Panic buying is as much a reality on stock exchanges as panic selling, especially when investors short sell stocks that have experienced unexpected supply squeezes and price jumps. Porsche’s 2008 takeover of VW’s stock is a case in point, causing distress to investors and backlash against the German regulators that allowed it to happen.
History of Financial Crises
October 19, 1987, will go down in infamy as Black Monday, the day Wall Street unexpectedly set new records for losses. In most cases of stock market collapse, definite causes can be easily identified, but in this instance, a consensus has not yet been reached. What triggered this crash, and what corrective measures were taken in response?
The model looks sound on the surface: offer mortgages to borrowers with poorer credit ratings at higher rates. But as the US subprime mortgage crisis of 2007-08 proved, the risks associated with this strategy may override the benefits. This mortgage crisis sparked a chain of events that shook the world and ended in a global meltdown.
One thing leads to another, as was true of the San Francisco earthquake of 1906, the Panic of 1907 and the creation of the U.S. Federal Reserve System in 1913. A series of bank runs threatened to hurl numerous firms into insolvency, but unified efforts in the fall of 1907 stemmed the tide, bringing stability and trust back to the sector.
Enron Corp., once a top American energy-trading company, became a case study in corporate-accounting chicanery and filed for bankruptcy in 2001. The corporation’s troubles started with the introduction of mark-to-market accounting practices, leading to inflated valuations that could be hidden from investors and regulators for only so long.
The 1990s decade is known for many achievements, but possibly the most tectonic was the advent of the internet and, along with it, numerous web-based tech companies. In a short space of time, the IPOs of these emerging companies soared on the NASDAQ Composite Index, only to crash equally spectacularly during the year 2000. What happened?
It’s hard to pick the biggest loser of the 1997 Asian financial crisis. Multiple Asian tiger economies were impacted, to such an extent that the IMF rolled out one record-breaking relief package after another. The multiple factors leading up to the crash were complex, but did the turmoil strengthen the region to withstand future crises?
Japan’s Lost Decade of the 1990s, which began with the burst of a big asset bubble, might have been avoided if banks and regulators had addressed concerning issues early on. Spurred on by a strong yen and low interest rates, Japanese consumers embarked on a spending spree in the mid-1980s that left banks holding a bag of bad debt by 1992.
The US savings and loan industry thrived over the 150 years following its inception in the 1830s, using depositors’ savings to fund homebuyers’ mortgages at lower costs than banks. The model unravelled in the ‘70s and ‘80s as high inflation and interest rates chipped away at S&Ls’ profitability, until some became bankrupt—even criminal.