’, WSJ, Aug 23, 2008; ‘Spooking investors - Financial markets remain on edge because the credit crunch has not been solved’,
Economist, Oct 25, 2008; ‘Out of the frying pan’, Economist, Jun 05, 2008
Easy access to credit: Falling interest rates and rising availability
of mortgages, combined with rising housing prices encouraged
consumers to buy homes
Relaxed lending standards: To cater to the growing number of
mortgage seekers, lenders relaxed standards and issued a large
number of sub-prime loans
Inadequate regulations: Regulations did not keep pace with
innovations in US financial products, leading to much higher
complexity, poor transparency and greater risk
Complex credit derivatives: The invention and use of complex
debt derivatives such as CDOs1 made it difficult to identify and
contain the sub-prime lending problem, once default rates began to
rise
Market collapse: The property boom led an over-supply of housing and prices could no longer be supported.
Just like the self-perpetuating behavior that led to the rise, the crash was also self-perpetuating. As prices fell,
more foreclosures started taking place, increasing the supply of homes on the market. Lenders started to
tighten their standards and fewer consumers could qualify for mortgages and help reduce the supply
US Housing Market Collapse

Causes: US Housing Market Collapse
… some experts have other opinions
New Bank Capital Requirements: Some experts believe that an international
regulation (Basel I) that came into effect in 1988 contributed to the financial crisis.
This regulation mandates that banks hold more capital if they make riskier loans or
investments. This encouraged banks to get rid of risky loans by turning them into
securities to be sold to investors
Role of the Credit Rating Agencies: Many experts blame ratings agencies such
as Moody’s, Standard & Poor’s and Fitch for the crisis because they granted AAA
ratings to risky mortgage backed securities (MBS). Profits of ratings agencies grew
rapidly over the last decade. Almost all agencies follow an ‘issuer-pays’ revenue
model1, and this poses a potential conflict of interest, which some experts contend
led to inappropriately high ratings for risky MBS.
Riskier Investment Decisions by Banks: Some experts blame poor decision-making on the part of banks for the crisis. Banks kept
huge amounts of MBS on their balance sheets in spite of the sub-prime risk involved. They financed these and other risky assets with
short-term market borrowing and with a decline in the housing market, banks found it difficult to roll over short-term loans against these
MBS and hence were forced to sell the assets at a substantial loss
Mark-to-Market Accounting Rules: Financial regulation such as mark-to-market accounting stipulates that financial firms must treat
potential losses as cash losses. Even though many financial instruments may still yield returns in the future, their current asset price is
highly devalued. This concept makes firms ripe for forced liquidation, chases away capital, and leads to further decline in asset values
Misleading Economic Statistics: Some statisticians believe that government statistics (e.g. GDP and unemployment rate) have been
revised over the years to show the best possible picture of the US economy. These experts hold that such revisions in economic
statistics are misleading and were used by Wall Street to sell their over-valued products
Note: 1The entity that issues the security is also seeking the rating, and pays the rating agency for the rating
Source: ‘New Bank Capital Requirement Helped to Spread Credit Woes’, WSJ, Aug 30, 2008; ‘How to Start the Healing Now’, WSJ, Oct 01, 2008; ‘Rethinking Capital Regulation’, WSJ, Aug 23,
2008; ‘Economy lacked a trusted national leader’, Washington Post, Oct 15, 2008; ‘Wall Street: the dark theory’, Fortune, Sep 19, 2008; ‘Triple-A Failure’, New York Times, Apr 27, 2008
Alternative Viewpoints

Impact: Global Economic Slowdown
Source: ‘The Giant Pool of Money’, NPR News and This American Life Episode, Sep 09, 2008; ‘Off a cliff’, Economist, Oct 10, 2008; ‘Market meltdown: Global problem, global cure’, Fortune, Oct
06, 2008; ‘Europe to U.S.: You messed up the rescue, too’, Fortune, Oct 13, 2008; ‘The end of the beginning’, Economist, Oct 16, 2008; ‘When fortune frowned’, Economist, Oct 09, 2008; ‘But will
it work’, Economist, Oct 16, 2008; ‘Yahoo expected to point to advert drop-off’, Financial Times, Oct 20, 2008; ‘India’s Jet Airways cuts 1,900 jobs’, Oct 16, 2008; ‘U.S. layoffs increase as
businesses confront crisis’, IHT, Oct 26, 2008
World stock markets have taken a beating,
leading to a loss in confidence amongst investors
who are stepping back in spite of several cuts in
lending rates by the banks
• E.g. DJIA fell below 10,000 mark (first time in
four years) plunging more than 800 points in
a single day in October. The fall was mirrored
in stock markets, such as NASDAQ, NYSE,
Nikkei 225, London’s FTSE, Germany’s DAX,
etc
Impact on Stock Markets Globally
Both institutional investors and individual
investors have suffered huge losses both in MBS
and related products, and in equities
• Banks alone are reported to have suffered
USD 600 Bn of credit-related losses globally.
According to IMF estimates, American and
European banks are predicted to loose USD
10 trillion of assets
Losses to Investors
Failure of banks fueled anxiety in international
banking markets leading to a freeze in inter-bank
lending
Freeze in Inter Bank Credit
There have been job cuts in many companies
across various sectors around the globe. This
trend has not been limited to the financial sector
alone
• High number of layoffs were announced in
the US through September 2008: 111,000 in
financial sector, 95,000 in automotive sector,
62,000 in transportation, 51,000 in retail,
28,000 in telecommunications and more in
other sectors
There is considerable decline in business all over
world marked by reduced output and consumer
spending, particularly in Britain, France,
Germany and Japan. The industries being
impacted include automotive, airline, building
materials etc. Automotive companies such as
GM, Ford and Toyota reported 45%, 30% and
23% decline in sales respectively, in October
2008
Several bailout packages have been announced
by governments around the world to fight the
growing financial crisis
• The US has announced a USD 700 Bn
bailout package for its banking sector,
Germany announced a bailout package of
more than USD 200 Bn and Britain more than
USD 500 Bn for this financial crisis (see
appendix for more detail on global bailout
announcements)
Increasing Unemployment Decline in Businesses Globally Bailouts

Future Outlook
By Experts Most Common Future Outlook Scenarios
Consolidation and Restructuring
of Banks – Changes are already
evident with deals that are taking
place:
• Bank of America taking over
Merrill Lynch
• Bank of China acquiring 20%
stake in private banks such as
Rothschild
• Barclays acquiring Lehman
Brothers
• BNP Paribas expected to take a
majority stake in the Belgian and
Luxembourg operations of Fortis
NV
Emerging Economies to Help Out
Developed Nations – Cash rich
economies of world (developing nations
and their Sovereign Wealth Funds) are
expected to bailout the developed
nations from the current crisis. As stock
prices of the big banks from developed
nations fall, they are expected to attract
investors from developing nations.
Some experts believe that China will
act as the savior of developed
economies facing the risk of recession
by buying their banks
Worsening financial crisis due to
the unraveling of Alt-A mortgages
– This is the segment of mortgage
loans given to prime borrowers but
without complete documentation.
From 2002 to 2007, Alt-A mortgages
as a percentage of total mortgages
have risen from 2% to ~13%, and
experts say that the defaults on this
category of mortgages will impact
the financial market even more than
sub-prime lending
Source: ‘How to build a better bailout’, Fortune, Oct 06, 2008; ‘Why it's stimulus time again’, Fortune, Oct 14, 2008; ‘Financial sector in crisis’, FT, Sep 10, 2008; ‘A Return to 'Normality'?’, WSJ,
Sep 03, 2008; ‘Global breakdown: Winners and losers’, Fortune, Sep 30, 2008; ‘Market meltdown: Global problem, global cure’, Fortune, Oct 06, 2008; ‘A monetary malaise’, Economist, Oct 09,
2008; ‘Barclays: Wall Street's new gambler’, Fortune Oct 21, 2008
Opinions about what happens next gravitate
toward several scenarios

Source: ‘The $700 Billion Question: How Much Is That Exotic Security?’, Knowledge@Wharton, Oct 01, 2008; ‘How to build a better bailout’, Fortune, Oct 06, 2008; ‘Why it's stimulus time again’,
Fortune, Oct 14, 2008; ‘Financial sector in crisis’, FT, Sep 10, 2008; ‘A Return to 'Normality'?’, WSJ, Sep 03, 2008; ‘Europe to U.S.: You messed up the rescue, too’, Fortune, Oct 13, 2008;
‘Keeping U.S. Financial Markets Competitive And Orderly’, Forbes, Mar 31, 2008
Recommendations
Opinion leaders and governments have made various recommendations for how to manage
the current global financial crisis and stabilize the economy …
Paulson’s suggestions for the US financial market include:
• Fed should be the highest authority regulating all financial institutions and a new
authority should look after consumer protection issues
• The Securities and Exchange Commission should be merged with the
Commodity Futures Trading Commission. Thus by tightening the regulatory
gaps, banks will follow the Basel II guidelines (which it claims could have
mitigated the credit crisis, if followed earlier)
• Large investors, such as insurance companies, should be brought under the
federal regulations, by allowing them to opt for federal chartering and oversight
(instead of state chartering)
European governments reportedly believe that rather than
buying toxic assets, the government should focus to
recapitalize the banks directly in exchange for some control
of operations of the banks
By Henry Paulson, Treasury Secretary of US By European Governments
Some experts have suggested alternative bail-out plans, such as:
• Government Loans: Funds allocated for bailout can be used to provide loans (with mortgage securities as collateral) rather than
buying the securities outright. This avoids the complexity of pricing the securities and enables interest from the loans to be returned
to taxpayers or used for their benefit
• Reverse Auction: The government (one buyer) can invite lowest bids from many sellers for different categories of securities
• Issue T-Bonds Now: The US Treasury should borrow money to pay for the bailout now by issuing 5-year and 10-year notes, since
interest rates and the cost of funding the bailout will rise as the economy begins to recover
Some experts have also indicated that the real solution is to stabilize employment and hence cash flow. They believe that though
the government is infusing liquidity into the market, households can still default on various debt instruments and hence the problem
will still remain unsolved
By Opinion Leaders

Table of Contents
Appendixes
• A: Global Bailout Announcements
• B: Relevant Opinion Articles

Appendix A: Global Bailout Announcements as of Dec 1, 2008
Starting with the US financial sector, the crisis soon spread across the globe and into other markets
beyond just financial services
In response to the crisis, governments around the world have infused capital to bail out and stabilize
many private banks such as Fortis Bank, Royal Bank of Scotland, etc, and companies in other sectors
Note: All figures are in USD; Bailout announcements updated on Dec 1, 2008; Figures only include capital allocated for institutions in the form of equity or
debt; 1Loans provided by Institutions such as IMF and World Bank or other countries.
US
725 Bn
544.8 Bn
UK
437.5 Bn
98.1 Bn
France
54.1 Bn
18.1 Bn
Austria
20.3 Bn
3.5 Bn
Chile
0.85 Bn
UAE
32.6 Bn
Russia
216.4 Bn
23.5 Bn
Iceland
2 Bn1
0.7 Bn
Ukraine
16.5 Bn1
1.3 Bn
Spain
41 Bn
Hungary
31.9 Bn1
Qatar
5.3 Bn
Germany
136.6 Bn
92.2 Bn
Canada
21.6 Bn
South
Korea
42.2 Bn
Belgium
22.1 Bn
Netherlands
92.6 Bn
Denmark
0.9 Bn
Norway
0.8 BnLatvia
0.4 Bn
Luxembourg
4.2 Bn
India
0.7 Bn
Switzerland
59.3 Bn
Belarus
2 Bn1
0Bn – 100Bn 101Bn – 250Bn 251Bn – 400Bn Above 400Bn
Total Bailout
Legend
Company
Bailouts
Government
Bailout Funds
ASEAN, Japan, China
and South Korea
80 Bn
The total value of global bailout announcements to date is USD 1.89 trillion
China
8 Bn
0.4 Bn
Pakistan
7.6 Bn1
Oman
2 Bn
Kazakhstan
5 Bn
International Financial
Corporation
(For banks of poor
countries)
3 BnSerbia
0.5 Bn1

Appendix B: Relevant Opinion Articles and Radio Shows
Date Title Source Links
17-Oct-07 Think the credit crunch is over? Think again Fortune http://money.cnn.com/2007/10/17/news/economy/eavis_creditcrunch.fortune/index.htm
10-Jan-08
Same as it ever was - What do earlier banking crises reveal about
America's travails today?
Economist http://www.economist.com/finance/displaystory.cfm?story_id=10496807
31-Mar-08 How to crack the credit crunch Fortune http://money.cnn.com/2008/03/27/news/fed-information.fortune/index.htm?postversion=2008032911
22-May-08
Predicting The U.S. Recovery: Some Leading Indicators Are Better
Than Others
TD Bank Financial Group http://www.td.com/economics/special/bc0508_usecon.pdf
23-Jun-08 The U.S. Credit Crisis In Perspective Forbes http://www.forbes.com/2008/06/23/credit-crisis-japan-ent-fin-cs_kw_0623whartoncreditcrisis.html
23-Aug-08 Central banks and financial crises Wall Street Journal http://online.wsj.com/public/resources/documents/Fed-Buiter081608.pdf?mod=relevancy
23-Aug-08 Rethinking Capital Regulation Wall Street Journal http://online.wsj.com/public/resources/documents/Fed-JacksonHole.pdf?mod=relevancy
5-Sep-08 Giant Pool of Money
This American Life (and
NPR News)
http://www.thislife.org/extras/radio/355_transcript.pdf
10-Sep-08 Financial sector in crisis Financial Times http://www.ft.com/cms/s/0/ffa3bbd4-7f18-11dd-a3da-000077b07658.html
17-Sep-08 Wharton Faculty Debate the Impact of the Financial Crisis Knowledge@Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=2053
19-Sep-08 Wall Street: The dark theory Fortune http://money.cnn.com/2008/09/19/news/economy/siklos_shadowstats.fortune/
23-Sep-08 "Constructing a Financial Perfect Storm" by Jagadeesh Gokhale Cato Institute http://www.cato.org/dailypodcast/podcast-archive.php?podcast_id=745
30-Sep-08 Global breakdown: Winners and losers Fortune http://money.cnn.com/2008/09/29/news/economy/gumbel_world_economy.fortune/index.htm
01-Oct-08 The $700 Billion Question: How Much Is That Exotic Security? Knowledge@Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=2064
01-Oct-08 How to Start the Healing Now Wall Street Journal http://online.wsj.com/article/SB122282734447293049.html
02-Oct-08 Blocked pipes - When banks find it hard to borrow, so do the rest of us Economist http://www.economist.com/displaystory.cfm?story_id=12342237
06-Oct-08 How to build a better bailout Fortune http://money.cnn.com/2008/10/06/news/economy/betterbailout_sloan.fortune/
9-Oct-08 A monetary malaise Economist http://www.economist.com/specialreports/displaystory.cfm?story_id=12373682
10-Oct-08 Off a cliff Economist http://www.economist.com/finance/displaystory.cfm?story_id=12405370
13-Oct-08 Europe to U.S.: You messed up the rescue, too Fortune http://money.cnn.com/2008/10/13/news/international/gumbel_eurobank.fortune/index.htm
16-Oct-08 The end of the beginning? Economist http://www.economist.com/world/europe/displaystory.cfm?story_id=12436221
15-Oct-08 Analysis: Economy lacked a trusted national leader Washington Post http://www.washingtonpost.com/ac2/wp-dyn/emailafriend?contentId=AR2008101500432&sent=no
13-Oct-08 We can beat this crisis Fortune
http://money.cnn.com/2008/10/10/news/economy/fox_great_depression.fortune/index.htm?postversi
on=2008101307
25-Oct-08
Spooking investors - Financial markets remain on edge because
the credit crunch has not been solved
Economist
http://www.economist.com/finance/displaystory.cfm?story_id=10024679

Appendix C: Key Sources
Think Tanks
Journals/
Publications
Radio Stations

For More Information Contact:
Grail Research
(info@grailresearch.com)
Copyright © 2008 by Grail Research, LLC
No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means —
electronic, mechanical, photocopying, recording, or otherwise —
without the permission of Grail Research, LLC
This document provides an outline of a presentation and is
incomplete without the accompanying oral commentary and
discussion.
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