Capital Markets: Historical Market Information on Crashes and Crises There are several theoretical definitions of financial crises. One of them is Goldsmith's, which says that a financial crisis is a sharp, short, and ultra-cyclical worsening of all or most parameters: interest rates, share prices and real estate, leading to commercial insolvency and bankruptcies of financial institutions. Economic crisis never occurs as an isolated crisis of a sector of the economy, but typically emerges as a sectoral crisis that is subsequently refracted to others. In this sense, capital market crises should not be viewed in isolation. They are typically due to a deeper economic or financial crisis, or a cause thereof. Financial crisis usually occurs as a crisis of trust, a crisis due to inner economic and political weaknesses, or as a result of imperfections in the functioning of international financial markets. It has been proved in practice that crises are phenomena that occur in all economies and that the state eventually gets involved in solving them. Crisis action (in terms of prevention, crisis governance, and the buffering of negative effects) is explained by an ensemble of international policies and strategies, based on four market priority vectors, viz.: the global information symmetrical system (A), supervision policies (B), the intervention mechanism (C) and global macroeconomic supervision and the adjustment mechanism (D). The following figure presents the financial crises functional model: Source: Popa C. Cătălin, Functional Overview of Financial Crisis Development and Propagation, Knowledge Based Organization 2008 International Conference In discussing financial crises, the best way is to start with information on the current financial crisis. At the very beginning of the current financial crisis, within only a few hours, shares in Wall Street lost almost 1.2 billion USD, while the leading indexes plummeted as never before. The Dow Jones fell 6.98%, its biggest daily fall in history. The Standard & Poor 500 fell by 7.2%, the highest figure since the stock market crash in 1987, while the NASDAQ lost 9.14%, which had not been recorded since 2000 and the emergence of the so-called dot-com crisis. The scale of the losses due to the crash of financial institutions and the drastic fall in share values (the Dow Jones has lost about 25% over the past year) already place the mortgage crisis of 2008 among the greatest financial crises in history. With respect to the BiH financial market, it is very young and only starting to develop. All the minor crises and problems that have arisen over its ten years of existence can be attributed to the thorny road of emergence and evolution. At the end of the last century, BiH underwent processes of privatizing public property which dominated the financial market of that period. A good indicator of financial market development in BiH is the fact that there is no money market, while the Central Bank of BiH does not participate in placing or buying securities and the BiH financial market is divided on Entity lines. It can be claimed that capital markets here are still in an initial period of evolution, accompanied by turbulent events. However, as the current financial crisis has been global, it has not bypassed financial markets in BiH. The prices of all shares on the BiH stock exchanges fell to their lowest levels, as did the stock exchange indexes, while trading fell to an extremely low level, amounting to just a few hundred thousand dollars even on the best days. It would therefore be best to give a brief description of the ten greatest crashes of the past century on Wall Street, the best-known and most important financial market in the world: The Crash of 1901-1903 -the oldest recorded stock exchange crash brought down share values by 46.1%. At the time, Americans lived for 47 years on average, and 95% American women worked at home. 1906-1907 - known in the USA as the ‘Panic of 1907', this forced the government to intervene with a then incredible 36 million USD. In 665 days, investors on the stock exchange lost about 50% of their portfolios. The Crisis of 1916-1917 - during the First World War, share values fell by as much as 40%. It all started in 1916, when the index started falling from 110.15. This lasted for over a year, stopping at 65.95 on December 19th, 1917. 1919-1921 - After the stock exchange soared, due to the end of the First World War (share prices jumped 51%), a sharp fall followed. Over 660 days, securities price fell 46.6%. September 3rd, 1929 - November 13th, 1929 - although the shortest crash to hit US stock exchanges, it was no less painful. Over two months, investors lost almost a half of the invested money, 47.9%. The fall on the stock exchange marked the beginning of a difficult period for the US economy - the Great Depression. 1937-1938 - just when investors started hoping depression was behind them and the market was on the road of recovery, fear of war and some Wall Street scandals brought down share prices by 49.1 percent. The Great Crash of 1932 - the crash of all crashes, when in 813 days, shareholders lost as much as 86% of their invested money. Millions of people remained jobless, and the consequences were felt around the world. Full recovery took 22 years, until 1954. The Crash of 1939-1942 - the cause was the Japanese attack on Pearl Harbor. The crises lasted for 959 days, while investors lost 40.4% of their invested money. The 1973-1974 Crisis - this lasted 694 days, reinforced by the Vietnam War and the Watergate scandal. Stock exchange players suffered a 45.1% loss. The Stock Market Crash of 2000-2002 - the combination of the bursting of the dot-com bubble and the 9/11 terrorist attack was deadly for the Dow Jones Industrial Average index (DIJA), which plummeted from 11,792.98 to 7,286.27, as shares lost 37.8% of their initial value. The crises lasted for a record 999 days, from mid-January 2000 to September 10th, 2002.
