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What caused the 2008 financial crisis with lending
What caused the 2008 financial crisis with lending
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In many people's perspectives, the stock market crash in 2008 was nothing positive but a tragedy. Nonetheless, it provoked my interest in the subject of economics, which motivated me to work in the economic-related field in the future.
The stock market crash led to a global economic crisis, which tremendously pummeled my families in Hong Kong, we suffered through a period of dark times in debt. As a naive ten-year-old back then, I did not understand why my parents would recklessly invested the huge amount of money in the stock market. I underestimated that one company could have such immense impact in leading international economics down to recession. Ever since, I started questioning a lot on why and what causes peoples’ choices. As I was
The stock market crash of 1929 was one of the main causes of the Great Depression. Before the stock market crash, many people bought on margin, which caused the stock market to become very unbalanced, which led to the crash. Many people had invested heavily in the stock market during the 1920’s. All of these people who invested in the stock market lost all the money they had, since they relied on the stock market so much. The stock market crash also played a more physiological role in causing the Great Depression.
Firstly, the stock market crash in the late 1920s was one of the main factors that contributed to the onset of the Great Depression. The common goal of many Canadians in the roaring twenties was to put behind the horrors and doubts of World War I, and focus on what was to come in the near future. However, on October 29, 1929, the Stock Market in New York City experienced one of its worst days of all time. The catastrophic impact that the stock market crash had was enough to shift the world in the direction of an economic downfall . The rapid expansion of the 1920 stock market caused the market to hit an all-time high. Prices of shares skyrocketed and surpassed their once realistic value . It was now possible for individuals who could not afford
The attacks of 9/11 resulted in history’s longest stock market shut down since the 1930s. The New York Stock Exchange remained closed for six days after the attacks. Furthermore, Davis (2011) reports that upon reopening, the New York Stock Exchange fell almost seven hundred points, the biggest one day loss in history. Additionally, Jackson (2008) reports a 14% decline in the Dow Jones, a loss the Dow still felt almost a year later. But, it was American Airlines and United Airlines that experienced the greatest loss. Following the reopening of the stock market, American experienced a 39% decline and United experienced a 42% decline (Davis, 2011). However in face of discouraging numbers, Jackson (2008) reports that the U.S. markets rebounded second only to Japan, showing the great economic resilience of the U.S. While the stock markets present a bleak outlook immediately following the attacks, the financial loss is far from reassuring.
Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas". The 2007 financial crisis was composed of the fall of many major financial institutions, an unknown increase in mortgage loan defaults, and the derived freezing up of credit availability (Brue). It was the result from risky mortgage loans and falling estate values (Brue) . Additionally, the financial crisis of 2007 was the result of underestimation of risk by faulty insurance securities made to protect holders of mortgage-back securities from risk of default and holders of mortgage-backed securities (Brue). Even to present day, America stills suffers from the aftermaths of the financial crisis.
It is often said that perception outweighs reality and that is often the view of the stock market. News that a certain stock may be on the rise can set off a buying spree, while a tip that one may be on decline might entice people to sell. The fact that no one really knows what is going to happen one way or the other is inconsequential. John Kenneth Galbraith uses the concept of speculation as a major theme in his book The Great Crash 1929. Galbraith’s portrayal of the market before the crash focuses largely on massive speculation of overvalued stocks which were inevitably going to topple and take the wealth of the shareholders down with it. After all, the prices could not continue to go up forever. Widespread speculation was no doubt a major player in the crash, but many other factors were in play as well. While the speculation argument has some merit, the reasons for the collapse and its lasting effects had many moving parts that cannot be explained so simply.
There is no doubt that the stock market crash contributed to the great depression, but how? One way that the Crash contributed to the depression was the loss of money it caused to the average man. It is believed that in the first day of the crash almost a billion dollars were lost, this took a large amount out of the pocket of the common man. Without this money people were unable to purchase consumer goods, which the United States economy was based on. Another way the Crash contributed to the depression was the loss of confidence in the market. When t...
Post the era of World War I, of all the countries it was only USA which was in win win situation. Both during and post war times, US economy has seen a boom in their income with massive trade between Europe and Germany. As a result, the 1920’s turned out to be a prosperous decade for Americans and this led to birth of mass investments in stock markets. With increased income after the war, a lot of investors purchased stocks on margins and with US Stock Exchange going manifold from 1921 to 1929, investors earned hefty returns during this time epriod which created a stock market bubble in USA. However, in order to stop increasing prices of Stock, the Federal Reserve raised the interest rate sof loanabel funds which depressed the interest sensitive spending in many industries and as a result a record fall in stocks of these companies were seen and ultimately the stock bubble was finally burst. The fall was so dramatic that stock prices were even below the margins which investors had deposited with their brokers. As a reuslt, not only investor but even the brokerage firms went insolvent. Withing 2 days of 15-16 th October, Dow Jones fell by 33% and the event was referred to Great Crash of 1929. Thus with investors going insolvent, a major shock was seen in American aggregate demand. Consumer Purchase of durable goods and business investment fell sharply after the stock market crash. As a result, businesses experienced stock piling of their inventories and real output fell rapidly in 1929 and throughout 1930 in United States.
October 29th, 1929 marked the beginning of the Great Depression, a depression that forever changed the United States of America. The Stock Market collapse was unavoidable considering the lavish life style of the 1920’s. Some of the ominous signs leading up to the crash was that there was a high unemployment rate, automobile sales were down, and many farms were failing. Consumerism played a key role in the Stock Market Crash of 1929 because Americans speculated on the stocks hoping they would grow in their favor. They would invest in these stocks at a low rate which gave them a false sense of wealth causing them to invest in even more stocks at the same low rate. When they purchased these stocks at this low rate they never made enough money to pay it all back, therefore contributing to the crash of 1929. Also contributing to the crash was the over production of consumer goods. When companies began to mass produce goods they did not not need as many workers so they fired them. Even though there was an abundance of goods mass produced and at a cheap price because of that, so many people now had no jobs so the goods were not being purchased. Even though, from 1920 to 1929, consumerism and overproduction partially caused the Great Depression, the unequal distribution of wealth and income was the most significant catalyst.
Beginning on Black Tuesday, October 29th, 1929, a total of 14 billion dollars was lost in America’s economy. Near the end of the week the 14 billion turned into a total of 30 billion dollars (The Great Depression Facts). Many events during the Stock Market Crash caused damage to the economy and lifestyle of the country, ending with recuperations from The Depression.
The stock market crash of 1929 is the primary event that led to the collapse of stability in the nation and ultimately paved the road to the Great Depression. The crash was a wide range of causes that varied throughout the prosperous times of the 1920’s. There were consumers buying on margin, too much faith in businesses and government, and most felt there were large expansions in the stock market. Because of all these...
] This catastrophic event is caused by the accumulation of a large scale of speculation by not only investors but also banks and institutions in the stock market. Though the unemployment rate was climbing during the 1920s and economy was not looking good, people on Wall Street were not affected by the depressing news. The optimism spread from Wall Street to small investors and they were investing with the money they don’t have, which is investing on margin as high as 90%. When the speculative bubble burst, people lost everything including houses and pensions. The main reason ...
The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries.
This essay will examine the causes of the 2008 Global Financial Crisis (GFC) from a Marxist perspective. This paper will specifically examine and critique how Marx’s Theory of Crisis can be applied to understand and interpret the underlying structural causes of the 2008 Global Financial Crisis.
By 1929, the U.S. economy was in serious trouble despite the soaring profits in the stock market. Since the end of WWI in 1918, farm prices had dropped about 40% below their pre-war level. Farm profits fell so low that many farmers could not pay their debts to the banks; in turn this caused about 550 banks to go out of business. The nations illusion of unending prosperity was shattered on Oct. 24 1929. Worried investors who had bought stock on credit began to sell it. A panic developed, and on October 29, stockholders sold a record 16,410,030 share. By mid-November, stock prices had plunged about 40%. The stock market crash led to the Great Depression, the worst depression in the nation’s history (until…2014 ☺). It was a terrible price to pay for the false sense of prosperity and national well being of the Roaring Twenties.
In October 1929, the United States stock market crashed due to panic selling. This crash started a rippling effect that contributed to a world wide economic crisis called the Great Depression. This crash was such a shock because of the economic expansion of the 1920’s when the Dow Jones average reached an all time high of three hundred eighty one. The year 1928 was a time of optimism and the stock market had become a place where everyday people truly believed that they could become rich. People everywhere were talking about the market and newspapers were reporting stories of ordinary people such as chauffeurs, maids, and teachers making millions off the stock market. People who didn’t have the money bought on margin. The stock market was booming and the excitement about the market caused a lot of over speculation. People ignored the small signs of the impending crash until Black Thursday, October 24, 1929. Four days later the stock market fell again.