A financial crisis, in the briefest of terms, can be defined either as the increased outflow of cash over the inflow, or the reduction in the nominal value of financial assets. In other words, when financial planning and management go wrong and our markets collapse, we are left in a state of a financial crisis. In this article we have listed out the five worst financial crisis’s we have faced as of yet and they are as follows,
1: THE GREAT DEPRESSION: (1929-1939)
Many people believe the great depression was perhaps the worst economic disaster of the 20th century. It is said to have been triggered by the Wall Street crash where thousands of speculative investors traded over 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost and a large number of investors were wiped out. The Nation was left in a debt of almost 8 million, which was much more than what was in circulation back then. Referred to as the ‘Black Tuesday’, this incident along with many other poor policy decisions on behalf of the government, contributed to the Great Depression, the longest lasting economic turndown ever experienced.
2: THE ASIAN CRISIS (1997-1998) The Asian Financial Crisis was one that affected many Asian countries including South Korea, Thailand, Indonesia, Malaysia, Singapore and the Philippines. In the years that led up to this crisis, South East Asia was a hotspot for international investment, and due to increased Asset prices and GDP rates, the phenomenon was at one point called the “Asian Tiger”. However, such ready investment and lending led to lesser quality of the same and excess capacity quickly began to show in these countries. Thailand, Indonesia, and South Korea soon ran huge deficits and fixed interest rates resulted in borrowing quite a lot of money internally that left them vulnerable to the changes in foreign markets. Soon foreign investors turned away from Asia. Exports slowed and to keep the region attractive to investors Asia’s government increased interest rates and bought up excessive domestic money hence leaving their central banks running out of foreign reserves. Thailand’s government further decided to float the baht, thus unleashing what is now called the Asian Crisis. Regional currencies depreciated, economic sectors melted down, politics destabilized and people fell into poverty.
3: THE DOT COM BUBBLE (1999- 2000)The sudden increase of internet-based companies like Amazon and eBay is perhaps what lies at the root of the dot-com bubble which can be characterized by the rapid increase in equity markets fuelled by increased investment in such companies. Despite these .com companies not having viable business plans, many venture capitalists came forth to finance these start-ups assuming that once these .com companies caught people’s attention, the money would come back organically in the future. Lavish spending and publicity stunts resulted in these companies quickly burning through their VC money, positive it would come back soon. In 2000 however, NASDAQ began to trend downwards and lead to what is now known as the dot-com bust.
4: THE ARGENTINE ECONOMIC CRISIS (1999-2002)Around 13 years ago, Argentina defaulted on its debt for the second time, resulting in what is widely called ‘an economic crisis beyond compare’ The import-dependent country was running low on American dollars and also had a long history of inflation and loss of confidence in its own currency. In 1980, Mexico and Brazil, huge trade partners, suffered crisis’s that spread to Latin America. Brazil’s real was devalued and American dollars revalued, both huge blows to the Argentinian peso. The country soon entered a 3-year recession wherein the government still did not devalue the peso or unplug it from the dollar hence making matters worse. Investors soon ran on banks for dollars that they sent abroad for safety, which resulted in everyone’s accounts were more or less frozen by the government. The Recession soon deepened with citizens protesting, many businesses shutting down and many major cities left in a state of turmoil and violence.
5: GLOBAL FINANCIAL CRISIS (2007-2008)This is what sparked the great recession, the biggest, most severe crisis since the great depression that left financial markets all over the world in a state of absolute chaos. Said to have been triggered by the collapse of the US housing market, the crisis led to the collapse of the iconic Lehman Brothers, one of the biggest investment banks in the world. Many other large financial institutions were also left in huge losses and forced to shut down. Millions of people either lost their jobs or were forced to work without consistent pay. It took almost a decade for things to return to normal, and even now in many ways it has still not quite ended with the millions in losses and slowing global economy manifesting it selves in the European Sovereign debt crisis.
While it seems we have surpassed these entire crisis’s, according to Microsoft co-founder Bill Gates, it is apparently time we brace ourselves for another one in the near future, similar to one in 2008. He says, however, that despite the prediction of bumps ahead he is optimistic that innovation and capitalism will improve the situation for everyone at hand and today’s children will live a far better life than their parents.