In one of my interviews during the 2008–2009 meltdown, I was quoted as saying, “The new economy doesn’t require you to just try harder, work smarter, sell more, or work longer hours. It requires you to change the way you think and the way you work. Across your organization, all leaders must demonstrate rock-solid integrity, maintain personal credibility, and possess the ability to confront reality. In short, rethink your thinking—rework your work.”
Regarding the subject of the 2008–2009 financial and economic crisis, I must say that one “soft” reason for its occurrence comprised serious ethical failures. Issues of this kind can be controlled and overcome using good authentic leadership and quality directorial skills.
In my office library, there is an important book titled “The Financial Crisis Inquiry Report.” It discusses the final report of the National Commission on the Causes of the Financial and Economic Crises in the United States. Its aim was to "examine the domestic and global causes of the financial crisis of 2007–2010 in the United States.” The Commission was established as part of the Fraud Enforcement and Recovery Act (Public Law 111-21) that Congress passed and the President signed in May 2009. It is a definitive report on what caused America’s economic meltdown and who was responsible.
The financial and economic crisis has touched the lives of millions of Americans who have lost their jobs and homes, but many have little understanding of how it happened. Now readers can get the facts from this very accessible report.
The Financial Crisis Inquiry Commission (FCIC) is a panel of 10 commissioners with experience in business, regulations, economics, and housing whom Congress chose to explain what had happened and why it had happened. The Democratic leadership of Congress appointed six members of the Commission, with the Republican leadership appointing four of them. This panel had subpoena powers that enabled them to interview people and examine documents that no reporter had access to.
The FCIC has reviewed millions of pages of documents and interviewed more than 600 leaders, experts, and participants in the financial markets and government regulatory agencies, as well as individuals and businesses that the crisis affected. In the tradition of the 9/11 Commission Report, the Financial Crisis Inquiry Report is a comprehensive book for the lay reader, complete with a glossary, charts, easy-to-read diagrams, and a timeline that includes important events. These comprise:
The report makes the following conclusions:
Let’s journey back in time for a short while. On Tuesday October 29, 1929, Black Tuesday, the most devastating stock market crash in the history of the United States hit Wall Street. Investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost. The crisis extended until 1939, thus making it the longest-lasting economic downturn in the history of the Western industrialized world. In the aftermath of the downturn, production declined and unemployment rose, sending America and the rest of the industrialized world into the Great Depression. By 1932, stocks were worth only about 20% of their summer of 1929 value. Not only did the stock market fail, but, by 1933, nearly half of America’s banks had also failed and unemployment was approaching 15 million people or 30% of the workforce. The relief measures that the administration of President Franklin D. Roosevelt enacted helped lessen the worst effects of the Great Depression. However, the US economy would not fully turn around until the period after 1939, when World War II (19391945) revitalized the American industry!
An international financial institution (IFI) is established (or chartered) by more than one country; hence, it is subject to international law. Its owners or shareholders are generally national governments. The best-known IFIs were established after World War II to assist in the reconstruction of Europe and to provide mechanisms for international cooperation in managing the global financial system. They include the World Bank, the IMF, and the International Finance Corporation.
The International Monetary Fund (IMF) is an organization that was established in 1945 and is governed by and accountable to the 189 countries that make up its near-global membership.
The World Bank (WB) is an international financial institution that provides loans to developing countries for capital programs. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), which has 189 member countries, and the International Development Association (IDA), which has 173 members. The WB’s officially stated goal is the reduction of poverty. It has set two ambitious goals: to reduce extreme poverty to no more than 3% by 2030 and promote shared prosperity and greater equity in the developing world. Furthermore, according to its articles of agreement, a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment must guide all its decisions.
Although the IMF and the WB are different, the two organizations complement each other’s work. The IMF’s focus chiefly comprises macroeconomic and financial sector issues, while the World Bank is mainly concerned with longer-term development and poverty reduction.
The most important thing to note here is that, to be a member of the World Bank under the IBRD, it is mandatory for a country to be a member of the International Monetary Fund (IMF), and only members of the IBRD are allowed to join other institutions within the Bank (such as the IDA).
On May 17, 2016, I had the opportunity to meet Mr. Charles J. Cormier, Practice Manager of Energy, Middle East and North Africa Region. In the middle of our conversation, he mentioned RISE, which the World Bank developed. This really got my attention and I was most impressed by the initiative, so I decided to give it my full support.
So, what is RISE? In alignment with the Sustainable Energy for All (SE4ALL) initiative, the World Bank Group has developed “Readiness for Investment in Sustainable Energy” (RISE), which is a set of 27 indicators covering 111 countries and representing 96% of the world population. RISE was established to help compare national policy and regulatory frameworks for sustainable energy. It assesses countries’ policy and regulatory support for each of the three pillars of sustainable energy—access to modern energy, energy efficiency, and renewable energy.
The UAE banking industry is robust in terms of both capital and assets. We all remember the economic recession that hit the world in 2009 and its great impact on the world financial markets. Yet, banks in the UAE were strong enough to withstand that recession. Well, there are two types of banks in the UAE: commercial banks and representative banks. Their main products include personal loans, car loans, credit cards, corporate or business loans, corporate facilities, and fixed deposits.
The UAE Central Bank is entrusted with the task of organizing banks in the upgrading of their management and ensuring their financial soundness. It issues circulars and regulations from time to time to achieve this objective. The Central Bank also continuously studies various ways and means of making the UAE a noted regional financial center.
A representative office undertakes one or more of the following activities:
The representative offices should represent banks or any other financial institutions incorporated outside the country that hold valid licenses obtained from competent authorities. Such banks or financial institutions should also be subject to the direct supervision and examination of the said authorities in the country of origin and/ or the head office as per the laws of the country.
The G20 (also known as “G-20” or “Group of Twenty”), founded in 1999, is an international forum for the governments and central bank governors of the top 20 major economies. It was founded with the aim of studying, reviewing, and promoting the high-level discussion of policy issues for international financial stability. The foundation addresses issues that go beyond the responsibilities of any single organization. Its members include 19 individual countries—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United Statesalong with the European Union (EU). The European Commission and the European Central Bank represent the EU. Collectively, the G20 economies account for around 85% of the gross world product (GWP), 80% of world trade (or, excluding EU intra-trade, 75%), and two-thirds of the world population.
Since 2008, the G20 heads of government have had periodical summits. Moreover, the finance ministers and central bank governors have held separate meetings to organize the leaders’ summit and implement their decisions. This has led to the elevation of their stature. The summits were set up in response to both the financial crisis of 2007 and the growing recognition that key emerging countries were not being satisfactorily included in the global economic discussion. The first meeting of the G20 leaders on financial markets and the world economy was held in Washington, D.C., on November 14–15, 2008, at the National Building Museum.
By July 8–9, 2015, the Shanghai stock market had fallen by 30% over three weeks. To prevent further losses, around 1,400 companies filed for a trading halt. The Chinese stock markets continued to drop in value despite the government’s efforts to reduce the fall. After three stable weeks, the Shanghai index fell by 8.48% on August 24, marking the largest fall since 2007. It was a “Black Monday” for the Chinese stock market because the bulk of the aftershock occurred around July 27 and August 24, 2015.
On January 4 and 7, 2016, the Chinese stock market experienced a sharp sell-off of about 7% that had a quick effect on stocks globally. The stock market turbulence continued from January 4 to 15, the market fell by 18%, and the Dow Jones Industrial Average went down by 8.2%.
During the first 15 minutes of the first day of trade on the Chinese stock exchange, the stock market fell by 5% before leading regulators halted trading. It was reopened for another fifteen minutes and stocks fell until trading was again halted.
The collapse of the Russian rouble, which began in the second half of 2014, led to the financial crisis in Russia. A decline in confidence in the Russian economy caused investors to sell off their Russian assets, thus becoming a major reason for the collapse of the Russian rouble and sparking dread of an impending Russian financial crisis.
The lack of confidence in the Russian economy stemmed from at least two major factors. The first was the fall in the price of oil in 2014. Crude oil, a major export of Russia, experienced a decline in price of nearly 50% between the time of its yearly hike (that is, June 2014) and mid-December 2014. The Russian stock market in particular experienced large declines, with a 30% drop in the RTS Index from the beginning of December to December 16, 2014.
The second was the result of international economic sanctions imposed on Russia; the sanctions were designed to warn Russia against foreign policy actions that the West did not agree with. Instead, they became a crash