End of Year PAper

Good Essays
In 2008, The United States economy was bombarded with a severe recession because of a lack of regulations on Wall Street and investment in general. This lack of regulation caused many risky loans to be passed, leading to many of them defaulting. Most major investment banks like Lehman Brothers and Goldman Sachs were dealt crushing blows, forcing them to either file for bankruptcy or take capital injection from the government. The economy fell into a free fall because people simply wanted to make easy money. “How an Economy Grows and Why It Crashes” does a tremendous job in explaining the crash of 2008 in layman’s terms, while still being extraordinarily accurate and full of knowledge. While, this book goes through the timeline with fish and the country of Usonia, the HBO Special “Too Big to Fail” actually shows what happened behind closed doors in that trying time back in the late 2000s. Together, these two sources provide brilliant insight into what really went wrong, and how it could’ve been avoided.
“Too Big to Fail” shows the public that firms and banks simply had no real safety measures implemented into their business plans. Lenders blindly approved loans and sent money to anybody and everybody, especially those looking for a mortgage. The banks then would insure these loans with insurance companies, mainly AIG. They thought that even if the loans defaulted, the insurance companies would pick up loan since it was insured. What they didn’t plan for was how many loans would default. This large number of defaulted and unpaid loans sucked up tons of capital and made many of the real estate assets that the investment banks held toxic. Schiff’s book describes this unfortunate chain of events as the “Hut Glut”. They created a syst...

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... deemed “too big to fail” because it wouldn’t truly send the economy in a free fall if went under because of how much it was involved in. Also, another huge blow was dealt when credit froze. Credit has to power to both build and destroy an economy. A 700 billion dollar bailout, named TARP, was created by the government to bailout banks and businesses that were on the brink of failure and forcing the economy to nearly go with them.
The recession of 2008 was a very unfortunate learning experience for the United States, as was the hut glut for Usonia. They were forced into great debt because they simply wanted easy money, and focus purely on that and not more productive things. This forced them to borrow from their foreign neighbors. Hopefully, the mistakes of the people who let this happen will always be remembered so that nothing like this will ever happen again.
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