In the late 2000’s what was known as the “Global Recession” or “The Credit Crunch” occurred. The only financial crisis comparable to the recent 2008 United State recession was the Great Depression, which occurred in the 1930’s. The financial crisis of the late 2000’s resulted in the downfall of the largest financial institutions as measured by market capitalization vales. The situation created the need for governments and regulators to bailout most banks and caused dramatic drops in stock market values around the world (Allen, 198).
However these were only the effects seen on a macroeconomic level. Throughout America millions of people found themselves homeless as the housing market began to collapse upon itself. These evictions and foreclosures were a major contributing factor the failure of many businesses, which were dependent on consumer spending for their revenues (Allen 198). The failure of these businesses led to a huge decline in consumer wealth that is estimated to be in the trillions of US dollars.
By 2008, due to the failures of large financial institutions, there were severe liquidity problems within the US banking system. When the housing bubble peaked in late 2007 the values of securities linked to U.S. real estate pricing began to plummet (Stiglitz 55). This was a critical hit to financial institutions across the globe. Questions began to arise amongst consumers and members of government alike in regards to the solvency of banks due to poorly performing loans and mortgages, which in turn led to declines in the availability of credit.
The complete loss of investor confidence impacted stock markets globally. Securities suffered large losses during late 2008 and early 2009. As the restrictions on credit gr...
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Nabli, Mustapha K.. The Great Recession and developing countries: economic impact and growth prospects. Washington, DC: World Bank, 2011. Print.
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Stiglitz, Joseph E.. Freefall: America, free markets, and the sinking of the world economy. Pbk. ed. New York, NY: W. W. Norton & Co., 2010. Print.
What should the federal government do to avoid a recession?: hearing before the Joint Economic Committee, Congress of the United States, One Hundred Tenth Congress, second session, January 16, 2008.. Washington, D.C. : U.S. G.P.O. : Supt. of Docs., U.S. G.P.O., distributor, 2008: U.S. G.P.O. :, 2008. Print.
In this essay, the author
Explains that the "global recession" or "the credit crunch" occurred in the late 2000's. the only financial crisis comparable to the 2008 united states recession was the great depression.
Explains that evictions and foreclosures contributed to the failure of many businesses, which were dependent on consumer spending for their revenues.
Explains that by 2008, due to the failures of large financial institutions, there were severe liquidity problems within the us banking system. when the housing bubble peaked in 2007, the values of securities linked to u.s. real estate pricing began to plummet.
Explains how the loss of investor confidence impacted stock markets globally. the government's response to this was fiscal stimulus programs, which consisted of monetary expansion as well as large institutional bailouts.
Explains that the global recession occurred due to risky and complex financial products misunderstood, the failure of regulators to monitor properly, and the reluctance of credit rating agencies to be brave and honest.
Explains that the complex financial products that were bundled, traded and sold prior to the 2008 recession were the first sign of a weakening economy.
Explains that the housing market in the u.s. peaked in 2006 and was quickly followed by a quick decline due to refinancing of homes.
Explains that traditional mortgages involved a bank loaning money to homeowners and holding the credit risk. with the arrival of securitization banks began selling mortgage-backed securities and collateralized debt obligations.
Explains that the federal reserve lowered the federal funds rate to dampen the effects of the dot com bubble crash in the early 2000's and an attempt to ward off the perceived risk of deflation.
Explains the increase in mortgage-backed securities issued during the mid 1990's, which increased to seven and a half trillion u.s dollars between 1997 and 2007.
Explains that mortgage companies started lending money for homes to anyone and everyone, regardless of their income or credit rating. lending standards were lowered until people with no jobs, income, assets, and credit ratings could get mortgages for no money down.
Explains that mortgage unerwriters encouraged applicants to lie on their mortgage applications. these loans were known as sub-prime or ninja loans, with low initial teaser rates and adjustable rate mortgages.
Explains that the rating companies contributed to the great recession. they correctly rated collateralized debt obligations as investment grade securities without even knowing what was in each piece.
Explains that credit rating agencies are under examination due to the collapse of the housing market. they suspect that they gave investment grade ratings to mortgage-backed securities based on risky subprime mortgage loans.
Explains that laissez faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs, and enforced monopolies.
Explains that the government policies instituted to protect the united states from this type of crisis failed as well.
Explains that deregulation is the removal or simplification of government rules and regulations that constrain the operation of market force.
Explains that jimmy carter's depository institutions deregulation and monetary control act of 1980 cut out many restrictions on the financial practices of banks.
Explains that bill clinton signed the gramm-leach-billy act in 1999, which separated commercial banks from investment banks. the u.s securities and exchange commission made net capital rules lenient in 2004, which fueled the growth in mortgage-backed securities.
Explains that regulators allowed depository banks such as citigroup to move noteworthy amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles.
Explains that recessions cannot be avoided in a healthy economy because of the contracting and expanding period. the global recession was caused by risky financial products, credit rating agencies, and government deregulation.
Cites allen, roy e., bloomenthal, karen, and brinkley, alan. the end of reform: new deal liberalism in recession and war.
Cites furchtgott-roth, diana, and joejolly, joe, who caused america's 2007 great recession.
Narrates how the recession for dummies was written by walter kirn and paul r. krugman.
Cites mikels, richard, and cohen's article, "what caused the great recession of 20082009?."
Explains the impact and growth prospects of the great recession.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
In this essay, the author
Explains that every few years, countries experience an economic decline which is commonly referred to as a recession. the paper will cover the issues which led to the recession, discuss the strategies taken by the government and federal reserve to alleviate the crisis, and look at the future outlook of the u.s.
Argues that the economic hardships of the great recession began when interest rates were lowered by the federal reserve. the bubble forced banks to give out homes loans with unreasonably high risk rates.
Explains how the federal reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy.
Analyzes how the u.s. government and federal reserve stabilized the economy and prevented a second great depression, but left tens of millions of americans out of work, under-employed or earning significantly less.
Analyzes how the nation's economic struggles during the great recession led to the current macroeconomic situation that deals with unemployment.
Cites mcgraw-hill/irvin koba (2012) and love, n. s., & mattern, m.
The 2008 financial crisis started long before the market crash of 2008. After the Great Depression, America enjoyed a time of “Great Moderation”(economist) named for the consistently low interest rates and steady growth of the economy following the Great Depression. Financiers took note of this and eventually started to make more and more risky investment decisions; financial firm’s profits would increase as long as low interest rates and stable economic growth continued. Financiers eventually grew blind with greed. They “claimed to have found a way to banish risk when in fact they had simply lost track of it”(economist). The financial crisis was a result of poor government regulation, lax policies and the housing bubble burst that caused homeowners to default on their mortgages.
In this essay, the author
Explains that the 2008 financial crisis started long before the market crash of 2008.
Explains that by lending mortgages to "subprime buyers," banks created a potentially huge problem if homeowners started defaulting on their mortgage.
Explains that market consistency encourages investors to make risky higher yielding decisions in the long run, but if interest rates are low and unstable, investors will invest in long-term stable investments.
Analyzes how the federal reserve's lax enforcement of laws and regulations on banks impacted banks' ability to make risky decisions.
Explains that the 2008 financial crisis was caused by a series of failures by the government regulate united states financial institutions.
Opines that the federal reserve should have bailed out lehman brothers before other banks would become subject to the same fate.
Opines that the federal reserve's lax regulations were one of the biggest mistakes leading up to the 2008 market crash.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
In this essay, the author
Describes the relevant polices the federal reserve made before and after the financial crisis started.
Explains how the federal reserve could prevent and solve financial crises. the background of the financial crisis and what kind of monetary policy the federal reserve made.
Argues that the financial crisis of 2007–2008 is considered by many economists the worst financial crises since the great depression of the 1930s.
Explains that the federal reserve, as a central bank, stands at the centre of the financial an economic system of united states.
Explains that when the economy is stable, the federal reserve uses low interest rate policy to excite it. when the financial market is disrupted, it provides shot term credit to financial institutions.
Explains that the federal reserve implements low interest rate policy to deal with the weak economy, slow job growth, and low inflation. however, ben bernanke claims that monetary policy is not an important factor of raising the houses' price.
Compares the changing of federal funds rate and the theoretical rate which based on taylor's rules, from 2000 to 2006. the deviation led the monetary excesses and encouraged the housing boom.
Compares the housing boom-bust and counterfactual housing trading. the jagged line indicates the real housing during the period from 2000 to 2007.
Analyzes the global saving and investment as a share of world gdp during the period from 1970 to 2004.
Explains that the federal reserve was not the only central bank that made interest rate deviating from the taylor's rule. the housing boom was measured by changing housing investment as a percentage of gdp.
Explains that the housing boom and bust affected the financial market and led to foreclosures and delinquencies. the low interest rate policy and excess risk taking are relevant.
Argues that the monetary policy of the federal reserve led to the financial crisis caused by the assets bubble in house market.
The insolvency seen in the Housing Market manifested in the large number of stagnant foreclosures caused a dramatic decline in housing prices, which resulted in many homeowners owing more money on their houses than they are worth. Market-level insolvency is caused by capital flight in a specific market in response to a scare during a decrease in solvency. During the scope of this recession, the initial, progressive decrease in solvency was caused by a negative Net Capital Outflow in conjunction with the cash-vacuum produced by the US Budget Deficit, and the scare was caused primarily by the failure of several significantly-sized corporations and a rapid increase in foreclosures caused by the loss of a large number of jobs.
In this essay, the author
Explains that the insolvency seen in the housing market caused a dramatic decline in housing prices, which resulted in many homeowners owing more money on their houses than they are worth.
Opines that the solution to foreclosure is to restore solvency to the market, which must be done in both the short and long-term.
Argues that the first step to bringing solvency to the market is to provide some immediate, temporary relief to those whose houses are in the process of being foreclosed.
Argues that the president needs to work with congress and leading experts to set up a work program in which tax-dollars trimmed out of the budget are allocated to the refurbishing of american infrastructure.
Explains that there are opportunities for the less skilled among us in every city — jobs for them as they pursue education in whatever field they desire. repairing these buildings will increase property values and change the overall atmosphere of the city.
Explains that providing jobs for unemployed americans is the key to solving the foreclosure problem. those who lost their jobs will be able to stay current on their mortgages and avoid eviction and foreclosure.
Opines that in order to maintain solvency in the short to mid-term, americans need to be re-educated in personal finances.
Predicts that the american economy will go through a difficult season, which is necessary for growth. many people have fallen into deep debt, and must begin paying off the debt.
Explains that during the season of economic realignment, the focus of government subsidies must be on: raw-material industries : mining and farming; value-adding industries: durable goods manufacturing and refineries; financial planning and information technology.
Explains that an economic base like this, once fully established, will grow at a steady pace and be unstoppable. the increase in overall economic health will eliminate the need for many government programs.
Argues that the net capital outflow and national savings increase, increasing supply of dollars available for loaning will increase solvency. as the american public is taught proper budgeting, the need for loans will drop, resulting in lower demand.
The collapse of the market required an extraordinary level of support by the world’s governments as the various central banks poured trillions of dollars into the financial system coupled with fiscal policy initiatives the likes of which have not been seen since the Great Depression.
In this essay, the author
Explains that the world embarked on a 12 month trek to rebuild the fiscal, monetary and economic infrastructures among the developed and developing world and much has yet to be done.
Explains that the collapse of the market required an extraordinary level of support by the world's governments as the various central banks poured trillions of dollars into the financial system coupled with fiscal policy initiatives.
Analyzes how the impact of asset support programs on the u.s. fed's balance sheet ballooned to the tune of $2.239 trillion.
Explains that the u.s. aggregate chain weighted gdp fell from $13.391 trillion at the end of 2007 to $12.901 trillion as of june 2009. the recession ended in q2 as the economy finally began to grow.
Explains that since mid-2007 corporate profits fell dramatically as the decline began before the official start of the recession. in 2008 corporations really felt the pinch, especially during q4.
Explains how the dramatic fall-off in earnings coupled with the collapse in credit markets filtered its way through the employment sector as companies fired millions of people as they shut down production and shuttered divisions.
Analyzes how the decline in the corporate sector led to the destruction of the consumer sector as unemployment soared to levels not seen since the early 80s. in november, home foreclosures rose 18.4% yoy to 306,627.
Opines that while the events leading up to the housing led global financials crisis will be studied and analyzed for years to come, the question now turns to recovery.
Explains that the shape of the expected recovery has been described in many ways.
Opines that the economic recovery could stall in q3 & q4 as inventory restocking and monetary/fiscal stimulus begins to fade.
Opines that economists and investors will be keenly focused on the prospects of whether the economy is showing signs of being self-supporting to where fiscal and monetary stimulus aid is replaced with a cycle of sustainable increases in production, income and spending growth.
Concludes that most asset classes have made a remarkable recovery after the lehman bankruptcy. markets are discounting mechanisms where investors value assets today based on future economic activity.
Opines that the u.s. high yield and investment grade market is too tight for this point in the cycle. corporate bond market performance will be heavily influenced by yield rather than capital appreciation.
Explains that the presentation steps through select economic data points and corporate bond market stats which illustrates where the market has traveled in 2009 and where we expect things are going.
The United States faced one of its worst recessions in history during the latter half of the first decade of the twenty first century. Termed as the Great Recession, this period rivaled the Great Depression of the 1930s and had such an impact on the entire world that international economies were severely affected, and several national governments had to work together to get their countries out of the crisis. The crisis initially began as a decline in the financial sector, but quickly spread over to other sectors as well, thereby impacting the entire economy of the United States. In this case study, I shall attempt to explain some of the factors that played a role in this crisis.
In this essay, the author
Explains that the trend of lax mortgage processes and risky loan applications caused house prices to shoot up to an all-time high by the year 2006. the danger of adjustable rate mortgages became obvious to buyers when their teaser period expired.
Explains that more and more houses ending up in foreclosure led to huge losses for the financial institutions, with recovery rates as low as 25% of the amount.
Explains the concept of asset-backed securities, which became rampant during the housing bubble.
Explains that the great recession was attributed to the burst of the u.s. housing bubble and the subprime mortgage crisis.
Analyzes how lax standards on the part of lending organizations led to the financial crisis and the great recession.
Although there has not been a consensus on an exact causation —due to its global nature—there has been unanimity on a number of factors. As in the case of its sister crisis (the Great Depression), many scholars acknowledge that before this cataclysm struck, the preceding economy did in fact experience a “boom” period. Most critics are also in accordance that the trigger of this crisis had to involve the subprime mortgage bubble—which collapsed in the United States—however, that alone could not represent the exact causality of this crisis. Just as in the Great Depression, there were a variety of contributing factors that resulted in this financial catastrophe.
In this essay, the author
Explains that although there hasn't been a consensus on an exact causation, there's been unanimity on several factors that resulted in this financial catastrophe.
Analyzes how the 'financialization' of contemporary capitalism led to renters defined predominantly by their relationship to the financial system, as opposed to ownership of loanable capital.
Explains that the immediate causalities of the crisis were focused on excessive debt leverage or imprudent lending.
Analyzes how the two major crises compare when analyzed against one another. keynesian and central bank intervention became preferred during the great depression era.
The foreclosure crisis was not an occurrence that could have been foreseen by most. During 2007 and 2008, gas prices were soaring at their highest since the late 1980’s, averaging around $3.50-$4.00 per gallon across the nation. The increase in gas prices caused many lower class and middle class citizens and families to suffer significantly. This led to a heavy decrease in frivolous spending in most regions, causing a domino effect of various businesses cutting employment and wages, following with a sharper decrease in economic spending, and the delay of the construction industry which resulted in the slowdown of the timber business. With the rapid retard of these industries, the unemployment rate developed into a full grown national crisis to finally result in individuals lacking the ability to pay their bills and primarily defaulting on their monthly mortgages (which led to the meltdown of the financial & banking industry). The mass media and general public associated most of the responsibility of the financial meltdown of the banking industry with the predatory lenders, whom allowed couples and individuals to purchase homes and properties they knowingly could not afford. These purchases were tolerated simply if these people were to agree to an adjustable mortgage rate.
In this essay, the author
Explains that the foreclosure crisis was not an occurrence that could have been foreseen by most. the increase in gas prices caused many lower class and middle class citizens and families to suffer significantly.
Explains that the financial crisis facing the banking industry was a direct result of hiking interest rates by banks on adjustable mortgages, which led to the forfeit of many monthly home payments.
Argues that the government should obtain the bad mortgages from the banks to prevent foreclosure and avoid the situation of bailing out the financial industry.
Recommends that the government create temporary regulations and programs to assist the participants of the government home loan option so they can become financially independent.
Opines that the government should create a tax credit for the participants in the government home loan option who pay off their mortgage debt within years.
The United States is currently experiencing the biggest financial crisis after the Great
Depression, in this paper we will discuss what caused the current economic crisis and why? Two
What is the relationship between mortgages, the housing crisis and Wall Street? Third, how has this crisis affected fiscal policy and what are some of the drawbacks of government intervention. Four, what is the recession doing to GDP, economic growth and inflation and how are other countries faring.
In this essay, the author
Explains that the united states is currently experiencing the biggest financial crisis after the great depression. they will discuss the relationship between mortgages, the housing crisis and wall street.
Explains that the current economic crisis started from the real estate market, focusing on subprime mortgages and lenders that loaned money to high risk borrowers.
Explains the relationship between mortgages, the housing crisis and wall street. the decline in housing prices led to rising defaults among subprime and alt a borrowers.
Explains that fiscal policy is the government expenditure and revenue collection to influence the economy before the current economic crisis.
Explains that the economy of the united states is the world's largest and its gdp is comprised of consumption, investment, government spending and net export.
Explains the different types of unemployment, including frictional, structural, demand-deficient, cyclical, and seasonal. unemployed works have no job, while underemployment involves underutilization of a working individual's skills.
Opines that the economy is at its worst since the great depression and the government needs to make drastic cuts with spending and stop importing cheaper goods.
The year 2008 was a very scary one for anyone involved in the US stock market. Due to subprime lending, and cheap mortgages, the housing market became grossly overinflated. Naturally, as with a balloon that’s filled too much, it “popped”. The resulting collapse of the housing bubble had severe implications for the rest of the US economy, housing, and related industries such as lumber, construction, and realty all came crashing down, and the people employed in those fields soon found themselves out of work. As with the stock market crash of 1929, fear of the economic instability caused people to pull their money out of any investments they had. This can be a problem for a healthy bank, being unable to supply the money people are requesting if it’s tied up in loans. However, this would prove to be an even bigger problem if the money never existed in the first place, and would take down one of the largest scams in American history.
In this essay, the author
Explains that 2008 was a scary year for anyone involved in the us stock market. due to subprime lending, and cheap mortgages, the housing market collapsed. fear of economic instability caused people to pull their money from any investments.
Explains that bernie madoff began investing in penny stocks in 1960 and received several big breaks, such as his father-in-law loaning him $50,000 and carl shapiro giving him $100,000 to invest on his behalf.
Analyzes how madoff broke many laws and shook confidence in the stock market. his entire career in wall street was fraught with both moral gray areas, and out-right corruption.
Explains that madoff promised a 20% return annually to each client, and when someone wanted to withdraw their funds, he simply paid them whatever they were due.
Analyzes how madoff's business continued to grow, especially as the hedge fund market took off, seeking to draw in more "new-money." a commission made his firms more attractive to people managing smaller hedge funds.
Opines that madoff's behavior is unethical since it breaks trust between an investor and their broker, which is one of the underpinnings of our financial system.
Analyzes how madoff betrayed the trust of his clients and engaged in a list of illegal behavior including fraud and money laundering. the sec and the federal government should be monitoring for suspicious activity.
Opines that madoff's actions were unquestionably wrong, but the damage could have been mitigated if the federal government allocated more resources towards detecting and stopping financial crimes.
Recommends that the us government allocate more funding towards organizations such as the sec to ensure they are able to thoroughly investigate suspicious cases.
Explains that the sec enacted a series of reforms in 2008 in order to avoid making the same mistakes again.
Opines that madoff's sentencing should serve as a warning to white-collar criminals that their crimes will not be tolerated.
Opines that madoff's assets have been seized, and property sold to return money to the victims, but we need to keep in mind the nature of the money the people lost.
Opines that justice has been served monetarily to madoff's family, since his son, mark, committed suicide in 2010, leaving behind two children.