Lecture 29: Local-Global Geographies of the Great Recession

Stock Market Basics

stock/exchange market: where stocks/shares are sold and bought

• function: establish corporate shares

stocks issued by companies to raise capital

• contary to debt, capital collected via issuance of stocks does not have to be returned

until 1970s: mostly national and oligo/monopolistic stock exchanges (Fordism)

Post 1970s (Post-Fordism): globalization of financial system

• more companies offering shares in different markets, virtual trading floors, increased deregulation and competition

  • MNCs: more cross-listings on foreign exchanges to tap into new pools of capital and increase visibility

  • new financial instruments, new tech and virtual trading floors difficult for regulatory framework to keep up

  • **hyper mobility of capital flows!!

    • Toronto Stock Exchange went virtual in 1997, NYSE virtual off-island in New Jersey

• **virtual nature has made markets harder to regulate but more flexible

24 Hour clock

teams of people at brokerage firms work night shifts in Montreal to monitor trades in Asia for example — Time space compression!!!

Top Stock Exchanges by Market capitalization 2023

NYSE — Dow Jones trades blue chip old companies, NASDAQ — lots of tech companies — tripled since covid!!, Shanghai SE, Euronext

Dow Jones Growth

lots of growth in the 90s from the ‘.com bubble' rush — internet and fiber optic corps fueling the growth, small recession in 2001 — bubble burst, tepid growth from 2004-2006

bull market

mores shares bought

bear market

more shares sold

2007-2009 Financial Crisis and Great Recession

worst since great depression— took a few years to recover (vs. covid which caused a dip but had a quick recovery) — 2 consecutive quarters with economic decline

Trigger: US housing market collapse (also in UK and Europe): easy to get a loan but mortgage rates super high — teaser interest rates (predatory lending practices)

North America, most of Europe, South America, and South Africa all in recession — China still growing but growth rate cut in half

Other causes

• increased debt burden, diminished savings

• deregulation of banks → financial institutions increased risk taking

• growing world trade imbalances — huge US trade deficit commodity oil bubble ($50/barrel 2007, $150 2008)

Geographic Perspective

• Ron Martin agrued against Hyperglobalizers “flat world” — geography irrelevant because transport costs low

• global finance not flat!!

  • branch banking systems, mortgage finance systems, regulatory regimes and arrangements — more competition between US banks than Canadian banks

Glocalization

tension between local (e.g. housing/mortgage bubbles) and global (e.g. financial markets) forces — dialectical (opposite) movement of globalization

Flat World of finance vs. globalization → new relational and functional monetary spaces

1. local financial circuits delocalized (stretched)

2. global financial circuits localized (geographically compressed)

Housing Bubbles

multiple bubbles for house prices after 1970 but last bubble different because lending practices were different

• locally originate, locally hold model until 80s

• Locally originate, globally distribute (new model): back end operations changed → funds sourced globally

• mortgage backed securities: mutual fund of mortgages from multiple banks

  • people making returns off of peoples’ global mortgages — banks taking more risks!!

Local geographies of housing price bubbles

A. state level: lots of sunny states have the highest prices of houses

B. City-level: Miami, L.A., San Diego = highest

• led to foreclosures → home owners in negative equity

  • mortgages higher than the worth of their home after market corrections

Future

emergence of new ROA and MOSR

• US effective nationalization of failing financial institutions and shot gun marriages (Fannie Mae, AIG, Bear Stearns) — firms had to merge to save themselves

• US bailout (troubled asset relief plan) designed to take toxic loans off balance sheets — helped auto industry

• European Central Bank and Eurocrisis bailout packages

  • led to Brexit — UK questioned value of euro

**Recession was an indicator of a need for more regulation!! perhaps a rupture or industrial divide??