POLD89H3 Lecture : Lecture 1

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12 Jan 2012
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Globalisation- increased volume of international trade, it has been changing. In addition to normal goods, we also trade financial products. First gold money, then pegged to gold paper money, then to the central banks. Purpose of central banks is that currency reflects the overall value of goods and services. If a country has 1 b of value, there should be 1 plus some extra. 800 t is printed on paper without necessarily having value. Most of the 800t dollars were printed by banks, people were treating them seriously and paying real money for them. Rating agencies graded them as best possible investments aaa+. Mortgages were good investments because they had collateral. Banks took %10 risk giving higher interest loans to cover the risks. People got loans that they could not pay. When people defaulted, banks got lots of houses they could not sell.

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