Crash

Etymology

The term appears during the fall of the purses of Vienna and Berlin in summer and autumn 1873. In fact, the pronunciations or are used. In English, crash became crash landing or stock market crash landing . Generally referring to the Stock Exchange, contrary to Economic crisis , of which the range is much broader, the expression stock exchange crash seems a Pléonasme; however, the term crash frequently indicates a brutal fall on other markets: bond crash, real crash, etc

Economic causes

Formation and deflation of the speculative bubbles

The phenomenon of the crash is brutal and spectacular. The courses of the actions or the goods drop brutally, the number of salesmen largely exceeding the number of purchasers. The salesmen are able from there to want or have to sell at any price, which precipitates the fall of the titles.

However, if the crash is brutal, its appearance follows a mechanism which is installed on one longer period. The phenomenon begin with a rise from the courses based on a growth proven from the economy. That attracts a great number of investors, often of the private individuals, who wish to profit from this rise. The investment can then be done in mass on a great number of values (gregarious effect). The surge of new capital involves a stock exchange flight. The phenomenon can then develop if the investors are involved in debt to continue to benefit from the rise. However this additional rise gradually shifts real results of the economy: it is then a speculative bubble. One arrives then in a wait and see phase where only the most informed investors leave this bubble. The publication of statistics on the overvaluation of the market often gives the alarm signal which leads to the crash: the investors, often of the small carriers, sell in mass their titles and a Course with the liquidity follows.

Impact of data processing

Today, the phenomenon is largely amplified by data processing. Indeed, if it is the fear which leads the small carriers to get rid of their titles, in fact automats manage the actions of the institutional investors.

To counter this phenomenon, the stock exchange places like Paris, London, Frankfurt or Wall Street set up parapets. The anticipated fences make it possible to close the purses for one rather long length of time in order to calm the phenomenon.

Psychological aspect of the crashes

The crashes, but also the financial bubbles, also originate in of speculative excesses due to the psychology of the markets. These excesses due in particular to Mimétisme S of behavior of the operators are one of the topics of the behavioral Finance.

Principal crashes

See on this subject the tables: List of the monetary and financial crises

Tulipomanie

The crash of the purse Viennese in 1873 (Gründerkrach)

Following the unification German in 1871, a very fast economic development and capital intensive took place of 1871 to 1873, with the creation of many companies. With the appearance of competition, the profits stagnated and the actions are reflected to drop in the German-speaking world as from May 1873. At the summer 1873, a bank of Budapest had to face the applications for repayment, leading shortly after several banks of Vienna to the suspension of payment. The being wary savers emptied their accounts, while the crisis was propagated in Berlin in October 1873, then in other European and American places. For lack of capital, the financial crisis became an economic crisis then.

The crash of the General union in 1882

Crash of 1929

Crash of October 1987

Bubble and crash in the absence of purse, the Russian case of the Nineties

Financial swellings and collapses can occur even in the absence of purse. The collapse of the value of the rouble in the Nineties is explained by the hugeness of the monetary assets of the Russian population to the national savings bank (Sberbank) for the communist period. That came owing to the fact that the employees could not spend their money, the stores being empty. In other words, the wages were versed in currency of monkey without economic counterpart on the level of the products available. There was a bubble of the quantity of currency in circulation. This currency appeared almost without value during the evolution towards the market economy, the course of the rouble being adjusted freely on the foreign exchange market just as the price of the goods to adjust it with the quantity of currency and to encourage to develop the offer of products.

Real crash of 1991

In 1991, a crash related to the bursting of the Real estate bubble occurred, in particular in France. Between 1987 and 1991, the prices of the real estate had flown away, without correlation with the indicators of economic growth or increase in the standard of living of the inhabitants. In 1991, the sales were almost stopped, marking the beginning of the real crash. In the years which followed, by 1992 to 1996, the prices of the real estate constantly dropped (up to -30 with -40 % in certain sectors) to again reach a valorization in adequacy with the economy of the country.

Asian economic crisis

Bubble Internet of 2000

In April 2000, NASDAQ crumbles (Spéculation, Bulle Internet). This fall will be reflected on all the markets. In Paris, CAC 40, key market indicator of the principal values starts in September 2000 a tumble accentuated by the attacks of the September 11th, 2001; it will be completed only in March 2003, the index passing of 6922 points on September 4th, 2000 at 2403 points on March 12th, 2003, that is to say a fall of 65% in two years and half.

Bubble of the real estate in 2007

See too

References

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