Инженер департамента общественных наук,
факультет гражданского строительства,
Чешский Технический университет, Прага
Синхронность кризисных эффектов на финансовых рынках. Модификация посредством торговли деривативами
Статья объясняет работу глобальных финансовых рынков в период неустойчивости. Дается краткое историческое понимание предмета и объясняется эффект торговли деривативами для ослабления риска.
Department of social studies, Faculty of the civil engineering, Czech Technical University in Prague
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Tel.: +420 224 354 451
Synchronicity of the crisis effects in the financial markets. Modification by means of the derivates dealing
This contribution explains the workings of global financial markets at times of instability. It presents a brief historical insight into the subject matter and it explains the effect of derivatives trading for the risk flexibility.
Credit crunch, derivatives, economic cycle, financial markets, economic crises, subprime crises
In terms of functioning of global financial markets beginning the half of 80?s of the last century there has come a storming development in transactions with interest, currency, stocks, commodities and credit derivatives. The sense of this kind of business consists in wide simplification of transferring the marketing risks mutually amongst the subjects.
Business activities in financial markets have their specific features, realized in terms of economic cycles and finding their historical reflection in a form of characteristics of rundown in crisis periods.
In general we understand as derivatives the contract between subjects of the financial market, by means of what one subject eliminates his risk and the other one looks in this risk for a business opportunity.
From the point of view of the market-regulations it is possible to divide the derivatives into two basic groups. The first one represents so called exchange traded derivatives, traded on stock-markets like futures. To the other groups we line up so called OTC (over the counter) derivatives. It concerns the instruments traded between big financial institutions (banks, insurance companies, funds). There is no obligation to register such trading; it means they are not subject of supervision of the respective authorities. Exchange traded derivatives in comparison to the OTC ones concentrate much higher degrees of surveillance of the regulation bodies in financial markets. From the point of view of the market sharing the OTC derivatives surpass the exchange traded derivatives several times. Because of the above mentioned reasons it is very difficult to evaluate and analyze the effects of derivatives to the behaviour of the financial markets objectively.
Under synchronicity of the crisis effects in the financial markets we understand timely (contemporarily being in progress) synchronized appearance of the negative effects in the money and capital markets, which result to weakening of the economic growth, to bankrupts of the economic subjects and high level of unemployment.
We can direct the historic analysis to the three fundamental crisis periods of the 20th century. The first one was the generally known economic crisis 1929 – 1930, when the American stock market dropped seriously with a large consequence of negative effects. The second period covers the years 1980 – 1980, what is called Loan and Savings crisis. During its course came to a dramatic fall of the US stock index. The third crisis time is possible to date back to 1997 – 2002, which was characteristic with a series of crisis effects, started by the stock markets crash in South-East Asia, continued in 1998 by so called Russian crisis and culminated by the dot.com bubble burst in 2002.
In case of the economic crisis 1929 – 1930 it is possible to register the synchronic progress of the credit and stock falls at the same time and with a comparable intensity. It is difficult to specify if the primary reason was the crisis in capital or in money market. The fall of stocks resulted in the bankruptcy of individual banks and this later to a wave of the stocks sales. So there was created a functional retro-action in the system of operation the money and stock markets. This was an example of synchronic behaviour of two different economic events.
In the year 1987 came to the second fundamental stock-market fall in 20th century. Within three days the American Dow-Jones index fell approximately 20% down. The fall resulted in huge number of failures among the stock-specialized businessmen and a line of banks has lapsed into liquidity troubles. At the same time so called Loan and Savings Institutions crisis passed over. It was caused by the economic impacts of the “cold war” and inflation behaviour of the American economy. In second half of eighty’s the American?s economy rate of inflation was reaching to double-digit values.
The reality of „cold war“ has found its economic stroke in high state-budget deficits in USA. The need of balancing the budget came to relieving the management regulations of Loan and Savings Institutions. They have invested to the risk assets and financed the operation in enterprises fusions and acquisitions. From that originated an investment bubble, what burst in 1987. The situation was rescued by the US state budget, what prevented further widening the crisis virus to the all-world-measures. The 1987 year crisis had qualitatively similar reasons and nearly identical progress like the crisis 1929-1930, with only exception of limited extent of influence and operation.
The beginning of the third crisis period is possible to date by year 1997. The troubles of South-East Asia in a form of withdrawal of short-term capital from the financial markets resulted in cascade-like falls of capital markets of individual countries of the region. In 1998 the crisis expanded to Russia, where the market of domestic obligations collapsed, with effects of high losses in international banking sector. In case of capital markets in developed countries the fall was shallow only and it was corrected soon. The troubles in capital markets showed themselves in 2001 – 2002 in bursting the dot-com bubble. This dramatic event was however followed by a slight credit passage only.
Beginning by the year 1998 it is possible to identify the division of the two effects – credit crunch and stock-bubble expositions – what appeared synchronically in the passed. The significant influence over division these crisis effects has the derivatives trading, facilitating the flexible transfer of the risk in frame of trading in financial markets (for example from the banks to pension funds or insurance companies etc.).
So called subprime crisis overgrew to a crisis of much bigger measurements during 2008, comparable to so-far biggest banking system crisis of 30?s in the 20th century. Global credit-crunch impacts the financial and capital markets from the East Coast of USA, through the South-East Asia up to the Middle East and West Europe.
Synchronically it comes to the „deleverage“ in several financial branches - in sectors of commerce and investment banks, hedge funds, insurance companies and pension funds. This progress contributes to panic sales of all kinds of assets (stocks, commodities, real properties and other credit instruments.) The sales result in decline of the summarized global investment property and expressively demonstrate the synchronicity of the crisis effects in economy. The active state interventions work upstream to the synchronized wave of the self-regulating markets and contemporarily they create the only braking mechanism qualified to stop the progress and to conserve the assets value.
The state interventions mean the action of the economic subject in full sense of this conception, where the state behaves like a market-conform subject using a complex scale of market instruments. Recently it shows itself very effective to strengthen the financial institutions? capital at the expenses of the state budget deficits. Despite to the significant growth of the state indebtedness during 20th century is still some space for this tactical manoeuvre remaining. However, it is possible to imagine a situation, when in the future the state debts compared to GDP will be the so high, that such a tactical move will not be practicable. The state acts on like a full-value market subject within the frame of objectively existing barriers and limitations.
In the main scope of the current procedures are again the derivatives, increase of what in a form of credit derivatives (credit default swap) is a particular reason of origination of the recent crisis. The transaction has not been realized at the stock market platforms, but exclusively in a form of OTC, it means based on the bilateral relations. The resulting effect was an enormous growth of trades up to the limit of system failure. The derivatives stopped to play the delimitation function towards the synchronicity of behaviour of the financial markets and their crisis effects. With a high level of probability their activity started to work in a reversed character. However, it would be a mistake to reject the derivatives and evaluate them like a market instrument not too much working. The second half of the 20th century unambiguously proved their positive role. For the future it will be necessary to take the respective measures directed to the effective market regulations – to make the place for derivatives trading in stock markets only and take strictly care about their financial reinsurance.
Cборник научных статей
«Социально-экономическое состояние России: пути выхода из кризиса»,
СПб.: Институт бизнеса и права, 2009