The 2000s (The Decade That Defined Gen Y): Part 4 - Business
The DotCom Bubble and Crash (2000-2001)
The first 10 years of the 21st century ironically began (and ended) in financial turmoil (albeit for very different reasons as we'd further see) when the world's stock markets (predominantly driven by NASDAQ) witnessed the burst of internet stocks between 2000 and 2001.
The internet had already gathered and expanded at a massive pace during the 1990's thanks to the ever growing popularity of websites, scripts, faster internet speeds at home and of course the rise of online shopping and this meant many daring entrepreneurs were taking stakes within the then niche space to setup businesses with the hope they'll score a quick buck.
However, as speculative as financial markets always are regardless of what causes it, many funds and 'mum and dad' investors began investing in NASDAQ listed companies predominantly not due to what they were offering in terms of services, but simply because they had an online presence and the fact they were publicly listed.
This led to the massive overpricing of internet-related and other tech stocks until the year 2000, when investors realized the stocks were worth a lot less than their inflated prices and so was the company, causing many of them to panic and go into sell-off mode. Known as the DotCom Bubble burst, this was the most significant stock market crash since the Asian Financial Crisis in 1997 and gave rise to the notion that despite coming out of the Y2K bug virtually unscathed, the internet was far from a pot of gold when it came to investing.
The DotCom Bubble Documentary
The Rise of the BRICS Economies
The 2000's also witnessed the surging economic power of the BRICS, the collective acronym for Brazil, Russia, India, China and South Africa as against the traditional power houses of the OECD i.e. North America, Europe, Japan and Australia and New Zealand.
Thanks to rapid changes in economic policies at the dawn of their economic policies and the opening of their markets to foreign Direct Investments, companies in the West, driven by profit and the massive consumer and an equally cheap labour base, immediately capitalized on new demand for their product from a rising upper Middle Class in these countries especially the billion people consumer strongholds of India and China, given that demand out of their own countries was stagnating.
Thanks to the cheap mining labor in South Africa, oil rich Russia, a populous English-speaking white-collar skill set in India, resource rich Brazil and manufacturing-labor rich China, these 5 countries essentially drive the foreign direct investments of major countries from developed economies and thanks to increased trading transparencies due to the World Trade Organization, the BRICS also have an increased influence in consumer demand and prices.
Today, India and China have become two of the fastest growing and largest economies of the world, with China even overtaking Japan to be the largest Asian economy and only behind the USA in global rankings.
The European Union and Euro
While the European Common Market has been in existence for decades, the suggestion of a common currency wasn't really put forward until 1995, when the major European economies decided that to counter American dominance in world capital markets and to streamline the flow of labor (in essence to create labor income creation) and goods and services, they needed to establish a common currency.
The term 'Euro' was first coined in 1995 however it was never setup as an accounting currency in 1999. As the 2000s dawned and in wake of the DotCom crash the year before, Euro coins and notes were finally setup for circulation across the signatory and member states of the European Union (which had already established the 'Schengen' or transparent borders across member states a few years earlier) and soon became a dominant benchmark currency along with the USD, British Pound and Yen.
While the Euro has experienced steady devaluations in the wake of the 2008 Financial Crash and the European Financial crisis during this decade, it has nevertheless cemented its position as a global basket currency for global markets and is important in both determining trade and commodity prices and setting values of 'Drawing Rights' at the International Monetary Fund.
The power and influence of the European Union, headed by countries like France and Germany (the latter being the biggest economy in the region) has also increased four-fold with the economic 'super-continent' playing an active role in intervening when they believe companies are engaging in anti-competitive behavior. The most example of the EU intervening in anti-competitive conduct would without a doubt be its ongoing litigation against Microsoft (first in 2003 when it was ordered to release Windows without the Windows Media Player) and then in 2008 and 2009 when Microsoft was ordered to release the Windows Operating System without the Internet Explorer browser - the rationale behind it being it would level the playing field more among web browsers and mp3 players.
The EU has also been instrumental in balancing the competitive environment among mobile phone operators and have been pushing for the abolishing of roaming charges when travelling across the continent, showing that the EU's far more than just a political establishment headquartered in Brussels.
The Millennium Credit Boom and subsequent Crash of 2008
The 2000's witnessed a boom in economies the world had never witnessed before and then as a result also witnessed the biggest financial crash and depression the world had seen since 1929's Great Depression - thanks to the massive credit-boom during the first years of the 21st century.
In essence, banks had begun taking excessive risks during the 2000's in that they were engaging in extremely risky lending of securities and other financial products to other institutions and individuals without conducting due-diligence to establish whether they were able to repay them back or not.
Thanks to the belief that demand from emerging markets would be never ending and this in turn will help keep their bottom lines in tact, almost everything revolved around credit and driven by old-fashioned greed and lack of any regulation on markets, many investment banks essentially began packaging almost any product they offered (both within the retail and commercial space) into trade-able securities and credit-derivatives with a view to essentially transfer the risk of holding the risk associated with a default.
The scheme initially worked until the time banks began lending within the sub-prime mortgage sector where home loans were approved for customers despite their credit-worthiness being questionable or them simply not having the income to repay these home loans. In the meantime, these mortgages were packaged as units or 'sub-tranches' were sold off as Collateralized Debt Obligations (or simply credit-derivatives to be traded across the open markets), with their buyers being largely unaware that these instruments were essentially worthless due to the underlying sup-prime security which would have almost certainly defaulted.
It all came to a head in September 15 2008 (in the form of the sub-prime mortgage crises), when one of the world's biggest investment banks, Lehman Brothers, declared it was bankrupt with losses exceeding $1 billion USD! The domino-effect that Lehman's collapse had was staggering - not only did major corporations including AIG and other banks including Bank of America needed emergency government funding to essentially save the American (and as such the global financial system), entire countries with banks having heavy exposure to toxic securities and investments began declaring themselves insolvent.
The crisis didn't just end at banks, entire countries had to go bust and seek external help - the first massive warning sign being that Iceland's two major banks went insolvent and needed emergency funding, only to be rescued by Russia at the 11th hour.
Back in America, George Bush Jr. pushed for emergency tax-payer funding to save Bank of America and AIG to rescue the financial system from complete anarchy and collapse - the deal was eventually approved, with some Republicans criticizing the move as 'Socialism' and 'Nationalization' of banks.
The damage had already been done - with foreclosures and job losses skyrocketing, nearly 51 million people across the world were left unemployed by 2009 and the after-effects of the crisis were felt well into the onset of the 2010's, with several European countries embarking on severe austerity measures and the 'PIGS' (or Portugal, Italy/Ireland, Greece and Spain) having their economies in tatters (especially Greece, whose near bankruptcy set off the European financial crisis in the early 2010's).
My review of the movie 'Margin Call' explains in detail what one particular bank did when it was faced with imminent collapse and how, unknown to even its own CEO, its actions would set off a chain disastrous consequences across the global financial world.