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THE STATE: UPPERS & DOWNERS Works from The Farook Collection

Arwa Abouon Abbas Akhavan Rana Begum James Clar Shezad Dawood Cedric Delsaux D*Face Cerith Wyn Evans Lamya Gargash Abdulnasser Gharem Mona Hatoum Runa Islam Halim Al Karim Jeffar Khaldi Ahmed Mater Loreta Bilinskaite-Monie Huma Mulji Robin Rhode Marwan Sahmarani Faisal Samra David Shrigley Sami Al Turki Ayman Yossri aka Daydban 4



The show resumes a conversation we initiated about the state of the world today, continuing to observe, document and share the socio-political environment we’re witnessing. While ‘THE STATE’ ( The Collection’s debut at Traffic ) dealt with the political tension post September 11th, ‘UPPERS & DOWNERS’ comments on the current global condition, but from an economic perspective, where the city of Dubai is a focal point. The financial crisis from 2007 to the present is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. Like other worldclass capitals, Dubai has felt the crunch of the economic downturn and saw its sixyear development boom come to a grinding halt. Award-winning journalist Jim Krane boldly summarizes Dubai prior to the crash, “…It is capitalism on cocaine, Las Vegas without the gambling. Until its construction boom came to an end in 2009, it was the fastest-growing city in the world. With shimmering skyscrapers hiding gritty 24-hour construction at ground level, its economy outpaced China’s while luring more tourists than all of India…(Dubai) has become an icon of the future, a rising force in the Middle East that impacts on us all.” Despite the huge blow Dubai’s economy has suffered, it is believed that it will rise again. Aside from discussing the current economic transmutation and the social behaviour resulting from it, the show also acts as a reminder that all sustainable economies go up and come down. Mark Twain once said, “History doesn’t repeat itself, but it does rhyme,” and so the cycle continues. To conclude I would like to thank Sheikh Mohammed Bin Rashid for his kindness, wisdom, vision and patience. We are his children & soldiers, and I ask Allah to give him strength.

Rami Farook Director & Curator The Farook Collection Feb 7th, 2011



I am here because I like Dubai By Mishaal Al Gergawi, Special to Gulf News Published: February 28, 2010 There is much to celebrate in what Dubai has achieved and even more in what it has come to represent. Put simply, Dubai has, irrespective of the severe effect of the global crisis on it, broken the taboo that Arabs and Muslims cannot attempt to achieve something and succeed in that effort. The cynics will say: “Well look where we are now?” And I say: “Look where we were and would’ve been now”. Dubai has given hope to so many people in the region that we’re not done for. And in that sense, Dubai’s effect was so far reaching and exponentially beyond its geographic and economic clout that some regional powers started getting scrutinised by their constituencies, who wondered why their respective leaderships could not be as business friendly and culturally tolerant as Dubai was. And so it is this same thinking that has led us, the constituents of Dubai, to become so actively involved in the research of what post-property Dubai will look like in this new decade. It is our faith in its propensity for greatness in the future that causes us to suffer for the state it is at present and keeps us up at night thinking about ways to transcend from the latter towards this goal. A goal which I know deep inside that all those who have invested in Dubai, both, financially and emotionally, share. The crisis is harsh, cold and real. It does not differentiate public from private, individual from corporate, or local from expatriate. It is an equal opportunity slayer that consistently gnaws at all of us in a way which is anything but dramatic. Where do we go from here? Irrespective of the fact that I’m an Emirati, I genuinely enjoy Dubai and find new reasons to enjoy it every day; it is my city. Will I just stand here and watch it suffer? Will I jog around Al Safa Park, read more books, and frequent movie theatres on budget while I wait for the government to save the day? I could. No one expects me to do otherwise. But I can’t. It has given me my ambition, curiosity and all my memories. I love this place too much not to contribute to, not only its recovery, but its transformation from a firmly established culturally diverse commercial centre to an economically efficient, socially mobilised, self-critical civil society. We can all contribute, and our work is cut out for each and every one of us. From gas stations to investment conferences, I see incredible goodwill for Dubai every day. This goodwill can either turn to frustration or can be channelled to a blueprint of the ‘Dubai collaboration manifesto’ that could globally show how cities are reborn in the future. For Dubai/Next to be we must capitalise on this goodwill and channel it to the various fronts we must address.

Opportunities I am confident, that if the right environment is fostered, entrepreneurs and artistes could, by way of producing ideas and content, attract venture capital money and grow Dubai out of the crisis folds upon folds over. As discussed here last week, Dubai continues to suffer from negative coverage in the foreign press due to its perplexing silence. The government’s exit from non-strategic sectors such as real estate, hospitality and entertainment is overdue. It will allow for better allocation of its assets and usher much needed competition and innovation in those sectors. Dubai needs to lobby the federal government for a thorough review of the UAE’s commercial law. This review should cover urgent issues such as recognising more complex corporate structures so that more companies domicile here. The same applies to the accounting treatment of complex financial instruments such as derivatives and the review of the more traditional ones. It is also imperative to review the archaic bankruptcy law; an abundance of recent stories demonstrates that the continuance of this law will only increase capital and human flight. During the years of the property boom, Dubai suffered from a mushrooming free-for-all deregulated urban planning policy, or complete lack of one. We must introduce policies and guidelines that would allow for areas to start developing a façade; this should be done without haste to ensure it does not incur additional costs in the short-term property owners. There are many foreigners who have lived in Dubai for many years maintaining a delicate mix of their national heritage and ‘Dubaism’ that have demonstrated a commitment to our city. We should start discussing rules that would allow them to become long-term residents and not worry about where they must go when they turn 60. This would allow them to extend even further commitment to Dubai during these harsh conditions. This is not a call for citizenship which in addition to being a federal matter, is also one that should be primarily measured by level of integration into Emirati culture. Finally, I have heard all the arguments and I am still convinced that the labour issue is easy to solve. We, the government, private sector and society (both locals and expatriates) are all stakeholders in Dubai; we should map it together. It is our moment of collaborative truth. I am here because I like Dubai, its ruler, its people and all those who like it.

We all know that we need to do more for primary, secondary and high school education; many consultants have come and gone yet little has changed.

Mishaal Al Gergawi is an Emirati current affairs commentator

We also continue to expect tangible improvements in the state of health care, yet many people still prefer to travel abroad and incur additional costs because of what they’ve heard of the experiences of others or their own. Though it is not Dubai’s legacy, artistes and entrepreneurs continue to suffer under regulation that was designed exclusively with large corporations in mind. Dubai continues to view creativity and entrepreneurship as part of its corporate social responsibility programme; it should not. 4


World Collaboration Manifesto By Mishaal Al Gergawi, Special to Gulf News Published: March 7, 2010 The industrial revolution allowed many to dream and realise those dreams through an exponential increase in productivity.

The role of government in the knowledge economy changes to one of coordination and facilitation. Taxes will be lowered

This ability allowed those many to taste, smell and feel growth.

as ‘neighboards’— neighbourhood boards, take on a more leading role in investing directly in spaces of direct relevance.

The entrepreneurial spirit, arguably a Protestant ethic, was redefined in a way which Europe’s estate owners could not

If an area falls into demise it is deemed evolutionary and its less fortunate inhabitants move to more affluent areas

ever understand. We refer to their descendants today as the WASP and the euro trash; they still have the estates but not

and contribute to their growth. It is not the end of romance, but rather the suicide of nostalgia and rise of the objective

the funds to renovate them.


According to, Knowledge Economy is an “[e]conomy based on creating, evaluating, and trading

In this new century, the O’Reillys, Stewarts and Sawyers will not work for Fox, CNN and ABC. They will prepare their show

knowledge. In a knowledge economy, labour costs become progressively less important and traditional economic

with their apprentices, work with freelancing sound and video technicians in a rented studio which will probably be owned

concepts such as scarcity of resources and economies of scale cease to apply”.

by one of the media conglomerates’ debtors they would all cease to exist by then and stream on their own online channel on YouTube or whatever it is that will have taken over YouTube by then.

This means that fixed assets are now secondary to the equity of our ideas i.e. with the global flow of capital and the rise in the functionality and innovation of technology, ideas are now more valuable than capital.

In this new century, banking services are largely automated since money is now fully electronic. With the cost of equity drastically decreased as the cost of the innovation having balanced it out, debt has become the secondary funding

In this new century, many more ideas will be explored, tested and executed because costs will increasingly decrease. This

instrument of choice; corporate banking is a niche business focused mostly on overdraft services and import/export

will be due to the end of the company as we know it. Everyone will become a freelancing executive.

related letters of credit.

A seamless network of freelancers will lead to this. They will all be available and have areas of focus and others of interest.

There are no investment banks; the idea of paying two to five per cent of transaction value to what is essentially a broker is

By the time generations X and Y retire and generation Z are adults, it will become silly to hire law firms as opposed to

heresy. Instead, there are corporate finance freelancers who perform the valuation exercise.

freelancing lawyers, management consultancies as opposed to freelancing consultants, ad agencies as opposed to freelancing mad men.

Equity is then raised online through specialised E2I (entrepreneur to investor) sites with no minimum commitment and the road show is a live video investor conference. Everyone has access to capital and everyone has access to ideas. Value

It will become silly because there will be a viral realisation that paying companies as opposed to individuals basically

adding venture capitalists are the only financial firms that may survive in this landscape.

means paying their office rent and their administration (HR, finance and marketing) salaries. The question is not whether you’re going to migrate from the mindset of a competitive revolutionary industrialist to that of Like the determinately proud soldiers of the Ottoman empire who refused to fight rifled Europeans with anything but their

fluid collaborative knowledge economy freelancers, but rather how fast; this change is both good and inevitable.

swords, some companies will attempt to resist. Relic of the past Mishaal Al Gergawi is an Emirati current affairs commentator Alas, like the now proven to have failed strategy of publications charging for content online, the company too will become a relic of the past; and with it the organisation chart; the function of accounting will be automated, personal and networking websites will replace marketing, and functional and well-designed job networks will spell the end of HR. The knowledge economy will herald the end of the secretary and the rise of the assistant who will be the freelancing executive’s sidekick and punch; the assistant prepares proposals, screens contact lists for collaborations and grabs the skinny latte. The assistant is as ambitious as the executive and works for him for an average of 27 months before moving on and starting to take on freelance jobs; it is an apprenticeship. The executive was once an apprentice of an executive who was once an apprentice of another executive and it goes on. Experience is still important but is now triangularly balanced by skill and knowledge; together, freelancers attempt, fail and succeed more easily. There is much more of all of that. The world has more colours than an artist could dot a canvas with and it’s all good.



Got the goods, who’s got the cash? By Mishaal Al Gergawi, Special to Gulf News Published: April 4, 2010 The annual Young Entrepreneurs Competition (YEC) kicked off its sixth edition last Wednesday and ran until yesterday

I feel so old. Did I grow up in a different time? Were my generation’s parents superheroes? Do this generation’s parents

at the Dubai Mall. YEC was launched under the Mohammad Bin Rashid Establishment for Small and Medium Enterprise

care? Are they having children ceremoniously? I may be biased, but I pose my questions looking for hope.

Development, now part of the Department of Economic Development, in 2005 with 84 participants. This year there were 700 participants. YEC is organised under the patronage of Shaikh Hamdan Bin Mohammad Bin Rashid Al Maktoum,

Schools have failed too. The level of discipline has gone down. Some will argue that this has to do with the rise of

Crown Prince of Dubai, and is sponsored by du.

individual identity. I accept that, but where are the new communication methods? Where are this generation’s experts?



The YEC is by and large considered a successful commercial initiative. Most participants sell very well some would argue

This is very worrisome. Just ask yourself, what is a 21-year-old who can spend a cool Dh10,000 on a Wednesday on

this is so regardless of the quality of their work. But considering that most of the producers are not trained designers and

T-shirts and helmets willing to fight for? I ask you, the parents of many of those kids who came armed with thick wallets

have limited resources, one must admire their entrepreneurial spirit.

full of notes, what can you expect from your children when you’ve taught them to expect everything from you? Where does financial comfort end and ambition begin?

Much praise must be given to Shaikh Hamdan for championing such an event, which will surely demystify the mental myths behind entrepreneurship and self-dependence. After the real estate boom, I believe patronage of entrepreneurship

And let us talk about society as a whole. Let us talk about the lack of outrage by today’s writers, thinkers, public officials,

is crucial to diversifying the economic contributors to Dubai’s GDP. Just as importantly, the success of such initiatives

sociologists, social programme hosts on TV and radio. Let us talk about how all of them are willing to occupy themselves

serves Dubai’s long-term goal of having a diversified workforce that not only looks at the public and financial sectors for

with everything but analysing the state of our coming generation. I was recently invited to speak at my high school. After

employment opportunities. These could potentially be the creators of jobs instead of seekers. I for one will monitor the

the speech, I sat with one of my old teachers and she said to me that she was very worried about the next generation. I

development of YEC closely.

told her she was always worried about the next generation. She said that was true, but she had never worried as much as she did about this one. After seeing the kids at the fair last week I confess that I am worried too. I will not end by saying

The participants set up booths in block format across a number of areas in the mall, including the atrium and the fashion

may God help us. God will only help us once we help ourselves.

avenue. The majority of the products put up for sale were fashion-, accessory- and entertainment-related. There were some groups who sold recycled products and stationery and others who sold plants, but the majority sold T-shirts and

We have a lot of soul-searching and even more work to do. We must own up to our shortcomings. We cannot celebrate


YEC’s successful sale without questioning the source of the funding. In the end, one would be hard-pressed to prove that excess and success aren’t mutually exclusive.

What is worth discussing is the attitude of the consumers who buy these items. As one would expect, the consumers mostly come from the same age bracket. Some come in family groups, but the majority come in groups of friends. What was alarming was the manner in which sales were conducted. The consumers’ attitude more resembled an all-night-

Mishaal Al Gergawi is an Emirati current affairs commentator

queuing PlayStation geek than a young person wandering through a product fair. Young boys and girls bought products impulsively and spent large amounts of money just because they liked the tag line. Now, I want to make it clear: I am encouraged by their excitement at discovering locally made products. However, regardless of whatever reports you read, we are still very much in the midst of an economic slump. Who is giving these kids so much money to spend on what is essentially recreational shopping? I am talking about youngsters in their late teens or early twenties dropping Dh2,000 to buy a bracelet for Dh50 and refusing to take the change, saying they don’t need it! I’m talking about friends arguing about who will buy a Dh600 studded helmet and bidding the price up to Dh9,000! Where are the parents? Is this not the complete opposite of the goal of the competition? We may be nurturing 700 future entrepreneurs but we are effectively dealing with 7,000 spoiled brats. Once again, in the midst of these hard times, who gives them this much money without asking them what they will do with it? What kind of parents are these? What family structures do we have now that can make the time to provide the financial means but not give advice on how to rationally spend it? 8


Lack of corporate governance holds Gulf states back By Sultan Sooud Al Qassemi Published in The National on April 4, 2010 Over the past two years, the Gulf has witnessed a number of major scandals in public corporations which have come to

or publicly to the lapses in corporate governance.

light despite the secretive nature of the region’s business world. Even in the 1990s, it was not uncommon for rulers to get involved to resolve problems, regardless of a company’s transgressions. Not surprisingly, some remember that period as

When businesses go bust, downsize or close down due to poor management, the entire community suffers. People lose

the “good old days”.

their jobs, children’s futures are put at risk and livelihoods are destroyed.

Today, corporate governance must be taken more seriously. The growing economies of the Gulf states are becoming a

A quick glance over the names of the previous board members at DamasDamasLoading..., or any other firm hit by scandal,

centre of attention in financial circles. Unfortunately, despite many people’s efforts to reform corporate governance laws

is enough to show that board members are more often than not simply “prestige picks”. They are there because their

and stamp out corruption, very few changes have actually been made and collective action has been largely absent.

names carry weight. In many cases, the board members don’t have time to contribute to overseeing the company’s affairs because they have so many other responsibilities.

The issue of the Saudi Arabian Al GosaibiAl GosaibiLoading... and Saad groupsSaad groupsLoading..., which are in debt to the tune of $20 billion (Dh73.5 billion), much of which is owed to Gulf and Emirati banks, highlights the importance of

What prompts them to accept invitations to serve on so many boards if they have no time to dedicate to these firms?

collective reform and responsibility. Ideally, the collective leadership of the GCC would function as a board of directors,

Regulators should consider tightening rules about board members’ responsibilities since so many are paid for doing almost

with citizens as shareholders and expatriate residents as stakeholders in the establishment. In the business world, a board


of directors represents the interests of both the shareholders and the stakeholders – the latter need not own shares in a firm to still be affected by its decisions. The recent misfortunes of the jewellery retailer Damas InternationalDamas International, which is listed on the NASDAQ Dubai, were particularly notable. The Dubai Financial Services Authority (DFSA)Dubai Financial Services Authority (DFSA)Loading..., the exchange’s regulator, acted swiftly when it realised that the management at DamasDamasLoading...

The lack of accountability in board rooms may also reflect that too many leaders in the Gulf are not accountable to either shareholders or stakeholders. Frankly, I hope that the DFSADFSALoading... pursues strict measures against the former board members of DamasDamasLoading.... Their collective responsibility to the firm demands tough action.

was taking advantage of the firm’s shareholders and spending the company’s money, raised through an initial public offering, on personal expenditures. The three brothers who ran the company were then removed from their positions. It is hard to imagine such strict – and appropriate – measures being imposed on firms listed on the stock markets of

Sultan Sooud Al Qassemi is a non-resident fellow of the Dubai School of Government

other Gulf states. While the DFSADFSALoading... must be commended for its action, what is missing here is collective accountability. The DFSADFSALoading... stated that its investigation into DamasDamasLoading... revealed “the company’s board did not exercise appropriate governance after key executives drew down reserves without approval.” The board of DamasDamasLoading... was dismissed by the DFSADFSALoading... and a new one appointed, but so far there have not been any other measures taken against the former board members. Isn’t the board responsible for what happens in a firm? What are its duties and obligations towards shareholders? The lack of so-called “Chinese Walls”, ethical barriers between divisions of a company, is unfortunately prevalent among the region’s family-run businesses, so there is no clear line between family and company finances. That leads to many of those companies being poorly run, but it should never be acceptable in companies that are listed on an exchange. Once a firm goes public, it’s a whole new ball game. And it seems that many businesses and their board members in the UAE are simply not ready to play by the new rules. Examples are all too easy to find. One major listed company in the UAE, which will remain unnamed, was publicly sponsoring the hobbies of the son of its chief executive. In another case, a former chairman of a regional bank who is under investigation for corruption had real estate investments financed through his own bank at quite attractive terms. When a friend of mine inquired about the brazen practice, a senior staff member at the bank answered: “How would it look if the chairman sought financing from another bank?” In both cases, members of the board should have objected privately 10


Value expatriates, but still build on Emirati talent By Sultan Sooud Al Qassemi Published in The National on May 9, 2010 Emiratis have always been proud of the role that expatriates play in our young and still developing society. Even before the

various fields and practices across the country. Architecture is only one, less controversial, example.

federation was founded in 1971, expatriates from both East and West who called this region home were, and continue to

The achievements of these respected foreigners aside, there are questions that must be answered. Do we as Emiratis

be, welcomed by a grateful community eager to learn and share knowledge.

wholeheartedly believe in local talent? Do we believe in indigenous creativity? Do we believe that Emiratis know their

This respect, tolerance and appreciation has helped to catapult the UAE into the ranks of advanced countries in less than four decades. That said, it is time that the nation starts to believe in itself and the capabilities of its own citizens as well. One field where the UAE has made major strides is education. The country boasts scores of universities offering degrees from finance to architecture to engineering, with thousands of Emiratis and expatriates graduating every year.

country better than foreigners, some of whom have never stepped foot on the UAE soil but are still asked to represent the country abroad? Unless we allow nationals, both men and women, opportunities to showcase their abilities, we only pay lip service to indigenous talent and show that we do indeed suffer from Khawaja complex. While we continue to respect and appreciate foreign contributions, it is time that Emirati talent is also recognised.

Last year The National reported that Traffic, a gallery in Dubai, showcased 20 works by students of the American University of Sharjah’s College of Architecture, Art and Design. Among the designs on display was Xeritown, a land development plan by the Emirati architect Ahmed Ebrahim al Ali, a co-founder of the architecture firm X-Architects. The

Sultan Sooud Al Qassemi is a non-resident fellow of the Dubai School of Government

idea was to create a community with sustainability at its heart, which would use building orientation and shade to reduce water consumption and to maintain a cool environment during the summer months. Al Ali’s work did not go unnoticed and in 2008 the Zurich-based Holcim Foundation for Sustainable Construction awarded the concept its Acknowledgement prize. Xeritown also won the 2009 Middle East Architect Award Mixed-use project of the year. In the same ceremony, his fellow Emirati Khalid al Najjar, the founder of dxb.lab Architecture, was recognised as Architect of the Year. Over the past few years al Najjar has positioned himself as the face of modern architecture in the Emirates, speaking at prestigious forums from the Art Basel Conversation 2006, the International Design Forum in Dubai in 2007, and the Abu Dhabi Interior Design Show in 2008. Three years ago Wallpaper magazine featured dxb.lab in its directory of the 101 most exciting new architects in the world. It was the only firm from the Arab world to be included. Then there is Wasel Safwan, an Emirati architect and artist based in Al Ain. Safwan’s keen eye has allowed him to transcend and combine his two disciplines. Recently, he created works of art for Formula One in Abu Dhabi last autumn and the recent Womad music festival. Safwan was also one of the people chosen to represent his country in the UAE pavilion at the World Expo 2010 in Shanghai. Last week, I read with mixed emotions, both pride and disappointment, that the Dh77 million pavilion was designed by Lord Norman Foster, a British award-winning architect. Lord Foster was also chosen to design the Sheikh Zayed National Museum, arguably the museum that most powerfully symbolises the UAE, which is planned for Saadiyat Island. Also on Saadiyat there will be Frank Gehry’s Guggenheim, Jean Nouvel’s Louvre, Zaha Hadid’s performing arts centre and Tadao Ando’s maritime museum. The common thread in all of these landmark projects is that their architects are not Emiratis. The Egyptians have coined a phrase that applies: the Khawaja complex. Dr Numan Gharaibeh a psychiatrist at Danbury Hospital in Connecticut, defines it as “a social phenomenon characterised by indiscriminate over-valuation of everything and everybody western, European or white regardless of real or true value”. The phenomenon also applies to ideas, not just individuals. The truth is that the UAE, like other Arab states, sometimes seems to suffer from Khawaja complex, which can be seen in



Entrepreneurial Arabs will make it better for the next generation By Sultan Sooud Al Qassemi Published in The National on November 14, 2010 The first few days of November have quickly become known as Entrepreneurship Week in Dubai. The Dubai School of

The Celebration of Entrepreneurship 2010 featured ministers such as Sheikha Lubna Al Qasimi and Reem al Hashimi,

Government kicked off the week with a panel on women’s entrepreneurship in the Gulf, featuring leading businesswomen

entrepreneurial legends including Samih Touqan and Fadi Ghandour, and ambitious young people all voicing their

from Abu Dhabi, Dubai and the region. The next day at the Young Arab Leaders Entrepreneurship Summit, cross-

concerns and sharing their aspirations.

generational leadership was represented, with Sheikh Mohammed bin Rashid, the Prime Minister and Ruler of Dubai, and his son Crown Prince Sheikh Hamdan attending.

One day we will look back on a few days in November, when thousands of young, aspiring leaders came together and believed in what seemed to be impossible: things will be better for the next generation of Arabs. Through entrepreneurship,

The youth summit, which I was involved in organising, was a Who’s Who of Arab business leaders, including Rabea Ataya,

one person’s fledgling business of today will become the transnational corporation of tomorrow. Yes, these are lofty goals,

the founder of Habib Hadad, the founder of, Ihsan Jawad, the founder of, Dr Naif al

but even Thomas Edison’s ideas started with a spark.

Mutawa, the creator of The 99 comics, and Sheikh Khaled bin Zayed, the founder of the Bin Zayed Group. The list of Emirati and regional guiding lights in entrepreneurship goes on and on. But perhaps the most important element among the 500 or so attendees were the scores of students and aspiring entrepreneurs who were there to learn from

Sultan Sooud Al Qassemi is a non-resident fellow of the Dubai School of Government

those who had gone before. The week was capped with what will be viewed as a day of historic transformation in the world of Arab entrepreneurship. Led by Arif Naqvi, the chief executive of Abraaj Capital, and Fadi Ghandour, the chief executive of Aramex, more than 2,000 budding and established entrepreneurs congregated for the Celebration of Entrepreneurship 2010. At the event,, which means spark in Arabic, was launched as a meeting place for the region’s entrepreneurs. The truth is that Arabs are sick and tired of hearing of the trouble that regional governments’ failed policies have got us into. Arabs are now ready to do something about it. According to UNDP estimates, 50 million jobs (some say 100 million) need to be created in the Middle East by 2020 just to prevent unemployment from growing even worse. Harbour no allusions that Arab governments will be able to create these tens of millions of jobs: only the private sector and entrepreneurship have the potential. Everyone was there for one common goal: instilling the spirit of entrepreneurship in young Arabs. The same podiums were shared by the likes of Naguib Swairis, the founder of Orascom Telecoms, and a pair of brilliant teenage Yemeni students who have started a new coffee-producing business. Their plans are no less grand than ridding their country of the menace of khat and bringing back coffee as an agricultural earner of foreign exchange. Indeed, we are desperate for grand ideas. We need ideas that will allow the Arab world to make a giant leap into the present, rather than linger in the era of bygone policies. A consensus was reached at the conference: the fragmented approach that Arab governments have taken will not work. It is simply not good enough for one country to create jobs while others lag behind. When Europe rose out of the ashes of the Second World War, it was not because Germany or France competed or worked in isolation; it was largely because of their joint effort to establish the European Coal and Steel Community, the precursor to the European Union. Arab governments need to understand that without pan-Arab initiatives, true economic prosperity will not be achieved. We must capitalise on our demographic strengths as a region with a population larger than the United States and comparable to the European Union. It is no coincidence that, recently sold to Yahoo! for more than $100 million (Dh367 million), garnered so much global attention. After all, it was always a pan-Arab, not just a Jordanian firm.





Financial crisis (2007–present) From Wikipedia, the free encyclopedia The financial crisis from 2007 to the present is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It was triggered by a liquidity shortfall in the United States banking system,[2] and has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity.[3] Many causes for the financial crisis have been suggested, with varying weight assigned by experts.[4] Both market-based and regulatory solutions have been implemented or are under consideration,[5] while significant risks remain for the world economy over the 2010–2011 period.[6]

Contents 1 Overview 2 Background 2.1 Growth of the housing bubble 2.2 Easy credit conditions 2.3 Weak and fraudulent underwriting practice 2.4 Sub-prime lending 2.5 Predatory lending 2.6 Deregulation 2.7 Increased debt burden or over-leveraging 2.8 Financial innovation and complexity 2.9 Incorrect pricing of risk 2.10 Boom and collapse of the shadow banking system 2.11 Commodities boom 2.12 Systemic crisis 2.13 Role of economic forecasting 3 Financial markets impacts 3.1 Impacts on financial institutions 3.2 Credit markets and the shadow banking system 3.3 Wealth effects 3.4 European contagion 4 Effects on the global economy 4.1 Global effects 4.2 U.S. economic effects 4.3 Official economic projections 4.4 2010 European sovereign debt crisis 5 Responses to financial crisis 5.1 Emergency and short-term responses 5.2 Regulatory proposals and long-term responses 5.3 United States Congress response 6 Media on the crisis 7 Stabilization 8 Predictions for a second wave of the financial crisis 9 See also 10 References 11 External links and further reading


Overview The collapse of the U.S. housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[7] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[8] Critics argued that credit rating agencies and investors failed accurately to price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.[9] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts.

Background The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006.[10][11] Already-rising default rates on “subprime” and adjustable rate mortgages (ARM) began to increase quickly thereafter. As banks began to increasingly give out more loans to potential home owners, the housing price also began to rise. In the optimistic terms the banks would encourage the home owners to take on considerably high loans in the belief they would be able to pay it back more quickly overlooking the interest rates. Once the interest rates began to rise in mid 2007 the housing price started to drop significantly in 2006 leading into 2007. In many states like California refinancing became more difficult. As a result the number of foreclosed homes began to rise as well. Steadily decreasing interest rates backed by the U.S Federal Reserve from 1982 onward and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing construction boom and encouraging debt-financed consumption.[13] The combination of easy credit and money inflow contributed to the United States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load.[14][15] As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and Share in GDP of U.S. financial sector since 1860[12] investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to drain wealth from consumers and erodes the financial strength of banking institutions. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars globally.[16] While the housing and credit bubbles built, a series of factors caused the financial system to both expand and become increasingly fragile, a process called financialization. U. S. Government policy from the 1970s onward has emphasized deregulation to encourage business, which resulted in less oversight of activities and less disclosure of information about new activities undertaken by banks and other evolving financial institutions. Thus, policymakers did not immediately recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. Some experts believe these institutions had become as important as commercial (depository) banks in providing credit to the U.S. economy, but they were not subject to the same regulations.[17] These institutions, as well as certain regulated banks, had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses.[18] These losses impacted the ability of financial institutions to lend, slowing economic activity. Concerns regarding the stability of key financial institutions drove central banks to provide funds to encourage lending and restore faith in the commercial 19

paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions and implemented economic stimulus programs, assuming significant additional financial commitments. The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that “the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.” [19][20]

Growth of the housing bubble Main article: United States housing bubble Between 1997 and 2006, the price of the typical American house increased by 124%.[22] During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006.[23] This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, A graph showing the median and average sales prices of new homes sold in the United States or financing consumer between 1963 and 2008 (not adjusted for inflation)[21] spending by taking out second mortgages secured by the price appreciation. In a Peabody Award winning program, NPR correspondents argued that a “Giant Pool of Money” (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.[24] The CDO in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.[25][26] By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.[27][28] As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006.[29] This increased to 2.3 million in 2008, an 81% increase vs. 2007.[30] By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure.[31] By September 2009, this had risen to 14.4%.[32] 20

Easy credit conditions Lower interest rates encourage borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%.[33] This was done to soften the effects of the collapse of the dot-com bubble and of the September 2001 terrorist attacks, and to combat the perceived risk of deflation.[34] Additional downward pressure on interest rates was created by the USA’s high and rising current account (trade) deficit, which peaked along with the housing bubble in 2006. Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, which bid up bond prices and lowered interest rates.[35] Bernanke explained that between 1996 and 2004, the USA current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the USA to borrow large sums from abroad, much of it from countries running trade surpluses, mainly the emerging economies in Asia and oilU.S. current account or trade deficit exporting nations. The balance of payments identity requires that a country (such as the USA) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the USA to finance its imports. This created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend, either because they had very high personal savings rates (as high as 40% in China), or because of high oil prices. Bernanke referred to this as a “saving glut.” [36] A “flood” of funds (capital or liquidity) reached the USA financial markets. Foreign governments supplied funds by purchasing USA Treasury bonds and thus avoided much of the direct impact of the crisis. USA households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities. The Fed then raised the Fed funds rate significantly between July 2004 and July 2006.[37] This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners.[38] This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates and it became riskier to speculate in housing.[39][40] USA housing and financial assets dramatically declined in value after the housing bubble burst.[41][42] Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen, III on events during his tenure as Citi’s Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group (where he was responsible for over 220 professional underwriters) suggests that by the final years of the US housing bubble (2006–2007), the collapse of mortgage underwriting standards was endemic. His testimony states that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were “defective” (were not underwritten to policy, or did not contain all policy-required documents). This, despite the fact that each of these 1,600 originators were contractually responsible (certified via representations and warrantees) that their mortgage originations met Citi’s standards. Moreover, during 2007, “defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi’s standards) increased... to over 80% of production”.[43] In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdings—the largest residential loan due diligence and securitization surveillance company in the United States and Europe—testified that Clayton’s review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 “Too Big To Fail” banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton’s analysis further showed that 39% of these loans (i.e. those not meeting any issuer’s minimal underwriting standards) were subsequently securitized and sold to investors.[44][45]


Sub-prime lending

Predatory lending

U.S. subprime lending expanded dramatically 2004-2006

Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into “unsafe” or “unsound” secured loans for inappropriate purposes.[63] A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated.

The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers.[46] The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007,[47] with over 7.5 million first-lien subprime mortgages outstanding.[48] In addition to easy credit conditions, there is evidence that both government and competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major U.S. investment banks and government sponsored enterprises like Fannie Mae played an important role in the expansion of higher-risk lending.[49][50] Subprime mortgages remained below% of all mortgage originations until 2004, when they spiked to nearly 20% and remained there through the 2005-2006 peak of the United States housing bubble.[51] A proximate event to this increase was the April 2004 decision by the U.S. Securities and Exchange Commission (SEC) to relax the net capital rule, which permitted the largest five investment banks to dramatically increase their financial leverage and aggressively expand their issuance of mortgage-backed securities. This applied additional competitive pressure to Fannie Mae and Freddie Mac, which further expanded their riskier lending.[52] Subprime mortgage payment delinquency rates remained in the-15% range from 1998 to 2006,[53] then began to increase rapidly, rising to 25% by early 2008.[54][55] Some, like American Enterprise Institute fellow Peter J. Wallison,[56] believe the roots of the crisis can be traced directly to sub-prime lending by Fannie Mae and Freddie Mac, which are government sponsored entities. On September 30, 1999, The New York Times reported that the Clinton Administration pushed for more lending to low and moderate income borrowers, while the mortgage industry sought guarantees for sub-prime loans:

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.[57]

Former employees from Ameriquest, which was United States’s leading wholesale lender,[65] described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits.[65] There is growing evidence that such mortgage frauds may be a cause of the crisis.[65]

Deregulation Further information: Government policies and the subprime mortgage crisis Critics such as economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include: • Jimmy Carter’s Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks’ financial practices, broadened their lending powers, and raised the deposit insurance limit from $40,000 to $100,000 (raising the problem of moral hazard).[66] Banks rushed into real estate lending, speculative lending, and other ventures just as the economy soured.[citation needed] • In October 1982, U.S. President Ronald Reagan signed into Law the Garn–St. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation,[citation needed] and contributed to the savings and loan crisis of the late 1980s/early 1990s.[67]

A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid level income (LMI) borrowers and neighborhoods, representing% of all US mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998. [58] Nevertheless, only 25% of all sub-prime lending occurred at CRA-covered institutions, and a full 50% of sub-prime loans originated at institutions exempt from CRA.[59] For at least one mortgage lender,CRA loans were the more “vulnerable during the downturn, to the detriment of both borrowers and lenders. For example, lending done under Community Reinvestment Act criteria, according to a quarterly report in October of 2008, constituted only 7% of the total mortgage lending by the Bank of America, but constituted 29% of its losses on mortgages.” [60]

• In November 1999, U.S. President Bill Clinton signed into Law the Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had fiscally conservative policies) and investment banks (which had a more risk-taking culture).[68][69]

Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that “There weren’t enough Americans with [bad] credit taking out [bad loans] to satisfy investors’ appetite for the end product.” Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps, CDO and synthetic CDO. As long as derivative buyers could be matched with sellers, the theoretical amount that could be wagered was infinite. “They were creating [synthetic loans] out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans.” [61]

• Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.[72] This was the case despite the Long-Term Capital Management debacle in 1998, where a highly-leveraged shadow institution failed with systemic implications.

Economist Paul Krugman argued in January 2010 that the simultaneous growth of the residential and commercial real estate pricing bubbles undermines the case made by those who argue that Fannie Mae, Freddie Mac, CRA or predatory lending were primary causes of the crisis. In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes.[62] 22

Countrywide, sued by California Attorney General Jerry Brown for “unfair business practices” and “false advertising” was making high cost mortgages “to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments”.[64] When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide’s financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.

• In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.[70][71]

• Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.[73] This increased uncertainty during the crisis regarding the financial position of the major banks.[74] Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001.[75]


• As early as 1997, Federal Reserve Chairman Alan Greenspan fought to keep the derivatives market unregulated. [76] With the advice of the President’s Working Group on Financial Markets,[77] the U.S. Congress and President allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks. The volume of CDS outstanding increased0-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.[78] Warren Buffett famously referred to derivatives as “financial weapons of mass destruction” in early 2003.[79][80]

Increased debt burden or over-leveraging

Martin Wolf wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: “ enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the ‘shadow banking system’ itself – was to find a way round regulation.”[94]

U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis.[81] This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn[citation needed]. Key statistics include: • Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion dollars over the period, contributing to economic growth worldwide.[82] [83][84] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.

IMF Diagram of CDO and RMBS

Incorrect pricing of risk A protester on Wall Street in the wake of the AIG bonus payments controversy is interviewed by news media.


Leverage ratios of investment banks increased significantly 2003-2007

• USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.[86] • In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%.[87] • From 2004-07, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support.[88] • Fannie Mae and Freddie Mac, two U.S. Government sponsored enterprises, owned or guaranteed nearly $5 trillion in mortgage obligations at the time they were placed into conservatorship by the U.S. government in September 2008.[89] [90]

These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations, an enormous concentration of risk[neutrality is disputed]; yet they were not subject to the same regulation as depository banks.[72][91]

Financial innovation and complexity The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions. CDO issuance grew from an estimated $20 billion in Q1 2004 to its peak of over $180 billion by Q1 2007, then declined back under $20 billion by Q1 2008. Further, the credit quality of CDO’s declined from 2000-2007, as the level of subprime 24

and other non-prime mortgage debt increased from 5% to 36% of CDO assets.[92] As described in the section on subprime lending, the CDS and portfolio of CDS called synthetic CDO enabled a theoretically infinite amount to be wagered on the finite value of housing loans outstanding, provided that buyers and sellers of the derivatives could be found. For example, selling a CDS to insure a CDO ended up giving the seller the same risk as if they owned the CDO, when those CDO’s became worthless.[93]

The pricing of risk refers to the incremental compensation required by investors for taking on additional risk, which may be measured by interest rates or fees. For a variety of reasons, market participants did not accurately measure the risk inherent with financial innovation such as MBS and CDO’s or understand its impact on the overall stability of the financial system.[9] For example, the pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. Banks estimated that $450bn of CDO were sold between “late 2005 to the middle of 2007”; among the $102bn of those that had been liquidated, JPMorgan estimated that the average recovery rate for “high quality” CDOs was approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO was approximately five cents for every dollar.[95]

A protester on Wall Street in the wake of the AIG bonus payments controversy is interviewed by news media.

Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S. taxpayers provided over $180 billion in government support to AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.[96][97] The limitations of a widely-used financial model also were not properly understood.[98][99] This formula assumed that the price of CDS was correlated with and could predict the correct price of mortgage backed securities. Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies.[99] According to one article:

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril... Li’s Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.[99]


As financial assets became more and more complex, and harder and harder to value, investors were reassured by the fact that both the international bond rating agencies and bank regulators, who came to rely on them, accepted as valid some complex mathematical models which theoretically showed the risks were much smaller than they actually proved to be.[100] George Soros commented that “The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.” [101] Moreover, a conflict of interest between professional investment managers and their institutional clients, combined with a global glut in investment capital, led to bad investments by asset managers in over-priced credit assets. Professional investment managers generally are compensated based on the volume of client assets under management. There is, therefore, an incentive for asset managers to expand their assets under management in order to maximize their compensation. As the glut in global investment capital caused the yields on credit assets to decline, asset managers were faced with the choice of either investing in assets where returns did not reflect true credit risk or returning funds to clients. Many asset managers chose to continue to invest client funds in over-priced (under-yielding) investments, to the detriment of their clients, in order to maintain their assets under management. This choice was supported by a “plausible deniability” of the risks associated with subprime-based credit assets because the loss experience with early “vintages” of subprime loans was so low.[102] Despite the dominance of the above formula, there are documented attempts of the financial industry, occurring before the crisis, to address the formula limitations, specifically the lack of dependence dynamics and the poor representation of extreme events.[103] The volume “Credit Correlation: Life After Copulas”, published in 2007 by World Scientific, summarizes a 2006 conference held by Merrill Lynch in London where several practitioners attempted to propose models rectifying some of the copula limitations. See also the article by Donnelly and Embrechts [104] and the book by Brigo, Pallavicini and Torresetti, that reports relevant warnings and research on CDOs appeared in 2006. [105]

Boom and collapse of the shadow banking system In a June 2008 speech, President and CEO of the New York Federal Reserve Bank Timothy Geithner — who in 2009 became Secretary of the United States Treasury — placed significant blame for the freezing of credit markets on a “run” on the entities in the “parallel” banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls. Further, these entities were vulnerable because of maturity mismatch, meaning that they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would make them subject to rapid deleveraging, selling their long-term assets at depressed prices. He described the significance of these entities:

Commodities boom Main article: 2000s commodities boom Rapid increases in a number of commodity prices followed the collapse in the housing bubble. The price of oil nearly tripled from $50 to $147 from early 2007 to 2008, before plunging as the financial crisis began to take hold in late 2008.[109] Experts debate the causes, with some attributing it to speculative flow of money from housing and other investments into commodities, some to monetary policy,[110] and some to the increasing feeling of raw materials scarcity in a fast growing world, leading to long positions taken on those markets, such as Chinese increasing presence in Africa. An increase in oil prices tends to divert a larger share of consumer spending into gasoline, which creates downward pressure on economic growth in oil importing countries, as wealth flows to oil-producing states.[111] A pattern of spiking instability in the price of oil over the decade leading up to the price high of 2008 has been recently identified. [112] The destabilizing effects of this price variance has been proposed as a contributory factor in the financial crisis. In testimony before the Senate Committee on Commerce, Science, and Transportation on June 3, 2008, former director of the CFTC Division of Trading & Markets (responsible for enforcement) Michael Greenberger specifically named the Atlanta-based IntercontinentalExchange, founded by Goldman Sachs, Morgan Stanley and BP as playing a key role in speculative run-up of oil futures prices traded off the regulated futures exchanges in London and New York.[113] However, the IntercontinentalExchange (ICE) had been regulated by both European and US authorities since its purchase of the International Petroleum Exchange in 2001. Mr Greenberger was later corrected on this matter.[114] Copper prices increased at the same time as the oil prices. Copper traded at about $2,500 per tonne from 1990 until 1999, when it fell to about $1,600. The price slump lasted until 2004 which saw a price surge that had copper reaching $7,040 per tonne in 2008.[115] Nickel prices boomed in the late 1990s, then the price of nickel imploded from around $51,000 /£36,700 per metric ton in May 2007 to about $11,550/£8,300 per metric ton in January 2009. Prices were only just starting to recover as of January 2010, but most of Australia’s nickel mines had gone bankrupt by then. [116] As the price for high grade nickel sulphate ore recovered in 2010, so did the Australian nickel mining industry.[117]

Securitization markets were impaired during the crisis

Paul Krugman, laureate of the Nobel Prize in Economics, described the run on the shadow banking system as the “core of what happened” to cause the crisis. He referred to this lack of controls as “malign neglect” and argued that regulation should have been imposed on all banking-like activity.[72] The securitization markets supported by the shadow banking system started to close down in the spring of 2007 and nearly shut-down in the fall of 2008. More than a third of the private credit markets thus became unavailable as a source of funds.[106] According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: “It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume.” The authors also indicate that some forms of securitization are “likely to vanish forever, having been an artifact of excessively loose credit conditions.” [107] Economist Mark Zandi testified to the Financial Crisis Inquiry Commission in January 2010: “The securitization markets 26

also remain impaired, as investors anticipate more loan losses. Investors are also uncertain about coming legal and accounting rule changes and regulatory reforms. Private bond issuance of residential and commercial mortgage-backed securities, asset-backed securities, and CDOs peaked in 2006 at close to $2 trillion...In 2009, private issuance was less than $150 billion, and almost all of it was asset-backed issuance supported by the Federal Reserve’s TALF program to aid credit card, auto and small-business lenders. Issuance of residential and commercial mortgage-backed securities and CDOs remains dormant.”[108]

Global copper prices

Coincidentally with these price fluctuations, long-only commodity index funds became popular – by one estimate investment increased from $90 billion in 2006 to $200 billion at the end of 2007, while commodity prices increased 71% – which raised concern as to whether these index funds caused the commodity bubble.[118] The empirical research has been mixed.[118]

Systemic crisis Another analysis, different from the mainstream explanation, is that the financial crisis is merely a symptom of another, deeper crisis, which is a systemic crisis of capitalism itself.[119] According to Samir Amin, an Egyptian Marxist economist, the constant decrease in GDP growth rates in Western countries since the early 1970s created a growing surplus of capital which did not have sufficient profitable investment outlets in the real economy. The alternative was to place this surplus into the financial market, which became more profitable than capital investment, especially with subsequent deregulation.[120] According to Samir Amin, this phenomenon has led to recurrent financial bubbles (such as the internet bubble) and is the deep cause of the financial crisis of 2007-2010.[121] John Bellamy Foster, a political economy analyst and editor of the Monthly Review, believes that the decrease in GDP 27

growth rates since the early 1970s is due to increasing market saturation.[122] John C. Bogle wrote during 2005 that a series of unresolved challenges face capitalism that have contributed to past financial crises and have not been sufficiently addressed:

Financial markets impacts Impacts on financial institutions

Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long...They failed to ‘keep an eye on these geniuses’ to whom they had entrusted the responsibility of the management of America’s great corporations.

He cites particular issues, including:[123][124] • “Manager’s capitalism” which he argues has replaced “owner’s capitalism,” meaning management runs the firm for its benefit rather than for the shareholders, a variation on the principal-agent problem; • Burgeoning executive compensation; • Managed earnings, mainly a focus on share price rather than the creation of genuine value; and • The failure of gatekeepers, including auditors, boards of directors, Wall Street analysts, and career politicians. An analysis conducted by Mark Roeder, a former executive at the Swiss-based UBS Bank, suggested that large scale momentum, or The Big Mo “played a pivotal role” in the 2008-09 global financial crisis. Roeder suggested that “recent technological advances, such as computer-driven trading programs, together with the increasingly interconnected nature of markets, has magnified the momentum effect. This has made the financial sector inherently unstable.” [125] Robert Reich has attributed the current economic downturn to the stagnation of wages in the United States, particularly those of the hourly workers who comprise 80% of the workforce. His claim is that this stagnation forced the population to borrow in order to meet the cost of living.[126]

Role of economic forecasting The financial crisis was not widely predicted by mainstream economists, who instead spoke of The Great Moderation. A number of heterodox economists predicted the crisis, with varying arguments. Dirk Bezemer in his research[127] credits (with supporting argument and estimates of timing) 12 economists with predicting the crisis: Dean Baker (US), Wynne Godley (UK), Fred Harrison (UK), Michael Hudson (US), Eric Janszen (US), Steve Keen (Australia), Jakob Brøchner Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer (US), Nouriel Roubini (US), Peter Schiff (US), and Robert Shiller (US). Examples of other experts who gave indications of a financial crisis have also been given.[128][129][130] A cover story in BusinessWeek magazine claims that economists mostly failed to predict the worst international economic crisis since the Great Depression of 1930s.[131] The Wharton School of the University of Pennsylvania’s online business journal examines why economists failed to predict a major global financial crisis.[132] Popular articles published in the mass media have led the general public to believe that the majority of economists have failed in their obligation to predict the financial crisis. For example, an article in the New York Times informs that economist Nouriel Roubini warned of such crisis as early as September 2006, and the article goes on to state that the profession of economics is bad at predicting recessions.[133] According to The Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him “Dr. Doom”.[134] Within mainstream financial economics, most believe that financial crises are simply unpredictable,[135] following Eugene Fama’s efficient-market hypothesis and the related random-walk hypothesis, which state respectively that markets contain all information about possible future movements, and that the movement of financial prices are random and unpredictable. Lebanese-American trader and financial risk engineer Nassim Nicholas Taleb author of The Black Swan spent years warning against the breakdown of the banking system in particular and the economy in general owing to their use of bad risk models and reliance on forecasting, and their reliance on bad models, and framed the problem as part of “robustness and fragility”. [136][137] He also reacted against the cold of the establishment by making a big financial bet on banking stocks and making a fortune from the crisis (“They didn’t listen, so I took their money”) .[138] According to David Brooks from the New York Times, “Taleb not only has an explanation for what’s happening, he saw it coming.” .[139]


See also: Nationalisation of Northern Rock and Federal takeover of Fannie Mae and Freddie Mac The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans from January 2007 to September 2009. These losses are expected to top $2.8 trillion from 2007-10. U.S. banks losses were forecast to hit $1 trillion and European bank losses will reach $1.6 trillion. The IMF estimated that U.S. banks were about 60% through their losses, but British and eurozone banks only 40%.[140] One of the first victims was Northern Rock, a medium-sized British bank.[141] The highly leveraged nature of its business led the bank to request security from the Bank of England. This in turn led to investor panic and a bank run[142] 2007 bank run on Northern Rock, a UK bank in mid-September 2007. Calls by Liberal Democrat Treasury Spokesman Vince Cable to nationalise the institution were initially ignored; in February 2008, however, the British government (having failed to find a private sector buyer) relented, and the bank was taken into public hands. Northern Rock’s problems proved to be an early indication of the troubles that would soon befall other banks and financial institutions. Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial, as they could no longer obtain financing through the credit markets. Over0 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its fire-sale to JP Morgan Chase. The financial institution crisis hit its peak in September and October 2008. Several major institutions either failed, were acquired under duress, or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, and AIG.[143]

Credit markets and the shadow banking system During September 2008, the crisis hit its most critical stage. There was the equivalent of a bank run on the money market mutual funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls. Withdrawal from money markets were $144.5 billion during one week, versus $7.1 billion the week prior. This interrupted the ability of corporations to rollover (replace) their short-term debt. The U.S. government responded by extending insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee[144] and with Federal Reserve programs to purchase commercial paper. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008,[145] reaching a record 4.65% on October, 2008.

TED spread and components during 2008

In a dramatic meeting on September 18, 2008, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout. Bernanke reportedly told them: “If we don’t do this, we may not have an economy on Monday.”[146] The Emergency Economic Stabilization Act, which implemented the Troubled Asset Relief Program (TARP), was signed into law on October 3, 2008.[147] Economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner explain the credit crisis via the implosion of the shadow banking system, which had grown to nearly equal the importance of the traditional commercial banking sector as 29

described above. Without the ability to obtain investor funds in exchange for most types of mortgage-backed securities or asset-backed commercial paper, investment banks and other entities in the shadow banking system could not provide funds to mortgage firms and other corporations.[17][72]

failure, caused the collapse or takeover of several key firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.[154][155][156]

This meant that nearly one-third of the U.S. lending mechanism was frozen and continued to be frozen into June 2009. [148] According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: “It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume.” The authors also indicate that some forms of securitization are “likely to vanish forever, having been an artifact of excessively loose credit conditions.” While traditional banks have raised their lending standards, it was the collapse of the shadow banking system that is the primary cause of the reduction in funds available for borrowing.[149]

The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities[157] and commodities.[158]

Wealth effects

Both MBS and CDO were purchased by corporate and institutional investors globally. Derivatives such as credit default swaps also increased the linkage between large financial institutions. Moreover, the de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts[159] to reduce fears, but the crisis continued. At the end of October 2008 a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.[160][161]

There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth[citation needed]. By early November 2008, a broad U.S. stock index the S&P 500, was down 45% from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans’ second-largest household asset, dropped by 22%, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.[150] Since peaking in the second quarter of 2007, household wealth is down $14 trillion.[151]

Effects on the global economy Main article: Late-2000s recession

Global effects

The New York City

Further, U.S. homeowners had extracted significant equity in their homes in the years headquarters of Lehman Brothers leading up to the crisis, which they could no longer do once housing prices collapsed. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period.[82][83][84] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.[85] To offset this decline in consumption and lending capacity, the U.S. government and U.S. Federal Reserve have committed $13.9 trillion, of which $6.8 trillion has been invested or spent, as of June 2009.[152] In effect, the Fed has gone from being the “lender of last resort” to the “lender of only resort” for a significant portion of the economy. In some cases the Fed can now be considered the “buyer of last resort.” Economist Dean Baker explained the reduction in the availability of credit this way:

Yes, consumers and businesses can’t get credit as easily as they could a year ago. There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007 (of course, to clear-eyed analysts, they didn’t look too good a year ago either). While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth. Economists, economic policy makers and economic reporters virtually all missed the housing bubble on the way up. If they still can’t notice its impact as the collapse of the bubble throws into the worst recession in the post-war era, then they are in the wrong profession.[153]

At the heart of the portfolios of many of these institutions were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against 30

European contagion

A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse.[162] The continuing development of the crisis has prompted in some quarters fears of a global economic collapse although there are now many cautiously optimistic forecasters in addition to some prominent sources who remain negative. [163] The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown.[164] Investment bank UBS stated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years.[165] Three days later UBS economists announced that the “beginning of the end” of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world’s central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms “the worst is still to come”.[166] UBS quantified their expected recession durations on October 16: the Eurozone’s would last two quarters, the United States’ would last three quarters, and the United Kingdom’s would last four quarters.[167] The economic crisis in Iceland involved all three of the country’s major banks. Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history.[168] At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the early 1980s recession with negative 2009 growth for the U.S., Eurozone, UK; very limited recovery in 2010; but not as bad as the Great Depression.[169] The Brookings Institution reported in June 2009 that U.S. consumption accounted for more than a third of the growth in global consumption between 2000 and 2007. “The US economy has been spending too much and borrowing too much for years and the rest of the world depended on the U.S. consumer as a source of global demand.” With a recession in the U.S. and the increased savings rate of U.S. consumers, declines in growth elsewhere have been dramatic. For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia,[170] 9.8% in the Euro area and 21.5% for Mexico.[171] Some developing countries that had seen strong economic growth saw significant slowdowns. For example, growth forecasts in Cambodia show a fall from more than% in 2007 to close to zero in 2009, and Kenya may achieve only 3-4% growth in 2009, down from 7% in 2007. According to the research by the Overseas Development Institute, reductions in growth can be attributed to falls in trade, commodity prices, investment and remittances sent from migrant workers (which reached a record $251 billion in 2007, but have fallen in many countries since).[172] This has stark implications and has led to a dramatic rise in the number of households living below the poverty line, be it 300,000 in Bangladesh or 230,000 in Ghana.[172] The World Bank reported in February 2009 that in the Arab World, was far less severely affected by the credit crunch. With generally good balance of payments positions coming into the crisis or with alternative sources of financing for their large current account deficits, such as remittances, Foreign Direct Investment (FDI) or foreign aid, Arab countries were able to 31

avoid going to the market in the latter part of 2008. This group is in the best position to absorb the economic shocks. They entered the crisis in exceptionally strong positions. This gives them a significant cushion against the global downturn. The greatest impact of the global economic crisis will come in the form of lower oil prices, which remains the single most important determinant of economic performance. Steadily declining oil prices would force them to draw down reserves and cut down on investments. Significantly lower oil prices could cause a reversal of economic performance as has been the case in past oil shocks. Initial impact will be seen on public finances and employment for foreign workers.[173]

U.S. economic effects Real gross domestic product The output of goods and services produced by labor and property located in the United States—decreased at an annual rate of approximately 6% in the fourth quarter of 2008 and first quarter of 2009, versus activity in the year-ago periods.[174] The U.S. unemployment rate increased to.1% by October 2009, the highest rate since 1983 and roughly twice the pre-crisis rate. The average hours per work week declined to 33, the lowest level since the government began collecting the data in 1964. [175][176]

Distribution of wealth The very rich lost relatively less in the crisis than the remainder of the population, widening the divide between the economic classes. Thus the top 1% who had a share of 34.6% of the nation’s wealth in 2007 increased their share to 37.1% by 2009. This is a result of a class system, that protects the wealthy through bailouts and protection. Whereas, with the “Working Class” have no protection, and are left paying for the wealthy who have been bailed out.[177]

Official economic projections On November 3, 2008, the European Commission at Brussels predicted for 2009 an extremely weak growth of GDP, by 0.1%, for the countries of the Eurozone (France, Germany, Italy, Belgium etc.) and even negative number for the UK (-1.0%), Ireland and Spain. On November 6, the IMF at Washington, D.C., launched numbers predicting a worldwide recession by -0.3% for 2009, averaged over the developed economies. On the same day, the Bank of England and the European Central Bank, respectively, reduced their interest rates from 4.5% down to 3%, and from 3.75% down to 3.25%. As a consequence, starting from November 2008, several countries launched large “help packages” for their economies. The U.S. Federal Reserve Open Market Committee release in June 2009 stated:

...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.[178] Economic projections from the Federal Reserve and Reserve Bank Presidents include a return to typical growth levels (GDP) of 2-3% in 2010; an unemployment plateau in 2009 and 2010 around% with moderation in 2011; and inflation that remains at typical levels around 1-2%.[179]

European sovereign debt crisis Main article: European sovereign debt crisis of 2010–present One of the long-term worldwide consequences of the economic breakdown is the 2010 European sovereign debt crisis. This crisis primarily impacted five countries: Greece, Ireland, Portugal, Italy, and Spain. The governments of these nations habitually run large government budget deficits[citation needed]. Other Eurozone countries include: France, Belgium, The Netherlands, Luxembourg, Germany, Finland, Slovenia, Estonia and Austria[citation needed]. Greece, which at the time of the crisis also suffered from bad governing with widespread corruption and tax evasion, was hit the hardest and was thus targeted by credit rating agencies as the weak link of the Eurozone[citation needed]. Fear that Greece’s debt problems would cause lenders to stop lending to it, with the result that Greece would default on its sovereign debt, sparked speculation that such a default


would cause lenders to stop loaning money to the other PIGS (Portugal, Ireland/Italy, Greece and Spain) as well, with the result that they would also eventually default on their sovereign debt[citation needed]. A sovereign default by Spain, Portugal, Italy and Greece would result in bank losses so large that almost every bank in Europe would become insolvent due to the now uncollectible outstanding loans to those four countries[citation needed]. On Friday, May 7, 2010 a long-desired financial aid package for Greece was constructed[citation needed]; however, it was obviousTemplate:To who that other states, because of their extremely large debts, would have - or already had - financial difficulties[citation needed]. Therefore, the following Sunday[citation needed] a large group of ministers of Eurozone gathered in Brussels[citation needed], decided on a mutual financial aid package of €750 billion[citation needed]; and the European Central Bank announced that in the future it would support by explicit monetary help, if necessary, government bonds of the Eurozone countries (which was not allowed before, because of fears of inflation)[citation needed]. Already on May 21, 2010 the German parliament, only with a slight majority, was the first one to accept the new rules[citation needed] . While this aid package has so far averted a financial panic, the PIGS continue to have difficulties.[180]

Responses to financial crisis Emergency and short-term responses Main article: Subprime mortgage crisis#Responses The U.S. Federal Reserve and central banks around the world have taken steps to expand money supplies to avoid the risk of a deflationary spiral, in which lower wages and higher unemployment lead to a self-reinforcing decline in global consumption. In addition, governments have enacted large fiscal stimulus packages, by borrowing and spending to offset the reduction in private sector demand caused by the crisis. The U.S. executed two stimulus packages, totaling nearly $1 trillion during 2008 and 2009.[181] This credit freeze brought the global financial system to the brink of collapse. The response of the U.S. Federal Reserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. This was the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks.[143] In October 2010, Nobel laureate Joseph Stiglitz explained how the U.S. Federal Reserve was implementing another monetary policy —creating currency— as a method to combat the liquidity trap.[182] By creating $600,000,000,000 and inserting this directly into banks the Federal Reserve intended to spur banks to finance more domestic loans and refinance mortgages. However, banks instead were spending the money in more profitable areas by investing internationally in emerging markets. Banks were also investing in foreign currencies which Stiglitz and others point out may lead to currency wars while China redirects its currency holdings away from the United States.[183] Governments have also bailed out a variety of firms as discussed above, incurring large financial obligations. To date, various U.S. government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending. For a summary of U.S. government financial commitments and investments related to the crisis, see CNN Bailout Scorecard. Significant controversy has accompanied the bailout, leading to the development of a variety of “decision making frameworks”, to help balance competing policy interests during times of financial crisis. [184]

Regulatory proposals and long-term responses Further information: Obama financial regulatory reform plan of 2009, Regulatory responses to the subprime crisis, and Subprime mortgage crisis solutions debate United States President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely winddown systemically important institutions, among others.[185][186][187] In January 2010, Obama proposed additional regulations limiting the ability of banks to engage in proprietary trading. The proposals were dubbed “The Volcker Rule”, in recognition of Paul Volcker, who has publicly argued for the proposed changes.[188][189]


The U.S. Senate passed a regulatory reform bill in May 2010, following the House which passed a bill in December 2009. These bills must now be reconciled. The New York Times provided a comparative summary of the features of the two bills, which address to varying extent the principles enumerated by the Obama administration.[190] For instance, the Volcker Rule against proprietary trading is not part of the legislation, though in the Senate bill regulators have the discretion but not the obligation to prohibit these trades. A variety of other regulatory changes have been proposed by economists, politicians, journalists, and business leaders to minimize the impact of the current crisis and prevent recurrence. None of the proposed solutions have yet been implemented. These include: • Ben Bernanke: Establish resolution procedures for closing troubled financial institutions in the shadow banking system, such as investment banks and hedge funds.[191] • Nassim Nicholas Taleb: “Black Swan Robustness” i.e. Robustness against High Impact Rare Events(“Fat Tails”). • Joseph Stiglitz: Restrict the leverage that financial institutions can assume. Require executive compensation to be more related to long-term performance.[192] Re-instate the separation of commercial (depository) and investment banking established by the Glass-Steagall Act in 1933 and repealed in 1999 by the Gramm-Leach-Bliley Act.[193] • Simon Johnson: Break-up institutions that are “too big to fail” to limit systemic risk.[194]

introduced December 3, 2009 - Contained in the US House of Representatives bill entitled “H.R. 4191: Let Wall Street Pay for the Restoration of Main Street Act of 2009”[209][210] It is a proposed piece of legislation that was introduced into the United States House of Representatives to assess a minuscule tax on US Financial market (“Wall Street”) securities transactions. If passed, the money it generates will be used to rebuild “Main Street.” On the day it was introduced, it had the support of 22 representatives.[211] • Volcker Rule - (in US) - Endorsed by President Barack Obama on January 21, 2010. At its heart, it is a proposal by US economist Paul Volcker to restrict banks from making speculative investments that do not benefit their customers.[189] Volcker has argued that such speculative activity played a key role in the financial crisis of 2007–2010. • The Financial Crisis Responsibility Fee is a proposed tax by U.S. President Barack Obama on certain financial firms that would be imposed until the financial firm had paid off all money provided to it under the Troubled Assets Relief Program.[212] It was proposed in January 2010.[213] • On April 16, 2010, the IMF proposed two types of global taxes on banks: The “Financial Activities Tax” comes in two varieties. The simple version is a straight tax on a bank’s gross profits—before deducting compensation. A “financial stability contribution”, would initially be at a flat rate, this would eventually be refined so that riskier businesses paid more.[214] The second, more complex tax aims directly at excess bank profit and pay.[215][216] (See also Bank tax) • Maximum wage is an idea which has been enacted in early 2009 in the United States, where they capped executive pay at $500,000 per year for companies receiving extraordinary financial assistance from the US Taxpayers. [217]

• Paul Krugman: Regulate institutions that “act like banks” similarly to banks.[72] • Alan Greenspan: Banks should have a stronger capital cushion, with graduated regulatory capital requirements (i.e., capital ratios that increase with bank size), to “discourage them from becoming too big and to offset their competitive advantage.”[195] • Warren Buffett: Require minimum down payments for home mortgages of at least% and income verification.

• Don Tapscott writes about the need for transparency (behavior) in the banking industry using a different kind of financial innovation in his book Macrowikinomics, drawing on the power of the crowd to value financial securities.

United States Congress response


• Eric Dinallo: Ensure any financial institution has the necessary capital to support its financial commitments. Regulate credit derivatives and ensure they are traded on well-capitalized exchanges to limit counterparty risk.[197] • Raghuram Rajan: Require financial institutions to maintain sufficient “contingent capital” (i.e., pay insurance premiums to the government during boom periods, in exchange for payments during a downturn.).[198] • HM Treasury: Contingent capital or capital insurance held by the private sector could supplement common equity in times of crisis. There are a variety of proposals (e.g. Raviv 2004, Flannery 2009) under which banks would issue fixed income debt that would convert into capital according to a predetermined mechanism, either bank-specific (related to levels of regulatory capital) or a more general measure of crisis. Alternatively, under capital insurance, an insurer would receive a premium for agreeing to provide an amount of capital to the bank in case of systemic crisis. Following Raviv (2004) proposal, on November 3 Lloyds Banking Group (LBG), Britain’s biggest retail bank, said it would convert existing debt into about £7.5 billion ($12.3 billion) of “contingent core Tier-1 capital” (dubbed CoCos). This is a kind of debt that will automatically convert into shares if the bank’s cushion of equity capital falls below 5%.[199][200] • A. Michael Spence and Gordon Brown: Establish an early-warning system to help detect systemic risk.[201] • Niall Ferguson and Jeffrey Sachs: Impose haircuts on bondholders and counterparties prior to using taxpayer money in bailouts. In other words, bondholders with a claim of $100 would have their claim reduced to $80, creating $20 in equity. This is also called a debt for equity swap. This is frequently done in bankruptcies, where the current shareholders are wiped out and the bondholders become the new stockholders, agreeing to reduce the company’s debt burden in the process. This is being done with General Motors, for example.[202][203] • Nouriel Roubini: Nationalize insolvent banks.[204] Reduce mortgage balances to assist homeowners, giving the lender a share in any future home appreciation.[205] • Adair Turner: In August 2009 in a roundtable interview in Prospect Adair Turner supported the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society.[206] Lord Turner’s suggestion that a “Tobin tax” – named after the economist James Tobin – should be considered for financial transactions reverberated around the world.[207][208] • Let Wall Street Pay for the Restoration of Main Street Bill - in the US only (not international) - Proposed legislation


• On December 11, 2009 - House cleared bill H.R.4173 - Wall Street Reform and Consumer Protection Act of 2009[218] • On April 15, 2010 - Senate introduced bill S.3217 - Restoring American Financial Stability Act of 2010[219] • On July 21, 2010.[220] - the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted.[221]

Media on the crisis The financial crises have generated many articles and books outside of the scholarly and financial press. Most notable have been articles and books by author William Greider, economist Michael Hudson, author and former bond salesman Michael Lewis, Congressman Ron Paul, author Kevin Phillips, and Rolling Stone national correspondent Matt Taibbi. In May 2010 premiered Overdose: A Film about the Next Financial Crisis[222], a documentary about how the financial crisis came about and how the solutions that have been applied by many Governments are setting the stage for the next crisis. The film is based on the book Financial Fiasco by Johan Norberg. In October 2010, a new documentary film about the crisis, Inside Job directed by Charles Ferguson, was released by Sony Pictures Classics. In addition, a number of blogs experienced phenomenal growth, including The Baseline Scenario by James Kwak and Johnson, Calculated Risk by Bill McBride, and Zero Hedge by “Tyler Durden”.


Stabilization The recession that began in December 2007 ended in June 2009, according to the U.S. National Bureau of Economic Research (NBER).[223] Though there are no official organizations that declared the end of a financial crisis, the crisis appears to have ended about the same time as the recession. In April 2009 TIME Magazine declared “More Quickly Than It Began, The Banking Crisis Is Over.”[224] President Barack Obama declared on January 27, 2010, “the markets are now stabilized, and we’ve recovered most of the money we spent on the banks.”[225] The recession that began in December 2007 ended in June 2009, according to the U.S. National Bureau of Economic Research (NBER).[223] Though there are no official organizations that declared the end of a financial crisis, the crisis appears 35

to have ended about the same time as the recession. In April 2009 TIME Magazine declared “More Quickly Than It Began, The Banking Crisis Is Over.”[224] President Barack Obama declared on January 27, 2010, “the markets are now stabilized, and we’ve recovered most of the money we spent on the banks.”[225]



See also • • • • • • • • • • • • • •

1929 stock market crash 2009 G-20 London summit protests 2008 Greek riots 2009 Icelandic financial crisis protests 2009 May Day protests 2009 Moldova civil unrest 2009 Riga riot 2008–2010 bank failures in the United States Causes of the financial crisis of 2007-2010 Crisis (Marxian) Dot-com bubble Financial Crisis Responsibility Fee Europeans for Financial Reform Keynesian resurgence of 2008


• List of acquired or bankrupt banks in the late 2000s financial crisis • List of acquired or bankrupt United States banks in the late 2000s financial crisis • List of economic crises • List of entities involved in 2007–2008 financial crises • List of largest U.S. bank failures • Low-Income Countries Under Stress (LICUS) (World Bank program) • Mark-to-market accounting • Private equity in the 2000s • Subprime crisis impact timeline • Foreclosure crisis • Late-2000s recession


46. 47. 48. 49. 50. 51. 52. 53. 54.




57. 1.






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19. 20.


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2010. 199. “VOX-Portes-Risk, reward and responsibility: The financial sector and society”. Voxeu. org. Retrieved May 1, 2010. 200. 20“Alon Raviv, Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes”. cfm?abstract_id=575862. Retrieved May 1, 2010. 201. “PIMCO-Lessons from the Crisis”. November 26, 2008. http://www.pimco. com/LeftNav/Viewpoints/2008/Viewpoints+Lessons+from+the+Crisis+Spence+Novem ber+2008.htm. Retrieved February 27, 2009. [dead link] 202. “Jeffrey Sachs-Our Wall Street Besotted Public Policy”. March 31, 2009. html. Retrieved May 1, 2010. 203. “FT-Ferguson-Beyond the Age of Leverage”. Financial Times. February 2, 2009. http:// Retrieved May 1, 2010. 204. “Roubini-Charlie Rose Interview”. interview/9310. Retrieved May 1, 2010. 205. “Risks to Global Growth”. Forbes. May 27, 2009. recession-depression-global-economy-growth-opinions-columnists-nouriel-roubini. htmlRoubini-Ten. Retrieved May 1, 2010. 206. “How to tame global finance”. Prospect Magazine. http://www.prospectmagazine. 207. Daniel Pimlott (November 8, 2009). “Q & A on Tobin tax”. The Financial Times. http:// Retrieved December 11, 2009. 208. George Parker, Daniel Pimlott, Kate Burgess, Lina Saigol and Jim Pickard (August 28, 2009). “Turner relishes role on City front line”. Financial Times. cms/s/0/4e3e8888-940c-11de-9c57-00144feabdc0,s01=1.html. Retrieved December 31, 2009. 209. Matt Cover (December 7, 2009). “Pelosi Endorses ‘Global’ Tax on Stocks, Bonds, and other Financial Transactions”. print/58099. Retrieved February 13, 2010. [dead link] 210. GovTrack - A civic project to track Congress (December 3, 2009). “Text of H.R. 4191: Let Wall Street Pay for the Restoration of Main Street Act of 2009”. GovTrack. http:// Retrieved February 13, 2010. 211. “Defazio introduces legislation invoking wall street ‘transaction tax’”. Website of Peter DeFazio. ew=article&id=531:defazio-introduces-legislation-invoking-wall-street-transactiontax&catid=60:2009-press-releases. Retrieved February 13, 2010. 212. “President Obama Proposes Financial Crisis Responsibility Fee to Recoup Every Last Penny for American Taxpayers | The White House”. 2010-01-14. Retrieved 2011-01-02. 213. Richard T. Page, “Foolish Revenge or Shrewd Regulation? Financial-Industry Tax Law Reforms Proposed in the Wake of the Financial Crisis?” 85 Tul. L. Rev. 191, 197-98, 205-14 (2010). 214. “IMF proposes two big new bank taxes to fund bail-outs”. BBC. April 21, 2010. http:// Retrieved April 22, 2010. 215. Peter Thal Larsen (April 23, 2010). “Low-FAT diet”. Reuters Breaking News. http:// Retrieved April 23, 2010. 216. International Monetary Fund (April 16, 2010). “A Fair and Substantial Contribution by the Financial Sector Interim Report for the G-20”. International Monetary Fund; Excerpt and LINK TO FULL REPORT as a PDF - republished online by Global Print Monitor on April 22, 2010. Retrieved June 25, 2010. 217. Dietl, H., Duschl, T. and Lang, M. (2010): “Executive Salary Caps: What Politicians, Regulators and Managers Can Learn from Major Sports Leagues”, University of Zurich, ISU Working Paper Series No. 129. 218. “H.R.4173: Dodd-Frank Wall Street Reform and Consumer Protection Act - U.S. Congress”. OpenCongress. 2010-07-21. show. Retrieved 2011-01-02. 219. “S.3217: Restoring American Financial Stability Act of 2010 - U.S. Congress”. OpenCongress. 2010-07-21. Retrieved 2011-01-02. 220. “Bill Summary & Status - 111th Congress (2009 - 2010) - H.R.4173 - All Information THOMAS (Library of Congress)”. Library of Congress. bdquery/z?d111:HR04173:@@@L&summ2=m&#major%20actions. Retrieved July 22, 2010. 221. 10:06 a.m. Dec. 29, 2010 (2010-12-29). “Bank-reform bill sent to Obama”. Retrieved 2011-01-02. 222. “Overdose: A Film about the Next Financial Crisis”. 2010-05-17. http://www. Retrieved 2011-01-02. 223. Mark Hulbert (July 15, 2010). “It’s Dippy to Fret About a Double-Dip Recession”. http:// html?mod=googlenews_barrons. 224. TIME Magazine Friday, April, 2009 [2] 225. reports/Documents/TARP%20Two%20Year%20Retrospective_10%2005%20 10_transmittal%20letter.pdf Troubled Asset Relief Program:Two Year Retrospective] United States Department of the Treasury, Office of Financial Stability




Dubai 2007, 2010 James Clar 42


Exile, 1997 Runa Islam 44

Islands (Jebel Ali Free Zone), 2010 Abbas Akhavan 45

Yellow Cow Cheese (yellow), 2010 Ahmed Mater 46

Coin, 2008 Loreta Bilinskaite-Monie 47

All Your Dreams Belong to Us, 2009 D*Face 48

Dubai Foot, 2009 Jeffar Khaldi 49

Bacchanale , 2009 Marwan Sahmarani 50

A Study for 2 Drinkers, 2009 Marwan Sahmarani 51

The D ark Lens (Star Wars) Series Cedric Delsaux 52


Billboards, 2010 Sami Al Turki 54

Untitled (“Damn”), Subtitles Series, 2009 Ayman Yossri aka Daydban 55

Wall Street, 2001 Halim Al Karim 56


Detour, 2010 Abdulnasser Gharem 58


Bursting Bubbles, 2005 Arwa Abouon 60


Untitled (From the “Hayward Series”), 2008 Robin Rhode 62


Untitled (“Oh!”) , Subtitles Series, 2010 Ayman Yossri aka Daydban 64


Evolution of Man, 2010 Ahmed Mater 66


Drowning Sorrows, 2001-2002 Mona Hatoum 68


No. 116, 2007 Rana Begum 70

Series: Distorted Reality (Improvisation), 2005 Faisal Samra 71

Eclipse, 2005 Cerith Wyn Evans 72

Haraam, 2010 Halim Al Karim 73

Heavenly Heights, 2009 Huma Mulji 74


The Sink Light (Presence Series), 2007 Lamya Gargash 76

Two Sofas (Presence Series), 2007 Lamya Gargash 77

The Majestic, 2007 Shezad Dawood 78

Sleep, 2008 David Shrigley 79



Arwa Abouon

Abbas Akhavan

Rana Begum

James Clar

Born in 1982 in Libya, Arwa Abouon grew up in

Born in Tehran in 1977, Abbas Akhavan has been living

Rana Begum is a British/Bangladeshi artist whose works

James Clar is a media artist whose work is a fusion of

Canada. Through her playful photographs and graphic

in Canada since 1992. His background in Art History

draw an unlikely inspiration from repetitive geometric

technology, popular culture, and visual information. His

interventions, she questions her own place within a

and Visual Arts has taken his artistic practice through a

patterns within Islamic art and architecture. The result

work explores the limitations of various communication

so-called Western culture on the one hand and her

variety of mediums including painting, installation, video/

is a series of tightly controlled compositions, where

mediums and its effect on the individual and society.

upbringing in a Muslim household on the other.

performance and site-specific ephemeral work. Akhavan’s

impeccably applied colorful hard-edge lines are coated

Focusing on the visual arts, his work often controls and

recent works focus on domestic spaces and those just

in a thick layer of glossy resin, to create seductively tactile

manipulates light - the common intersection of all visual

Abouon is really investigating mechanisms at play when

outside the home – the garden, the backyard, and other

reflective surfaces. Begum’s paintings are an exercise

mediums.While his early work dealt with analysing how

learning and acquiring knowledge, and the different

landscapes. He explores the powerful relationships rooted

in rhythm and symmetry and much like music, have a

technology and media work, a move to the Middle East

shapes that this knowledge takes on as it is transferred

in the domestication of nature and the territorial use of

spiritual quality to them that embraces the heart and

in 2007 has seen his focus shift to how technology and

from one generation to another. Balancing playful humour,

space to emphasize the ritualistic nature of (art) spaces

gratifies the eye.

media affect. As an American living in Dubai, his work

irreverent re-appropriation and respectful homage,

and art viewing but, more importantly, to render the

Abouon’s work is always visually impactful and intricate in

audience as active viewers and impending voyeuristic

In her recent work, Begum has more fully delved into

These include nationalism, globalism, and popular culture

the subtleties within its voices.


installation, and has further minimized her palette to

in the age of mass information, and often analyses the

sometimes dual or even single color panels. With this

discrepancy in information between Western media and

Working predominantly in photography, the artist spans

uber reductive approach, Begum creates compelling

Middle Eastern media along with its effects on people.

a wide array of mediums, such as video, illustration,

visual language with the tiniest of movements.

has progressed towards deeper conceptual themes.

graphics on lightboxes as well as the occasional site specific installation.

Bursting Bubbles

Islands: Unit D4 [zone 3]

No. 116

Dubai 2007


Islands: Unit D5 [zone 3]




Islands: Unit D6 [zone 3]

Hazard tape on aluminium

Silver tray, Dubai sand and AED 100 bill

3 minutes

Islands: Unit E4 [zone 2]

200 x 28 x 5 cm

35 x 50 x 4 cm

Islands: Unit E5 [zone 2] Islands: Unit E6 [zone 2] Islands: Unit F4 [zone 1] Islands: Unit F5 [zone 1] Islands: Unit F6 [zone 1] 2010 Imitation gold leaf on dry wall 60 x 60 cm each



Shezad Dawood

Cedric Delsaux


Cerith Wyn Evans

Shezad Dawood was born in London in 1974 and trained at

Born in 1974, Cedric Delsaux studied Literature and

Working with a variety of mediums and techniques,

Cerith Wyn Evans, born 1958 in Wales, is a conceptual

Central Saint Martins and the Royal College of Art before

Cinema in Paris where he continues to live and work.

D*Face uses a family of dysfunctional characters to

artist, sculptor and film-maker. Wyn Evans began his

undertaking a PhD at Leeds Metropolitan University.

In 2005 he received the “Bourse du Talent”, French

satirise and hold to ransom all that falls into their grasp

career as a video and filmmaker, initially assisting Derek

Dawood works across many different forms of media, and

photography award. His work ‘Here to Stay / Nous

a welcome jolt of subversion in today’s media-saturated

Jarman, and then making short, experimental films

much of his practice involves curation and collaboration,

Resterons sur Terre’, published by Verlhac editions in

environment. His aim is to encourage the public not just to

during the 1980s. Since the 1990s, his work could be

frequently working with other artists to build on and

October 2008, explores the ambivalent relationship

‘see’, but to look at what surrounds them and their lives.

characterised by its focus on language and perception,

create unique networks of critically engaged discursive

between man and nature.


as well as its precise, conceptual clarity that is often Recent examples include his collaboration with H.R.H

developed out of the context of the exhibition site or

Delsaux’s work questions our relationship to the world,

Queen Elizabeth II on a series of bank notes that were put

its history. His work has a highly refined aesthetic that

Dawood was recently announced as a winner of the 2011

creating new time frames where all boundaries are

into circulation for an unsuspecting public to notice them

is often informed by this deep interest in film history

Abraaj Capital Art Prize, alongside four other artists

blurred, between reality and fiction, madness and sanity,

in their change. Then, to commemorate the instatement of

and literature. Often his works harness the potential of

from the MENASA region. He currently lives and works in

where the past and the future are trapped in the present.

Pope Benedict XVI, the Vatican commissioned D*Face to

language to create moments of rupture and delight, where


His work challenges our relationship with time and space,

paint a portrait. The piece was shown for the first time at

romantic longing, desire and reality conjoin.

forcing us to reflect on our perception. Elements of our

the Outside Institute in May 2005, as well as on MTV Rome,

common visual memory, holding a different relationship

to critical acclaim.

with every human being, inhabit each of his series.

The Majestic

The Droid Army Under Arch, from the series ‘The Dark Lens (Star Wars)’

All Your Dreams Belong to Us






Neon, tumbleweed with enameled aluminum plinth

Digital print

Old desk engraving

Negative neon

163 x 51 x 51 cm

74 x 98 cm

90 x 50.9 x 3 cm

10.1 x 36.1 cm

Stop at Burj Khalifa, from the series ‘The Dark Lens (Star Wars)’ 2008 Digital print 74 x 98 cm Darth Vador, from the series ‘The Dark Lens (Star Wars)’ 2008 Digital print 74 x 98 cm The Crash, from the series ‘The Dark Lens (Star Wars)’ 2008 Digital print 74 x 98 cm C3PO and the Fire, from the series ‘The Dark Lens (Star Wars)’ 2008 Digital print 74 x 98 cm



Lamya Gargash

Abdulnasser Gharem

Mona Hatoum

Runa Islam

Concerned with the relics of an ever self-renewing

Born 1973, Khamis Mushait where he lives and works

Mona Hatoum was born into a Palestinian family in Beirut,

Bangladeshi-born artist Runa Islam makes film and video

architecture Lamya Gargash documents the forgotten

today, Gharem is both a practising conceptual artist and

Lebanon in 1952 and now lives and works in London

installations that use overlapping layers of narrative

spaces in public and private realms in Emirati society.

a Lieutenant Colonel in the Saudi Arabian Army. In 1992

and Berlin. Her poetic and political oeuvre is realised

to explore notions of truth and fiction, subjectivity

Throughout her career Gargash has won a number of

Gharem graduated from the King Abdulaziz Academy

in a diverse and often unconventional range of media,

and authorship. Islam installs her films in architectural

awards for her work in film and photography. Gargash

before attending The Leader Institute in Riyadh. In 2003

including installations, sculpture, video, photography

configurations, frequently presenting them across two

participated at the 53rd Venice Biennale (2009) as the

he studied at the Al-Miftaha Arts Village in Abha where

and works on paper. Hatoum started her career making

or three screens as a framing device. Her work aims to

featured artist at the UAE’s first ever national pavillion. In

the artists shared a similar vision and in 2004 they staged

visceral performance art in the 1980s that focused with

blur the distinctions between film and sculpture, art and

2004, she received first prize in the Emirates Film Festival,

a group exhibition, Shattah, which was a significant step in

great intensity on the body. Since the beginning of the

cinema, and encourages a range of interpretations from

as well as Ibdaa Special Jury Award for her movie titled,

the recent history of contemporary art in Saudi Arabia.

1990s, however, her work moved increasingly towards


Wet Tiles.

large-scale installations that aimed to engage the viewer in conflicting emotions of desire and revulsion, fear

Gargash’s first artist book titled Presence, is a

and fascination. In her singular sculptures, Hatoum has

photographic series which documents recently vacated

transformed familiar, every-day, domestic objects such

houses and structures in the United Arab Emirates that

as chairs, cots and kitchen utensils into things foreign,

have been abandoned or left for demolition.

threatening and dangerous.

In 2008, Islam was nominated for the Turner Prize.

Emarati artist Lamya Gargash currently lives and works in Dubai.

The Sink Light, Presence Series


Drowning Sorrows







Duratan print in lightbox

Glass bottles

Light box

60 x 60 cm

70 x 105 cm

10 x 250 cm

14 x 39.6 x 6 cm

Two Sofas, Presence Series 2007 C-print 60 x 60 cm



Halim Al Karim

Jeffar Khaldi

Ahmed Mater

Loreta Bilinskaite-Monie

Halim Al Karim was born in Baghdad in 1968. He lives

Born and raised in Lebanon, Palestinian artist Jeffar Khaldi

Ahmed Mater is, as he puts it, a man of many masks.

Loreta Bilinskaite-Monie is a Lithuanian artist who

and works between Denver, Colorado and Dubai, U.A.E.

lived in Texas for many years before moving to Dubai

As well as being a qualified GP he is a landscape

challenges the morality and worth of much of the

Inspired by the principles of mysticism, Al Karim’s works

in the late 1990s. Typically complex in form, Khaldi’s

photographer and the face of one of the region’s largest

mechanisms and values of sophisticated contemporary

have an undeniable spiritual aspect to them. In sculpture

canvases incorporate his observations of a beleaguered

mobile phone companies.

life. Loreta takes on these challenges through her Art –

and in paint, and in the manner of the Sufis, Al Karim is

modern existence into his own pseudo-fantasy world.

absorbed with uniting the hidden and revealed, light and

creating projects that are intrinsically designed to capture Born and raised in Abha, capital of Aseer (a region to the

the attention of an audience and thus lure them into her

darkness, and the material and ephemeral. This interest

Drawing inspiration from the bold-faced declarations of

south of Saudi Arabia), Mater remains rooted in his Aseeri

headspace. Her work is multi-layered – on one hand

of essentially stems from his experience of conflict in

the international press, Khaldi brings forth a varied cast

local identity. He leads a young artistic collective called

visually appealing and accessible, but the subtext is that

Iraq and of teetering between life and death. Al Karim’s

of characters, depicting positive and negative sentiments

Ibn Aseer (Son of Aseer), and is also an integral part of

there is a complex set of messages contained in both the

artistic approach is as an outward projection of his inner-

with equal ardour. His controversial paintings employ

the recent history of Abha’s Miftaha Arts Village, part of

choice of technique and subject matter.

consciousness and an expression of spiritual awakening.

a visual language appropriated from his Palestinian

the King Fahad Cultural Centre.

homeland, but are not limited to a single cultural identity. And while his surreal, engrossing atmospheres create an initial sense of confusion and despair they also often give way to sensations of strength and optimism for the future.


Dubai Foot

Yellow Cow Cheese (yellow)







Oil on canvas

Coriander silk-screen print on 400 gsm somerset tub

Hand embroidery on canvas with silver beads and

109 x 46 x 10 cm

105 x 135 cm



144 x 115.5 cm

90 x 90 cm

Wall Street 2001

Evolution of Man

Lambada print


50 x 150 cm

2010 79.2 x 59.4 cm



Huma Mulji

Robin Rhode

Marwan Sahmarani

Faisal Samra

Huma Mulji was born in Karachi, Pakistan, in 1970,

Robin Rhode is a South African artist, born 1976 in Cape

Marwan Sahmarani was born in Lebanon in 1970, where

Faisal Samra is one Saudi Arabia’s most well known

and currently resides in Lahore. Her sculpture and

Town, and now based in Berlin. Working predominantly

he currently lives and works. With an archetypal

artists. His diverse artistic practice combines media

photography explore ideas of displacement, and discuss

with everyday material like charcoal, chalk and paint,

biography specific to his generation, he left Lebanon in

such as painting, sculpture, and installation, revealing

identity through the metaphor of travel and the freedom it

Rhode started out creating performances that are based

1989 and moved to Paris to study at L’ecole Superieur

his obsession with visual culture and imagery, often

affords for self-exploration.

on his own drawings of objects that he interacts with.

d’Arts Graphique. His practice often makes historical

incorporating collage of references to historical and

He expanded and refined this practice into creating

reference to art history and socio-political issues that

contemporary realities. After completing his studies at

Mulji’s work has moved towards looking at the absurdities

photography sequences and digital animations.

are still very present in the Middle East but inspired by

the Ecole Nationale Superieure des Beaux Arts in Paris,

of a post-colonial society in transition, taking on board the

These works are characterized by an interdisciplinary

themes that are timeless.

Samra’s career has included teaching and various artistic

visual and cultural overlaps of language, image and taste,

approach that brings aspects of performance,

that create the most fantastic collisions. She describes the

happening, drawing, film and photography together. An

Sahmarani was one of the recipients of the Abraaj Capital

around the world as well as served on the Jury of the

time we live in as moving at a remarkable speed and in

outstanding characteristic of his works is his addressing

Art Prize in 2010, where he created the expansive work

Alexandria Biennale in 2005 and 2008.

regard to Pakistan Mulji refers to the experience of ‘living

of social concerns in a playful and productive manner,

‘Feast of the Damned’.

200 years in the past and 30 years in the future all at once’.

incorporating these issues into his practice without

Faisal Samra currently lives and works between Bahrain

simplifying or judging them.

and Paris.

residencies. He has participated in various exhibitions

Heavenly Heights

Untitled (From the “Hayward Series”)


Series: Distorted Reality (Improvisation)





Taxidermic buffalo, metal rods, powder coated steel,

2 pigment prints mounted on 4-ply museum board

Ink on paper


cotton wool and ceramic and cable

71.1 x 71.1 cm

88 x 60 cm

9 minutes, 58 seconds

434.3 x 188 x 300 cm A Study for 2 Drinkers 2009 Ink on paper 88 x 60 cm



David Shrigley

Sami Al Turki

Ayman Yossri aka Daydban

David Shrigley was born in 1968 in Leicestershire,

Currently based in Dubai, Sami Al Turki is an Arab-

Ayman Yossri aka Daydban has spent most of his life in

England. Although he works in various media, he is best

European artist whose eclectic and varied style is a

Jeddah and identifies with Saudi Arabia, but is in fact

known for his mordantly humorous cartoons, released in

reflection of both his diverse cultural upbringing and the

a Palestinian with Jordanian nationality. This sense of

softcover books or postcard packs. Shrigley finds humour

confused occidental versus oriental atmosphere of the

national dislocation and fragmented cultural identity

in flat depictions of the inconsequential, the unavailing

United Arab Emirates. He was born in Jeddah in 1984 and

has had a profound effect on his artistic practice. His

and the bizarre – although he is far fonder of violent or

has been exhibited extensively in Dubai as as well as in

exploration of responsive performance and sculpture has

otherwise disquieting subject matter. Shrigley’s work has

Tucson and Vienna. Fueled by his surroundings, Sami

led to pieces that interact with the viewer in a personal

two of the characteristics often encountered in outsider

searches for ways in which to comment on and manifest

manner. Locked away in his studio in Jeddah, Daydban

art - an odd viewpoint, and (in some of his work) a

both the environment and its subjects as well as the

engages in the production of experiences, rather than

deliberately limited technique.

deeper, more conceptual: implications of an image when

simply producing commodities, designed to be hung,

captured by the lens. In 2009, he graduated with a BFA in

bought and sold.

As well as authoring several books, Shrigley has directed

Photography from the American University in Dubai and

a film as well as music videos (for the bands Blur and

formed part of the ADACH visual arts platform in the 53rd

Bonnie ‘Prince’ Billy), and has released an album of

Venice Biennale.

spoken-word poetry.



Untitled (“Damn”), Subtitles Series




Animated drawing with audio



8 minutes

3 minutes, 12 seconds

43 x 66 x 12 cm Untitled (“Oh!”), Subtitles Series 2010 Lightbox 36 x 66 x 12 cm




Special thanks goes out to Kanae, Nina, Sharifa, Nilo and

Works from The Farook Collection

the boys, Athr Gallery, Gallery Isabelle van den Eynde, Paradise Row, Prognosis Art, Restored Behaviour, Stolen Space Gallery, The Third Line Gallery, White Cube, XVA

Published Edition of 500

Gallery, Yvon Lambert and all participating artists.

February 2011 Photography Credits Edited & Published by Traffic

p. 44

courtesy of White Cube, London

P.O. Box 6716

p. 45

courtesy of The Third Line Gallery, Dubai

Dubai, UAE

p. 46

courtesy of Prognosis Art, London

p. 47

courtesy of The Third Line Gallery, Dubai

p. 48

courtesy of Stolen Space Gallery, London

p. 49

courtesy of Gallery Isabelle van den Eynde

p. 54-55 courtesy of Athr Gallery, Jeddah Designed by Rami Farook & Kanae Clar

p. 56-57 courtesy of XVA Gallery, Dubai p. 58-59 courtesy of Restored Behaviour, London p. 60-61 courtesy of The Third Line Gallery, Dubai p. 62-63 courtesy of White Cube, London p. 64-65 courtesy of Athr Gallery, Jeddah p. 66-67 courtesy of Prognosis Art, London p. 71

courtesy of Faisal Samra, Manama

p. 76-77 courtesy of The Third Line Gallery, Dubai p. 79

courtesy of Yvon Lambert, Paris

Book cover, inner page photos by James Clar

Copyright Š 2011 Traffic. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, or any information storage and rerieval system, without prior permission in writing from the publisher. 94





THE STATE: UPPERS & DOWNERS - Works from The Farook Collection