The Financial Crisis, Global Financial Crisis and the COVID-19 Pandemic

Yugyeong Jeong

The financial crisis occurred on November 21, 1997. This is because the foreign exchange reserves were insufficient. Since there are few resources, Korea needs dollars to buy resources. Without dollars, oil cannot be imported, and without oil, all industries are halted. Eventually, foreign exchange reserves were scarce and the economy became difficult, and Korea was supported by the International Monetary Fund. The financial crisis was a short-term and acute national bankruptcy, which was caused by a decline in performance and an increase in borrowing of large companies. Companies that fail to repay their debts due to poor performance suffer a series of bankruptcies, and even banks and financial institutions suffer a series of insolvency. Foreign capital has been withdrawn, and the country faces a crisis of bankruptcy. Another factor is the spread of anxiety over the Asian market due to the Asian financial crisis. With the collapse of the Asian stock market, Korea’s credit rating has declined and foreign creditors withdraw funds on a large scale.

The global financial crisis began on September 15, 2008 with the collapse of the Lehman Brothers, an investment bank in the United States. The Federal Reserve adopted an ultra-low interest rate policy that lowered interest rates from 5% to 1% in order to stimulate the sluggish economy since the IT bubble in early 2000 and the 9/11 attacks in 2001. Mortgage companies have lowered lending regulations and provide easy loans to credit delinquents. But the Federal Reserve raises interest rates again to stabilize prices. At higher interest rates, people started to sell their homes, but real estate prices plummeted as there was no demand. Those who couldn’t pay off their loans went bankrupt, and the financial sector that used to make mortgage loans went bankrupt. The global financial crisis occurred acutely in the United States and recovered through policy and cooperation with 20 advanced countries.

Unlike the previous financial crisis and global financial crisis, the COVID-19 pandemic is not a problem in the financial sector. As people refrained from going out and meeting, it became difficult to buy and sell things, and the economy worsened. With the global financial crisis in 2008, the US released money through three quantitative easing policies. The economy seems to be reviving, but problems have arisen since the end of last year, and the public supply made with the money released cannot meet the demand. When oversupply and the money borrowed from the bank cannot be paid back, the bank has problems. Problems arising from the real economy are transferred to the financial sector. The world is paying attention as the only way to develop a treatment or vaccine because the economy does not survive in a situation where the COVID-19 rarely subsides. Currently, it is considered more important than fiscal and monetary policy to make treatments or vaccines.