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2008’s global financial crisis

2008’s global financial crisis
In the current economic downturn caused by the coronavirus pandemic, the worry is that a more divided world will be unable to apply the same remedies. (AFP)
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Updated 20 May 2020

2008’s global financial crisis

2008’s global financial crisis

Lehman Brothers’ collapse led to the mother of all modern recessions — until now

Summary

On Sept. 15, 2008, the collapse of the Lehman Brothers investment bank sent shock waves around the world and turned problems in the US property market into a global financial crisis.

The crisis of 2008-09 brought unprecedented change — and fear — to the world economy. Government intervention, not least by China, averted catastrophe, but left a legacy of soaring debt. In the current economic downturn caused by the coronavirus pandemic, the worry is that a more divided world will be unable to apply the same remedies.

DUBAI: In his epic account of the 2008 global financial crisis, “Too Big to Fail,” Andrew Ross Sorkin wrote: “Never have I witnessed such fundamental and dramatic changes in business paradigms and the spectacular self-destruction of storied institutions.”

What superlatives will Sorkin use when it comes to tell the story of the current crisis, which threatens to eclipse the economic damage of just over a decade ago by a multiple factor?

The events of the global financial crisis (GFC) seemed at the time so utterly transformational that it was impossible to imagine anything similar happening twice in a lifetime.

At the beginning of 2007, the world appeared on an ever-improving path, with rising economic growth, stock markets and personal living standards. The financial industry, especially in real estate, was an eternal wealth-creating machine.

By the end of 2009, stock markets had collapsed, economies around the world were in steep recession, individuals — the ones who had not gone bankrupt or lost their homes — had taken such a hit to their standards of living that many just gave up. There was a sharp rise in reported suicides.

In the Middle East in 2007, oil prices — as ever the determining factor in regional economies — had been on the rise since the turn of the millennium, driven by the global economic boom.

Saudi Arabia was benefiting from that revenue and was thinking about diversifying its economy away from oil. Membership of the World Trade Organization a couple of years before had given the Kingdom a more extrovert perspective, perhaps with one eye on the glittering example of Dubai, a booming economic role model for the Arab world.

Fast forward two years, and the oil price had collapsed, losing $100 per barrel in value in the second half of 2008, diversification plans were on hold as policymakers made survival their priority, and Dubai was on the brink of an existential threat to its debt-fueled business model.

“It was the financial equivalent of 9/11,” one commentator said at the time.

'Asia tumbled first on the news yesterday, followed by the Middle East, Russia and then Europe before the shock wave hit the North and South American markets.’

From a story by Khalil Hanware on Arab News’ front page, Sept. 16, 2008

Like that attack a few years earlier, the GFC had its “ground zero” in New York. The “masters of the universe” on Wall Street had recovered from the blips of the Al-Qaeda attacks and the dot-com bust, and had piles of other people’s capital to put to invest.

The American dream — a home, a couple of cars, maybe even a boat somewhere — was within reach. All bought on credit. And Wall Street had come up with a revolutionary method of financing.

All that credit could be bundled into “collateralized debt obligation” (CDO) and sold as investable instruments that could be traded among the big firms, which were, of course, “too big to fail.”

But by the summer of 2007, what was termed the “subprime” mortgage market was in serious trouble. The loans bundled together in CDOs were worth only as much as the most toxic mortgage in the basket.

The first sign that this was anything more than a threat to the US property market came when Merrill Lynch, one of Wall Street’s “blue blood” banks, suffered a shocking $5.5 billion loss.

The stock market caught the contagion, with shares prices falling 50 percent over a few months. The “mom and pop” businesses of Main Street USA found their capital and pensions wiped out in a Wall Street bloodbath.

Key Dates


  • 1

    Merrill Lynch, one of Wall Street’s leading investment banks, records a big loss, evidence that the crisis in US real estate markets is infecting the entire financial system. The bank is eventually sold to Bank of America to save it from bankruptcy.


  • 2

    The Dow Jones Industrial Average index hits 7,000 points, representing a 50 percent loss over the previous four months. The crisis is in full swing on the world’s biggest stock market.


  • 3

    The collapse of Lehman Brothers, one of Wall Street’s ‘blue blood’ banks, sends shock waves around the world and turns the problems in the US property market into a global financial crisis. One observer calls it the ‘financial equivalent of 9/11.’


  • 4

    The World Bank warns that global economic activity will fall by almost 3 percent over the years, the first downturn since World War II. The financial crisis is affecting the global economy and threatening a second ‘Great Depression.’

    Timeline Image June 22, 2009


  • 5

    Dubai World, creator of the Palm Jumeirah and perhaps the best known of the government-owned conglomerates that made up ‘Dubai Inc,’ says that it will be unable to repay up to $63 billion of debts. Dubai eventually renegotiates its liabilities to international banks with $20 billion of financial help from Abu Dhabi.

    Timeline Image Nov. 25, 2009


  • 6

    Signifying an end to the global recession, crude oil rises above $130 a barrel, its highest point since the boom before the financial crisis. Oil trades consistently above $100 per barrel until the over-supply shock in summer of 2014.

    Timeline Image April 2, 2011

A financial nadir was reached when Lehman Brothers, a 150-year-old pillar of the US financial system, filed for bankruptcy. Despite the hundreds of billions of dollars US federal authorities had spent on propping up the system, it turns out nobody was too big to fail.

The global financial system was dangerously close to freezing up altogether, with credit increasingly difficult to obtain. Massive government intervention, not least at the emergency G20 meetings in 2008 and 2009, kept the wheels just about moving.

But the global economy was feeling the shock, and with it the Middle East, which had survived the credit crisis relatively well, thanks mainly to government austerity measures and big financial reserves. Vital oil prices rose quickly as the global economic situation improved on the back of an economic stimulus package by China.

The regional exception was Dubai. With minimal oil reserves, its exuberant growth had been fueled by debt and, by late 2009, it found it could not service many of those liabilities. Dubai World, one of the government companies at the forefront of extravagant projects such as the Palm Jumeirah, told creditors it was seeking a “standstill” on debt repayments while it renegotiated its loans.

The year-long negotiations were fraught, but in the end Dubai’s creditors stood by it, as did the oil-rich government of Abu Dhabi, which provided $20 billion as a life-saving act of fraternal support. “Standing still, but still standing” was how The Economist magazine described it.

Despite the hundreds of billions of dollars US federal authorities had spent on propping up the system, it turns out nobody was too big to fail.

Frank Kane

But in many ways, the Dubai experience encapsulates the global situation since the GFC, and explains why the current crisis could get even more serious. The emirate has restructured and extended its debts, even repaid some, while taking out others. Dubai’s aggregate level of indebtedness is still roughly the same as it was in 2010, according to the IMF.

The world has also continued its debt spree. Total global indebtedness is estimated at  $250 trillion, three times what it was in 2008. The IMF in its most recent forecast said that the economic effects of the pandemic crisis could be the worst since the 1930s Depression.




A page from the Arab News archive showing the news on Sept. 16, 2008.

Apart from the debt factor, the coronavirus crisis is different from the GFC in other ways, none of them encouraging. There is the immediate threat to life, of course, and the worry that China does not have the capacity to pull off another rescue act. There is also the fear that global institutions are not as capable now as they were in 2008 of adopting effective measures to avert catastrophe.

“The world economy is now collapsing,” ran a headline in the Financial Times recently. Sorkin will have to consult the superlatives dictionary for his next book.

  • Frank Kane has reported on every financial crisis since 1987 for some of the world’s leading newspaper titles.


’It’s all a lie’: hesitancy hampers vaccine drive in war-scarred Syrian area

’It’s all a lie’: hesitancy hampers vaccine drive in war-scarred Syrian area
Updated 4 min 46 sec ago

’It’s all a lie’: hesitancy hampers vaccine drive in war-scarred Syrian area

’It’s all a lie’: hesitancy hampers vaccine drive in war-scarred Syrian area
  • Consignment of 54,000 doses of AstraZeneca vaccine arrived in Idlib at April’s end, the first batch for opposition-held Syrian territory
  • The challenge in Idlib goes beyond doubts about vaccines as some question whether the virus itself is a threat

IDLIB: In northwest Syria, where health care is rudimentary and those displaced by war are packed into squalid camps, the arrival of vaccines to fight COVID-19 should have been cause for relief.
Instead, a UN-backed vaccination campaign has met with suspicion and mistrust by an exhausted population, who feel betrayed by their government and abandoned by the international community after a decade of conflict that ruined their lives.
“It’s all a lie, even if the dose is for free I wouldn’t take it,” said Jassem Al-Ali, who fled his home in the south of Idlib province and now lives in Teh camp, one of many in a region controlled by opponents of the Damascus government.
Youssef Ramadan, another camp resident who lived under bombardment for years, echoed the doubts. “Will we be like sheep who trust the herder until they are slaughtered?” he asked.
A consignment of 54,000 doses of the AstraZeneca vaccine arrived in Idlib at the end of April, the first batch for opposition-held Syrian territory, delivered through the global vaccine-sharing platform COVAX. Inoculations started on May 1.
“There is a large amount of hesitancy and what made it worse is everything in the media continuously about AstraZeneca and blood clots,” Yasser Naguib, a doctor who heads a local vaccine team working in opposition-held areas, told Reuters.
Similar concerns about the coronavirus vaccine have slowed the rollout in Europe and elsewhere amid worries about rare cases of blood clots associated with the AstraZeneca shot.
Most governments have said benefits far outweigh the risks, although some have restricted it to certain age groups. But the challenge in Idlib goes beyond doubts about vaccines. Some question whether the virus itself is a threat.
“If there really was coronavirus in Idlib you would hear about tens of thousands of people getting it,” said 25-year-old Somar Youssef, who fled his home in Idlib’s rural Maara region.
Naguib said it was challenging to convince people fasting during Ramadan to take a shot when they can’t take oral medication for any side effects, such as a fever. Eid Al-Fitr, marking the end of the Muslim month, starts this week.
“We are optimistic that after Eid it will be better,” he said, adding that a 55-strong team was working to raise awareness about virus risks and vaccine benefits.
At the same time as doses from COVAX landed in Idlib, 200,000 shots arrived in Damascus, part of the World Health Organization campaign to inoculate about 20 percent of Syria’s population, or 5 million people across the nation, this year.
Officials have not given any indication about take up in government-held areas, where Damascus also aims to use vaccines from Russia, the government’s military ally, and China.
In Idlib, Naguib said 6,070 people out of around 40,000 health care and humanitarian workers on a priority list had been vaccinated by May 9. But even some health care workers are wary.
A Reuters witness saw just seven out of 30 medical workers receiving vaccines on the first day of a campaign at one Idlib medical center. Initially, only three had volunteered.
“As a director of the kidney dialysis unit, I was the first one to get the vaccine and I wanted to encourage the rest, who were scared because of all the rumors about it,” said Taher Abdelbaki, a doctor at another clinic, the Ibn Sina medical center.
By the end of 2021, two more COVAX vaccine batches are expected to arrive in Idlib to inoculate about 850,000 people in a region of about 3.5 million people, a target that leaves the region’s vaccination teams with much work to do.
“We will not be their lab rats here in the north,” said Abdelsalam Youssef, a community leader in Teh camp.


Joshua set to fight Fury in Saudi Arabia in August, says promoter Eddie Hearn

The all-British fight between Anthony Joshua (L) and Tyson Fury for the undisputed world heavyweight title will take place in Saudi Arabia, according to promoter Eddie Hearn. (AFP/File Photos)
The all-British fight between Anthony Joshua (L) and Tyson Fury for the undisputed world heavyweight title will take place in Saudi Arabia, according to promoter Eddie Hearn. (AFP/File Photos)
Updated 3 min 11 sec ago

Joshua set to fight Fury in Saudi Arabia in August, says promoter Eddie Hearn

The all-British fight between Anthony Joshua (L) and Tyson Fury for the undisputed world heavyweight title will take place in Saudi Arabia, according to promoter Eddie Hearn. (AFP/File Photos)
  • Hearn, who represents Joshua, said the fight is likely to take place on Aug. 7 or Aug. 14

LONDON: The all-British fight between Anthony Joshua and Tyson Fury for the undisputed world heavyweight title will take place in Saudi Arabia, promoter Eddie Hearn said on Tuesday.

Hearn, who represents Joshua, said the fight is likely to take place on Aug. 7 or Aug. 14. He said Aug. 14 is his preferred date because the Olympic Games in Tokyo will have finished, making the Joshua-Fury fight a bigger “global spectacle.”

“It’s a very bad secret that the fight is happening in Saudi Arabia,” Hearn told British broadcaster Sky Sports. “To be honest with you, I don’t mind giving you that information.”

Fury’s US promoter, Bob Arum, has previously said Saudi Arabia would be the location of the fight.

Hearn has yet to respond to AP requests to confirm the details of the fight.

READ MORE

On a rainy night in Diriyah in 2019, Anthony Joshua regained his world heavyweight titles after a unanimous points decision from the judges over Andy Ruiz Jr in an epic night of boxing in Saudi Arabia. Read how it happened here.

It would be Joshua’s second fight in the kingdom. He reclaimed his WBA, IBF and WBO belts from Andy Ruiz there in December 2019.

Joshua’s only fight since saw him retain his titles by knocking out Kubrat Pulev in December.

Fury hasn’t fought since beating Deontay Wilder in February last year to capture the WBC title.

Fury and Joshua have called each other out over Twitter over the last 24 hours, both urging the other to finalize terms for the fight.

Hearn said the “deal is done” but there was frustration on both sides that the fight had not been officially announced.

“From our perspective and AJ’s perspective, we’re ready to go,” he said. “From Tyson Fury’s perspective, they’ve got a couple of lawyers across it from their point.

“We have to nail this,” Hearn added, “and I’m not going to stop until I nail it, and everyone has just got to move forward collectively. We’re ready to go from our side. We’re not far away from their side and it is inevitable.”


Greek islands to get accelerated vaccination program

Greek islands to get accelerated vaccination program
Updated 1 min 37 sec ago

Greek islands to get accelerated vaccination program

Greek islands to get accelerated vaccination program
  • Priority for age groups and medical vulnerability waived for permanent residents of nearly 100 islands
  • Islanders make up around 1.5 million of Greece’s population of 10.7 million

NAXOS, Greece: A vaccination program for Greek islands is being accelerated to cover all local residents by the end of June, the government announced Tuesday ahead of the launch of the tourism season.
Prime Minister Kyriakos Mitsotakis said a nationwide priority system for age groups and medical vulnerability was being waived for permanent residents of nearly 100 islands.
“This initiative is aimed at supporting local island communities and their economy and it also aspires to send a positive overall message for our tourism,” Mitsotakis said.
Greece is fighting to revive its key tourism sector that was battered by the pandemic in 2020 but its vaccination rates remain below the European Union average and the country has only recently stabilized a surge in cases.
Islanders make up around 1.5 million of Greece’s population of 10.7 million. Many holiday islands have a year-round population of under 10,000, while Crete has the largest with more than 600,000 residents, followed by Evia, Rhodes, Corfu, Lesbos, and Chios. The tourism season will officially start Friday.


Saudi Arabia includes fines in COVID-19 regulations

Saudi Arabia includes fines in COVID-19 regulations
Updated 30 min 19 sec ago

Saudi Arabia includes fines in COVID-19 regulations

Saudi Arabia includes fines in COVID-19 regulations

RIYADH: Saudi Arabia announced on Tuesday a series of fines to be enforced against individuals and businesses which do not comply with COVID-19 regulations and social distancing, state news agency SPA reported.
The fines vary between 10,000 riyals ($2,666) and 50,000 riyals for individuals while businesses will have to pay between 10,000 and 100,000 riyals.
Recidivist business owners will be prosecuted, SPA added.
($1 = 3.7502 riyals)


Lebanon must fix debts, end prosecutor action or face power cut, says Turkish firm

Lebanon must fix debts, end prosecutor action or face power cut, says Turkish firm
Updated 11 May 2021

Lebanon must fix debts, end prosecutor action or face power cut, says Turkish firm

Lebanon must fix debts, end prosecutor action or face power cut, says Turkish firm
  • Turkey’s Karadeniz supplies electricity to Lebanon from power barges

ISTANBUL: Turkey’s Karadeniz, which supplies electricity to Lebanon from power barges, told Beirut to halt action by the Lebanese prosecutor to seize its vessels and said it must draw up a plan to settle arrears to avoid a cut in supplies, a spokesperson said.
The spokesperson for Karpowership, a unit of Karadeniz that operates floating power plants, was speaking on Tuesday after Lebanon’s Finance Ministry cited a lawmaker saying the country had been threatened with a cut to its supplies.
A Lebanese prosecutor issued a decision last week to seize the barges and fine the firm after TV channel Al-Jadeed reported corruption allegations tied to the power contract. The firm denies the charges and says it has not been paid for 18 months.