Categories
Weekly Summaries

12th of September – 19th of September

Australia to get nuclear-powered submarines

Last week, the U.S. and Britain made a joint announcement that they would help Australia deploy nuclear-powered submarines. If this happens, Australia would be able to conduct routine patrols in the South China Sea, which would challenge China. Nonetheless, Australia “committed never to arm the submarines with nuclear weapons,” according to the New York Times. The deal is a major blow to France because of multiple reasons. As a result of the deal, Australia will not buy French-built submarines, which is bad news for French businesses. France sees the event as yet another example of the “widening rift” in U.S.-French relations and has announced that it will withdraw the French ambassadors to the U.S. and Australia in protest.

Other News

  • Iran will allow nuclear monitoring as agreed in a last-minute deal reached last week.
  • North Korea announced that it had launched “long-range cruise missiles” that hit targets 932 miles away, according to the New York Times. This is a major violation of multiple U.N. Security Council resolutions.
  • The company Colossal is hoping to repopulate Siberia with thousands of woolly mammoths, thousands of years after they went extinct.
  • In a huge step towards deciding the fate of Catalonia, Spain’s prime minister Pedro Sánchez and Catalonia’s leader Pere Aragonès met in Barcelona.
  • French forces killed Adnan Abu Walid al-Sahraoui, a leader of the Islamic State
Categories
Analysis Discussion

What caused the 2007/2008 Financial Crisis?

Note: this article is part of our collaboration with Filmynomics. To find out more about the consequences of the 2008 Financial Crisis and how it affected people worldwide, please read their article here: https://www.instagram.com/p/CToYddwgX_t/ 

Introduction

The Financial Crisis of 2007 and 2008 led to the Great Recession (2007-2009), the worst economic downturn since the Great Depression of the 1930s. Additionally, the financial crisis caused the failure of multiple major investment and commercial banks and nearly caused the collapse of the international financial system. It is safe to say that everybody was impacted by the Financial Crisis in one way or another. What could have caused such a devastating crisis?

Role of the Federal Reserve (Fed)

Between May 2000 and December 2001, the Fed decreased the federal funds 11 times—from 6.5% to 1.75%. This meant that consumer banks were now able to offer low-risk borrowers lower interest rates. Furthermore, the lower federal fund also meant that banks were encouraged to lend more to high-risk borrowers, albeit at higher interest rates. As bank loans became easier to acquire, the housing market began gaining attention. People used these loans to purchase more expensive homes, causing the prices of homes to skyrocket. This created a so-called “housing bubble.”

Commercial Banks Perpetuate the Crisis

The “housing bubble” problem was aggravated because changes were made to the bank laws in the 1980s, allowing banks to offer mortgages with “balloon payments”. Loans with balloon payments have the largest payment of the loan due towards the very end of the loan period. As the prices of houses continued to increase, people who could not pay off the loan were able to borrow more money against the value of their homes. If these people were still unable to pay off the loans, the bank could resell the house for more than it was originally worth. 

Banks often sought to make profits, therefore more banks adopted the practice of giving mortgages to high-risk customers with few assets. The banks would take advantage of these customers, as they knew that they would not be able to repay the loan. Such mortgages are known as subprime mortgages and are often viewed as the main cause of the crisis by economists.

Securitization by banks

As the number of subprime mortgages and other consumer debt began piling up, banks started to sell these mortgages in capital markets as bonds (securities) to other banks and investors. Purchasers of bonds that were primarily based on mortgage-backed bonds (mortgage-backed securities, MBSs) were entitled to receive shares of the payments made on the original loan. By selling MBSs, banks could increase their liquidity and reduce the number of risky loans they owned, while banks that were purchasing MBSs could “diversify their portfolios and earn money.” As the housing prices continued growing, MBSs became increasingly popular.

Merging of Banks

In 1999, the Depression-era Glass-Steagall Act was repealed. This act prevented banks and insurance companies from involving themselves in each other’s markets and merging. The repeal led to banks growing and becoming “too big to fail.” In 2004, these huge banks were stimulated to buy and sell even more MBSs because the Securities and Exchange Commission decreased the ratio of capital that banks were required to have, preventing insolvency. This became problematic because the value of the MBSs was reliant on the indefinite increase of housing prices. 

Overconfidence of the people involved

Overall, government officials, economists, and bank executives were convinced that financial crises were things of the past due to the long period of global economic stability and growth. They believed the business cycle of a period of economic growth followed by a recession had finally been overcome. This meant that almost everyone was oblivious to the clear signs of the imminent financial crisis.

Conclusion

In summary, the 2007-2008 financial crisis can be attributed to a variety of factors. Although economists are still debating on the exact breakdown of the factors, and to what extent they were responsible, many people believe subprime mortgages and the banks’ risky behavior as the main cause. Do you agree?

Sources

Duignan, Brian. Financial crisis of 2007-2008, accessed through https://www.britannica.com/event/financial-crisis-of-2007-2008 (05.09.2021)

Jickling, Mark. 2009. Causes of the Financial Crisis, accessed through https://ecommons.cornell.edu/bitstream/handle/1813/77536/R40173_20090129.pdf?sequence=1&isAllowed=y (03.09.2021)

Field, Anna. 2021. What caused the Great Recession? Understanding the key factors that led to one of the worst economic downturns in US history, accessed through https://www.businessinsider.com/what-caused-the-great-recession (03.09.2021)

Categories
Weekly Summaries

6th of September – 11th of September

Uncertainty in Nicaragua

The current President of Nicaragua, Daniel Ortega, is taking steps to ensure that he will win the elections in November again. The New York Times writes that there is no “credible challenger” and that Ortega is “turning Nicaragua into a police state.” Seven candidates have been jailed or put under house arrest since June alone and people from all backgrounds — from millionaire banker to a decorated general to a low-profile provincial activist — have been targeted.

Other News

  • The U.S. remembered the 9/11 attacks that happened 20 years ago.
  • Maria Kolesnikova, a Belarusian opposition figure, was sentenced to 11 years in prison during a trial in Minsk last week
  • In a ruling last week, Mexico’s Supreme Court decided that making abortion a crime was “unconstitutional”. Nonetheless, abortion is still not available to most of the Mexican female population.
  • El Salvador adopted Bitcoin as a legal tender, the first country to do so
  • The Taliban named an acting cabinet last week. However, the lack of women and some former leaders from the Taliban’s 1990s regime have raised alarm bells in other countries.
Categories
Weekly Summaries

30th of August – 5th of September

U.S. Forces Left Afghanistan

The last U.S. forces left Afghanistan last Monday. Their departure ended a 20-year long occupation. The war in Afghanistan cost the U.S. over $2 trillion and left more than 170,000 people dead. Shortly before midnight, the last 5 American cargo jets left the Kabul airport, leaving behind many Afghans, including former members of the security forces. The Taliban and fighters celebrated the U.S. departure and gunfire could be heard across Kabul. A day later, President Biden once again defended the withdrawal, claiming that it was a choice “between leaving or escalating” the situation.

Other News

  • The return of a Napoleonic general, Gen. Charles Etienne Gudin, was supposed to improve relations between France and Russia, two countries that have long had difficult diplomatic relations. However, when the ceremony took place, the Presidents were not to be seen. 
  • The leader of Guinea’s special forces led a coup, announcing on state television that the constitution and government had been dissolved. Whether he will be successful is still uncertain.
  • Less than a year after he started office, Prime Minister Yoshihide Suga of Japan said that he would not seek re-election
Categories
Weekly Summaries

23rd of August – 29th of August

Afghan refugees and an increasingly dramatic situation at the airport in Kabul

Thousands of people are still waiting at the airport in Kabul for a flight out of Afghanistan and the August 31st deadline to complete the Afghanistan operation is fast approaching. To make the situation even more urgent, Taliban leaders rejected President Biden’s suggestion to extend the deadline for the completion of the operation. Last Wednesday, President Biden then announced that the U.S. was “on track” for a military departure from Afghanistan on August 31st.

On Thursday, two suicide bombers outside of Kabul’s airport killed at least 13 U.S. troops and many Afghans, including children. The Islamic State has since claimed responsibility for the attack. President Biden vowed retaliation, saying “we will not forgive.”

This past week reports also surfaced which state that weeks before Kabul fell to the Taliban, tens of thousands of Afghans were already traveling across Iran, hoping to cross Turkey to reach Europe. However, President Erdogan of Turkey has claimed that Turkey will not be “able to shoulder the additional burden” as it has already taken in 5 million refugees. Last week alone, more than 1,400 Afghans who were in Turkey were rounded up and pushed back by the police in a single operation.

Other News

  • The IMF (International Monetary Fund) gave financial aid to poor countries worth US $650 billion to help them “pay down debt and withstand the costs of combating the coronavirus pandemic,” the New York Times reports
  • The highest point on Greenland’s ice sheet has never experienced rainfall that is until last week
  • To prevent Belarusian migrants from entering, Poland and Lithuania are planning to build fences along their shared borders with Belarus, according to the New York Times
Categories
Weekly Summaries

16th of August – 22nd of August

Chaos at the airport in Kabul

Thousands of Afghans continue to try to flee the country, with some clinging on to departing planes and crowds at the airport trampling people to death. Britain and Canada have since announced that they will both take 20,000 Afghans each who had fled the country. Meanwhile, President Biden defended the “hard and messy” retreat from Afghanistan, claiming that he had to either follow through on the deal with the Taliban he inherited from President Trump or fight the Taliban, according to the New York Times.

Earthquake in Haiti

Haiti was already trying to cope with the aftermath of the 2010 earthquake and the murder of President Jovenel Moïse in July. Now, another earthquake has hit, the death toll of which has now increased to more than 2,200 people. The government also estimates that around 10,000 more people have been injured. Heavy rains have made rescue missions difficult and the people are turning to local churches for support.

Elections in Zambia

Hakainde Hichilema, the leader of Zambia’s main opposition party — the United Party for National Development — won the presidential elections, receiving 59.38% of the votes. His main opponent, Edgar Lungu, who was the previous President, received only 38.33% of the votes. It is only the third time in Zambia’s history that an opposition leader won the election.

Other News

  • Amazon has taken over Walmart’s position and become the world’s largest online retailer operating outside of China, according to the New York Times
Categories
Weekly Summaries

9th of August – 15th of August

The Taliban take over Kabul

On Sunday, the Taliban took over Kabul, Afghanistan’s capital city. The U.S. has had a heavy military presence in Afghanistan for twenty years, which now came to an abrupt ending. The collapse of Kabul comes a lot faster than even many experts had expected, meaning that most Afghans now have no way of getting out. President Ashraf Ghani fled the country to Uzbekistan after the finance minister already fled last week. Since then a council of Afghan officials has opened negotiations with the Taliban to discuss the takeover, according to the New York Times. Troops from the U.S. and other Western countries, which had been stationed in Afghanistan, started withdrawing in May. Around that time the Taliban started their offensive to take over Afghanistan. What the future of Afghanistan and the people who live there will look like remains uncertain, but prospects point to the worst.

Other News

  • Michael Calvey, an American businessman, was sentenced to a suspended sentence “for embezzlement charges” for 5 and a half years, according to the New York Times
  • After facing accusations of sexually assaulting 11 women, New York’s Governor Andrew Cuomo has resigned
  • The cost of coffee beans is up by almost 44% in 2021 compared to 2020, according to the New York Times

Categories
Online Courses

2nd of August – 8th of August

The Case of the Belarusian sprinter Kristina Timanovskaya

The Belarusian sprinter Kristina Timanovskaya was first under the protection of the Japanese government after she criticized her coaches for registering her for the wrong event, according to the New York Times. Belarus tried to send her home but she was scared that she would be arrested upon her return. Timanovskaya has since stayed at the Polish embassy, hoping to seek political asylum in Poland, which has since been granted to her and her husband by Poland. Two Belarusian coaches who were apparently involved in the attempt to get her to leave Tokyo for Belarus have been expelled from the Olympic Village.

Wildfires in Turkey and Greece

Wildfires in Turkey have killed at least six people and forced tens of thousands from their homes. President Erdogan has also received criticism over his handling of what can be called Turkey’s worst wildfires in decades. Greece has also been badly affected by the wildfires, recording its hottest temperatures on record with thousands fleeing their homes. The wildfires have since also reached the island of Evia and ancient Olympia, the birthplace of the Olympic Games. The New York Times reported that local authorities and the army “dug firelines around the archaeological site” in an attempt to prevent the fires from destroying it. A thick pall of smoke also hung over Athens last Thursday, meaning that people were instructed to stay indoors until the smoke cleared. 

Other News

  • The Lazio region of Italy, which includes Rome, experienced a cyberattack and left it unable to offer vaccination appointments online
  • New York’s Governor Andrew Cuomo faces criticism and calls for him to resign after it became public that he sexually assaulted 11 women. Governor Cuomo, however, has denied these accusations.
  • “American forces stepped up a bombing campaign in Afghanistan,” according to the New York Times
  • Over 200 million cases of COVID-19 have now been recorded around the world, as of Thursday
  • Ebrahim Raisi, the new President of Iran, was inaugurated this past week
Categories
Updates

Anniversary (04.08.2020-now)

The EconIR WEB website was launched exactly a year ago today. It has been an incredible and humiliating journey, and so very rewarding to me personally to watch EconIR WEB slowly grow and expand to where we are now. I am looking forward to achieving many more milestones with the whole EconIR WEB Team and — of course — all of you, our supporters!


Here is a short summary of the some of the milestones EconIR WEB achieved this past year:

  • 6,000+ views on our website from people in over 65+ countries
  • 280+ followers on Instagram
  • 12+ team members
  • 50+ subscribers to our newsletter
  • 50+ posts on Instagram
  • 170+ posts/articles on our website

When asked, some of the highlights that are most memorable to our team members and followers were:

  • Our collaboration with Econfinity (more are coming soon…)
  • The quizzes we hosted on Instagram (International Relations quiz, Economics quiz, Theories quiz, and the Politics quiz)
  • Just growing as an organisation and getting to know the other team members better!

What do you think EconIR WEB should do next?

Let us know in the comments!

Categories
Weekly Summaries

26th of July – 1st of August

Chaos in Tunisia

The President of Tunisia, Kais Saeid, tried to seize power in what some call a coup. He announced that he would fire the prime minister and has already suspended Parliament. However, so far it seems that his success is very limited, although many Tunisians expressed their support. Tunisia has been a democracy since the Arab Spring revolutions.

Other News

  • A landslide in India killed 9 people, most of them tourists. Furthermore, monsoons on the western coast have also killed more than 164 people so far.
  • France has been witnessing many protests against the so-called “Covid Pass” policy
  • North Korea and South Korea have — after 14 months of silence — reopened diplomatic and military hotlines between the two countries
  • Flash floods in Afghanistan have killed at least 80 people, but the search for survivors still continues
  • President Biden announced that EU citizens will continue to be barred from entering the U.S., citing fears that the Delta variant would be spread, despite the fact that U.S. citizens are allowed to enter EU countries, as long as they are fully vaccinated
  • Forest fires in Turkey and wildfires in Greece have had devastating consequences for the people living in the surrounding areas

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