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Concept
Stock market crash
Summary
A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling and underlying economic factors. They often follow speculation and economic bubbles.
A stock market crash is a social phenomenon where external economic events combine with crowd psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices (a bull market) and excessive economic optimism, a market where price–earnings ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants. Other aspects such as wars, large corporate hacks, changes in federal laws and regulations, and natural disasters within economically productive areas may also influence a significant decline in the stock market value of a wide range of stocks. Stock prices for corporations competing against the affected corporations may rise despite the crash.
There is no numerically specific definition of a stock market crash but the term commonly applies to declines of over 10% in a stock market index over a period of several days. Crashes are often distinguished from bear markets (periods of declining stock market prices that are measured in months or years) as crashes include panic selling and abrupt, dramatic price declines. Crashes are often associated with bear markets; however, they do not necessarily occur simultaneously. Black Monday (1987), for example, did not lead to a bear market. Likewise, the bursting of the Japanese asset price bubble occurred over several years without any notable crashes. Stock market crashes are not common.
Crashes are generally unexpected. As Niall Ferguson stated, "Before the crash, our world seems almost stationary, deceptively so, balanced, at a set point. So that when the crash finally hits — as inevitably it will — everyone seems surprised.
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Financial crisis
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.
Bailout
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term bail-in (coined in 2010) under which the bondholders or depositors of global systemically important financial institutions (G-SIFIs) are forced to participate in the recapitalization process, but taxpayers are not. Some governments also have the power to participate in the insolvency process: for instance, the U.S. government intervened in the General Motors bailout of 2009–2013.
Economic collapse
Economic collapse, also called economic meltdown, is any of a broad range of bad economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), to a breakdown in normal commerce caused by hyperinflation (such as in Weimar Germany in the 1920s), or even an economically caused sharp rise in the death rate and perhaps even a decline in population (such as in countries of the former USSR in the 1990s).