Welcome back everyone. So this week we will discuss financial crises. We will look at the difference between financial crises and economic recessions and see if there's any kind of relationship between the two. Then we will discuss the reasons behind financial crises. So what are the causes of financial crises? And finally we'll look at two important notions, the two big to fail and moral hazard and we'll look at the kind of relationship that these two have together. First things first, when we're talking about financial crises, it's normally a period when a sudden decrease in asset value happens and because of that, this sudden decrease in asset value leads financial institutions to encounter particular challenges. These challenges are related to them being able to meet their obligations and because of this, we can identify a series of events here. So the very first pattern is that we have a period of growth. This growth is normally facilitated by increased access to borrowing and then after this period of growth, we have a sudden fall in the value of assets and because of this sudden fall of the value of assets, we have a decrease in borrowing and so because of this, we encounter a financial crisis. On the other hand, if we look at economic recession has different indicators to it. So basically we look at the GDP and the GDP here is a low GDP. So the indicators are very low. We experience a period of low liquidity and at the same time, because of these issues, we have a decrease unemployment rate. Of course, this will be accompanied by lower production levels and as well lower levels in terms of living standards. And at the same time, we will likely have a higher inflation rate. But it is important to look at what causes economic recession. Economic recession normally are caused by asset mismanagement, asset mismatch and at the same time, it could be because of sudden fall or sudden decline in the asset value. How can we predict financial, how can we predict economic recession? We have three main ways to look into it that give us an indication that yes, we are going to be experiencing an economic recession. First one is through the consumer confidence index, which is basically C-high. The other indicator is basically stock market value. Of course, stock market value could give us a great indication as to the direction that we're going through. So if there is an economic recession, stock market value is a good indicator for us. Finally, if we look at the yield curve would normally look inverted in this case. And so these are just some of the ways that we can try to predict economic recession. But now that we know what economic recession is and what financial crisis is, what is the relationship between the two? So financial crisis normally is a starting point. And because it is a starting point, it leads to an economic recession. And when you have a financial crisis led by an economic recession, one will normally amplify the effects of the other. And at the same time, it will prolong the impact of it. So in our case, if we look at financial crisis and economic recession and assuming that we have a financial crisis first that led to economic recession, economic recession will amplify and prolong the impact of the financial crisis. And this is something that was very much visible during the last, the great recession of 2008-2007. So we know what causes economic recession and we've seen what financial crises are. But it is also important for us to understand what are the causes of financial crises. And the very first thing that we need to look into is something that was referred to as systemic risk. Systemic risk is a situation when you have financial institutions or institutions in general, taking risk, a higher type of risk, because they know that there is a sort of protection that is awarded for them. And because of this, any risk that they take, this higher level of risk that they take could basically lead to instability or perhaps the instability of the institution itself and perhaps even could lead to the collapse of the industry and could threaten the economy. And so normally systemic risk is regarded as an inherent type of risk in financial institutions. And this comes because financial institutions normally are very much interconnected to one another and they are interdependent on one another. And again, in the crisis of 2008, we could see how financial institutions are very much interconnected and interdependent. And because of this, if we do experience a crisis, if we do experience a financial crisis because of a systemic risk in one country, this could likely also stretch to another country because of the interdependence of the financial institutions. Now, if we're looking at financial crisis and we'd like to identify some of the causes of financial crisis, one of the main examples of financial crisis is bank runs. Bank runs are normally when you have depositors, a group of depositors all going at once trying to withdraw their deposits from the financial institutions where they deposited their money at. And basically this indicates that these depositors have no trust anymore in the banking sector. And because of this, imagine if you have suddenly hundreds of thousands of depositors removing and withdrawing all their money from the banks that they deposited their money in, you could imagine the severity of such actions on the bank itself that they are withdrawing the money from and perhaps even on the industry, on the financial industry. Again, because of the interconnectedness of financial institutions with one another. Another cause of financial crises is what we refer to as currency crises. Here, the currency suddenly is devaluated. So the monetary value of a particular currency is decreased whenever we try to measure it with a foreign currency or maybe a group of other foreign currencies. And normally in these cases, what we refer to are currencies that are pegged to other currencies. Now, within next week's presentation, we will look at the different types of currencies out there. We will learn more about what pegged currency is and what is a floated currency looks like. And so these are things that we will discuss within next week. But for us to understand what a currency crisis is, normally when we have pegged currencies that are tied to an exchange rate of another foreign currency and suddenly the local currency that is pegged to a foreign currency loses its value or the value decreases all of a sudden, this could lead to a loss of trust in the national currency. It could also emanate from effective fiscal policies or unstable fiscal policies. And it could also happen that the pegged currency becomes unpegged all of a sudden. And because of this, this unpeggedness of the currency, it makes the currency becomes a free-floating currency. And in these cases, when we have a currency crisis, this could basically lead to a financial crisis in that country. Another cause of a financial crisis is stock market crashes. And whenever we talk about a stock market crash here, what we're talking about is a sudden loss in the value of the stocks traded or the stock prices. And this sudden loss of value or decline in the stock prices basically wipes out a paper value, a significant paper value or paper wealth from the portfolios. And this is also another indicator of a financial crisis. Now, a third indicator or a third cause to financial crisis is the regulatory failure. Now, normally regulators intervene to try to protect consumers, to try to maintain the stability of the financial industry and to control inflation rates and to control how financial institutions are behaving in a particular country. Now, with that in mind, there are different approaches that different regulators put in place in order to ensure the stability of the financial sector on the one hand and on the other hand, the full protection of consumers. Now, some states in some countries opt for more of a lax type of regulatory approach or a less affair approach to regulating financial industry. And normally this is where we have problems occurring. And if the crisis of 2008 and indicator for us, it's that whenever you have a lax approach to regulation, whenever you give financial institutions a free flow to regulate themselves and to oversee themselves and their operations, most of the time you'll have financial institutions taking risks that they wouldn't necessarily take in normal situations. They become a little bit more free in taking these risks. And because of that, most sometimes what this would lead to is a crisis because of the uncalculated risk or the extra amount of risk that these financial institutions have taken. So when you have a lax regulatory approach accompanied with perhaps a lack of government, a proper government oversight, you will have financial institutions take trying to leverage their own to leverage themselves basically to capture gains and to capture some gains and even, as we said, take risks that they wouldn't necessarily take. Now, with this in mind, there are also other ways or other causes for financial crises. One of those is inflation crisis. And inflation crisis happens when you rapidly have rising inflation rates at an uncontrollable at an uncontrollable level. And this would basically lead to decreasing of the purchasing power. So this, again, is an indication that we have a financial crisis. Another one or another cause of a financial crisis is when you have sovereign debt crisis. And sovereign debt crisis is when a government or a state, a country basically is unable to meet its financial obligations towards the governments or financial institutions or other investors that it owes money to. So it is unable to repay the debt that it owes to these groups of investors. With the stock market crash, we've looked at stock market crash and we've seen how stock market crash could basically lead also to a financial crisis. Now, having seen the different causes of financial crises, there is an interesting notion that accompanies financial crisis normally. And this is something that we've seen being coined in 2008. And this is the notion of the too big to fail or the concept of too big to fail. And normally the concept of too big to fail comes along with moral hazard. And so what are these two different concepts? What is moral hazard and what is too big to fail? Basically, if we're talking about moral hazard, here we're talking about financial institutions or institutions in general that decide to take on risks they wouldn't normally take. And the reason they do so is because they have the protection from the consequences associated with taking that particular risk. Such protection could come from a contractual obligation between them and between another party who is willing to ensure them against these risks that they are taking. Now, here in this kind of relationship, we have one party that assumes a little more risk than the other. And so this party that is assuming risk is likely going to impact the second party who is ensuring against that risk negatively. And so when we have moral hazard here, it comes as a result of post-contractual asymmetric of information. And a good example of that is if we are talking about borrowing and lending. So in the case of borrowing and lending, if a borrower defaults on paying their loans, what we have here is the fact that the borrowers think that if I default on my loan, that's absolutely okay because in the end, it will be covered. The lender is going to bear all the losses and they will take charge of it. So there isn't any risk in that case for me as a borrower. So this is a situation where the actions of one party would negatively impact the second party. So now that we know what moral hazard is, we are in a better position to understand what too big to fail is and what it entails. So the notion of too big to fail is basically when we allow larger institutions, when we try to protect large institutions from collapsing. So here governments normally would bail out these large financial institutions because if they were to collapse, their collapse could lead to a collapse of an industry in general. And so saving these institutions becomes much cheaper than allowing them to collapse because if they were to collapse, they might lead to a collapse in an economy. So they might lead to a financial crisis or even lead to an economic recession. And so the act of saving these institutions becomes a necessity. If we are then talking about the relationship between financial institutions and the too big to fail notion or concept, here we can see that when we have large financial institutions that normally take risk that they wouldn't take, they do this because they know that the government will come, it will intervene and it will try to save them and protect them. Now the government, the protection that is awarded by governments are normally emanating from taxpayers money. So whatever kind of bailing out or bail out agreement that would be drawn out between the government and between the collapsing institution, it would be done and facilitated through the taxpayers money. And what we can see here, we can see a direct relationship between the too big to fail notion and the moral hazard concept. It is because we have the concept of moral hazard, we needed to introduce a too big to fail notion. We needed to introduce a mechanism to protect these institutions in the first place. So with this in mind, the homework for us to do for this week is to try to make a little bit of a research and figure out whether too big to fail concept is also applied beyond financial institutions. Do you think that too big to fail concept is only limited to financial institutions or does it also extend beyond the financial industry in the financial sector? What are your thoughts? With this, I'll leave you to do your homework and I'll see you next week.


Is it too early to silently judge the font choice on our title slide? I know it's a lot of bright red, but I had to do something to get your attention because I know the coffee might not have kicked in yet for all of us. My thanks to Sharon and the rest of the Ed Forum crew for putting me on first so I can take the brunt of the AV hiccups. Keep an eye on you JP.  I'm greeting you in German this morning not because of my own heritage, but because of that of whom I'm here to speak about. More on her shortly, but first I'd like to ask you all the question, what does it mean to have lasting influence? This presentation is about how one person influenced my career as a designer and an educator, but I'd like all of us, a room full of people who spend their days attempting to impact students' lives for the better, to think deeply about who or what influences you and whether or not we're being purposeful with that influence. Is it temporal or is it lasting? The person who inspired the easiest conference abstract I've ever written is named Claudia Rochman. Claudia is the coordinator of the BFA and MFA programs, communication design programs at Texas State University, located in San Marcos, Texas. Let's go Bobcats, no, okay. She wore only black every day that I saw her for four years. I'm sure she still does, and that shows commitment, consistency. She made bets on the World Cup with her father and where the loser had to cut their hair incredibly short, shows follow through. She once stayed past midnight at school to help me and another grad student learn how to bind a book when she lived well over an hour away from campus. These things made an impact. She's been my professor, my advisor, even my thesis chair, and now I consider her a cherished colleague and a friend. I don't work with Claudia. I teach at Austin P. State University in Clarksville, Tennessee. Let's go Pete. That really is the champ. I haven't seen Claudia since my graduation over three years ago, but I think about the lessons that she taught me and the manner in which she dedicated herself to her students every time I crossed the threshold of my design classroom. I'm going to take just a couple minutes today to share a few of the lessons that Claudia taught me with you. So here we go. Lesson one, good design takes your best effort. In preparing this talk, I almost said that good design takes hard work, but I don't think that that's necessarily true. Of course, if you love what you do, then the work is not hard. And if you're actually paying attention, you'll work smarter, not harder. Claudia has certainly embodied these traits. I know that she loves what she does. She wouldn't put in the effort that she does if she didn't. In fact, I haven't seen personally a clearer example of a hard work ethic paired with an enthusiastic attitude than in Claudia Rocheman. Even from my very first class with her, I got a taste of Claudia's high expectations. Mind you, I was 32 when I started grad school. I kind of came back after a few years in the profession. I had never encountered someone who expected 100 perfectly drawn thumbnails neatly labeled by the next class, which was only 48 hours away. And that might be normal expectations for many of you in this room. But for me, Claudia was the one who taught me how to work that way. And I'm very grateful for it because it certainly upped my work ethic as a creative professional, and it helped me set better expectations, higher expectations for my students that I have now. I also learned that good design takes your best effort through the countless, seemingly endless revisions I made throughout my grad school projects. These are some examples, a very small amount of examples of a logo I was asked to design by Claudia for the BFA program. We all know how this goes. I remember driving home many nights after class was over. My wife would ask that ill-fated question, is it done? Did you turn it in? No, I'm still working on it. Thought I had it here. We ended up on this. Claudia always had a way, even though that process might have been frustrating at times, she always had a way of making you believe you were just a fraction of an inch away from the best solution. She did this by asking questions instead of giving answers, which I think is an incredibly wise way to teach. And she helped instill in me a willingness to always try again. And again, and again, and again. Lesson two, the world is bigger than what you've seen. Claudia always set out an international scope and vision for the program. Every lecture or conversation included examples from Europe, Asia, Latin America, and the like. She did this because she wanted us to see beyond our own personal experience and to become better informed, more empathetic designers. One specific way that she did this, and this is an opportunity that I'm eternally grateful for, is through her annual study abroad program to Germany, her home country. When I participated in the trip, we spent 10 days based out of Berlin and Heidelberg, so we got to see a good portion of the northern and southern parts of the country. We visited each location of the Bauhaus and learned about it first hand, spent time with world-class designers in their studios, got to visit the monotype office, the Heidelberg press factory, the Klingspur and Gutenberg museums, and countless cultural landmarks. Incidentally, I chose Kabul as the typeface for my presentation today because of an amazing experience I had on this trip. When visiting the Klingspur Museum, Claudia arranged for us to go back into the archive room. We all donned the white gloves, and we're actually able to handle the original type specimen booklets for Kabul and many other amazing typefaces. She always looked for ways to elevate the experience beyond the normal.  In fact, it certainly changed my entire focus throughout grad school. My focus of study, the eventual topic I chose for my thesis. And it even continues to inspire me today. I'm currently in the midst of an approval process to start my own study abroad program to Germany for our design students at Austin P. Paperworks in progress, and we hope to take our first trip in May of 2020. Lesson number three, it's okay to fight about fonts. Now, I'm not talking about trolling people on Twitter. I'm talking about discourse. I know that we all have strong opinions about type. One of the reasons we're here. But I believe if we can set aside our preferences, I believe that a good font fight can actually teach us a lot about how to use it. Claudia, for some reason, hates slab serifs. I know this because I happen to love them and use them very frequently in my grad design work. She and I rarely, if ever, agreed on a typeface choice. But rather than chalk it up to personal taste and get mad about it, I took a note from her and asked why. And through those conversations, she was able to teach me about the various ways that we make decisions about design and how we influence the way people react to information through the typefaces that we choose. From an educational perspective, I believe it's not really all about agreement, but about critical discovery in the classroom and beyond. Another way to think about influence is through lineage. Lineage is something I speak of often in my graphic design courses. I think it helps students to find the thread to recall things more easily when the time comes. Whenever I start to see that glazed-over look in their eyes when I'm explaining why we fuss over the amount of space that should be around an end-dash, I just take a minute, I stop, and I share this story about typographic lineage. Long time ago, a man wrote a book about stealing sheep. Or rather, his desire for us to stop stealing sheep. That man's name, of course, was Eric Speekman, a German designer and self-proclaimed typomaniac. In his earlier years, he also taught design courses at the Hochschule für Kunst in Bremen, Germany. And there he had a student, Claudia, obviously, whom he challenged multiple times in all aspects of typographic minutia through her work. I mean, just ask yourself, like, when was the last time that you manually curled some ordinals in a footnote or selected a typeface solely for the arc of the ear in the lowercase G, and you'll get a sense of the minutia that I'm talking about. But there's other characters in the story. There's also a well-known Italian design couple working in New York. The husband was famous for only using a select group of a few typefaces. Some say six, some say 12. The point is, it wasn't a lot. And they were, of course, Massimo and Leila Vignelli, who opened Vignelli Associates in New York City in the 1970s. Where that same student, Claudia, eventually came to work after her school was finished. And while there, she learned from the type purist who taught her many things, things like discipline, organization, objectivity, and economy when it comes to type. It wasn't about pure minimalism, but what was essential for typographic communication. Okay, so we've got the type of maniac and the type purist leaving a lasting influence on Claudia, the type nerd. A bit later, Claudia became a professor herself, and she taught me and many of her other students continues to teach us that there is more to know about type than you could ever possibly learn. It's part of the reason why we keep coming back to things like typecon every year. She taught me that a true type nerd never settles for just all right, that your designs can always use a bit more perfection. And she taught me that every typeface has a distinctive voice. Some might do well to stay silent most of the time. So what does that make me? I guess simply put, you could say I'm a type lover. And I tell that story to my students. I tell them you're the result of this long lineage of passion, of rigor, of influence. And you're the ones who will continue to care through the work that you do when you leave here.  Okay, to sum up. Many of you have probably heard this phrase, caught, not taught. Remember that our students are far more likely to remember what we're passionate about, what we're excited about, than just straight facts, procedures, and Photoshop shortcuts. I would not be the designer or the educator that I am today if Claudia had not been so entrenched in her type nerdiness. It was every day. Second, who or what influences you? It's my hope that this talk will inspire you to take stock of the influencers in your life. Maybe it's been a while since you've personally been in school. Maybe you've never really asked yourself that question before. I don't know, maybe you write a couple thank you notes when you leave here. We'll see. Lastly, I want you to consider the influence that you all have. Most of us have another school year that's fast approaching. What are you excited about? Can your students tell? Do they give you feedback about what sticks with them? So I'll leave you with the same question that we started with today. Is your influence temporal or is it lasting? Thank you, Claudia, for your lasting influence and Dankeschön.