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Cause of the 2008 financial crisis
Causes of the 2008 financial crisis
Analysis of the fall of the lehman brothers
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Financial crises are considered as an intricate phenomenon and the diverse number of reasons for why they transpire is verification to this intricacy.
Since the middle of 2007, the global economy has had to overcome what is judged as the most lethal global financial crisis ever documented together with a recession, which had drawn comparisons to the Great Depression of 1929 ( Eichengreen and O’Rourke, 2009). As the crisis began inflating into many economies and countries, some of the leading and most esteemed banks and insurance companies were declaring themselves bankrupt or in the need of aid economically. The United States were under tremendous economic pressure in October 2008, when the Lehmann Brothers declared bankruptcy. This led to credit flows being stationary and the confidence of investors to deteriorate thus leading to economies around the world dipping into recession. This paper aims to see if inequality was a cause of the global financial crisis or whether the cause is more conventional then inequality.
The leading elucidations of the current global crisis have focused on deregulation, ideologies from the classical laissez-faire, low interest rates due to the exceptionally slack monetary policy, ‘animal spirits’ as well as moral hazard (Wisman, 2013). Deregulation has been a contributing factor to the rise in banking concentration and this was due to the removal of the Glass-Steagall legislation law. The banking concentration made the financial sector insubstantial due to the creation of a few monopolised financial institutions that controlled over half of the sector. The top four banking organisations held a total of approximately 40 per cent of the total bank assets. Another conventionalist approach into the cau...
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...nal studies that linked inequality and the financial crisis. Using this evidence there was indication that rising inequality has been a contributing factor towards household debt which saw the poor being pushed into debt through a decrease in wages. Contrariwise there were also arguments that rising household indebtedness was due to the actions of the affluent. Maki and Palumbo (2001) used their study to argue that it is not the poor that seem to be accruing the debt, but in fact is those at the heights of the income distribution chain.
Rajan (2010, 43) argued that growing income inequality occurred in the United States due to unequal access to superior schooling and this subsequently led to political burden for more housing credit. This would then lead to distortions within the borrowing market of the financial sector. What does Rajan mean by political pressures?
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.
report of the national commission on the causes of the financial and economic crisis in
3. What are the effects of this wealth inequality in the US and what causes it, as well as some possible solutions and their ramifications, will all be discussed and answered below. There has always been a wealth gap between the richest and poorest in society. However, in the past decade, the wealth gap between the richest and poorest citizens in the US has been growing rapidly. In the 70s and 80s, the wealth and income growth rate for both poor and rich people were similar, however, between the years 2009 and 2012 the top 1% income increased 31% while for the bottom 20%, their income actually dropped and for the vast majority of Americans, the average yearly income only increased by 0.4% [4].
The United States had recently faced an economic recession that resulted in company bankruptcies, therefore causing unemployment spikes and home foreclosures. In the media, two movie have recently came out with two movies that plotted around recently unemployed middle-class families that are struggling to keep up with their standard of living and facing bankruptcy. In the movie, Mad Money, the main ch...
The global financial crisis affected the many advance economies, particularly the United States. Unemployment significantly increased, people were evicted from their homes, and the search for employment was a dead end. However, Canada was not affected with the same force as the United States: “Canada’s financial sector was less affected than most advanced economies and it had the highest bank soundness rating in the World Economic Forum surveys from 2007-2008 through 2012-2013.” Despite the relatively stable status of the Canadian economy, Canada was very much involved in the review and improvement of international financial regulations. Canada was in a position to make changes to financial regulations due to their perceived experience in the matter, as Canada escaped the crisis relatively unscathed. Canadian delegates were placed in charge of four core areas in the reformation of financial policy and, “in all these areas, Canada was able to successfully push for reforms that resonated with its experiences and interests in enhanced financial sector regulation and supervision.” This crisis, and the successful reformations that came out of it, further installed Canada as a leader in economics, firmly inaugurating them as the world’s best bankers.
Belsie, Laurent. “The Causes of Rising Income Inequality.”.N.p., 5 Mar. 2009. Web. 30 Apr. 2014
Recently, studies have shown that income inequality has many connections that have caused the gap in the United States. According to the research I found, income inequality is connected to corruption, trade, wages of workers, and education. The world income inequality had declined since the twentieth century according to the studies found (Clark). Corruption falls increasing on low income individuals more than higher income individuals. Additionally, the trade theory suggests that the free trade might have level up the income inequality higher within countries by the different patterns of wages and demand for workers who are skilled and unskilled (Silva and Leichenko). Moreover, the education of wealthier people has it easier because the learning efforts of education are unbalanced. Besides, income inequality in the United States is hurting our economy due to the all the issues of corruption, trade, wages, and education. Suggested by Robert H. Frank article called “Income Inequality: Too Big to Ignore,” the income inequality is bad for our economy (Frank).
America 's economy is dependent on the middle class. Slowly, the middle class is beginning to decrease. Soon enough there will be only the wealthy and the poor. Economic inequality is the gap between the upper class and the lower class. It is a problem that is growing everyday. Technology, education, race, gender, and globalization are the main causes of economic inequality. Each one of these causes contributes to the vicious cycle of economic inequality. The battle for our country 's financial wellbeing is upon us.
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.
Statistics shows that due to foreclosure murder rates, homelessness, and vacant properties has increased dramatically this year alone. The financial crisis is affecting the health of the economy and is fueling in recession.. This has created much problems for those that are middle class workers and low income families. It target those groups of individuals because their financial background is not up to par to be financially stabled, which later cause them to be behind in payments and things of that nature. Statistics also shows that millions of Americans spend an unexplainable amount of share on their income.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
This particular financial crisis has hit the American labor market forcefully, creating a large despair of inequality, which further affects different portions of society. Unemployment rates have not only attained levels near post World War points but also reached it’s momentous highs. The crisis more severely affected groups, such as men, youth, and low-skilled individuals. Also hitting some sectors hard, including manufacturing, construction and parts of the financial industry, this crisis has become an economic nightmare. In particular, some economic activities were dramatically depressed, while others have just faced a cyclical slowdown, and some states were much more affected by the crisis than others (Estevão...
Wealth inequality is the uneven distribution of resources in a given state or population, which can also be called the wealth gap. The sum of one’s total assets excluding the liabilities equates the person’s wealth also known as the net worth. Investments, residents, cash, real estates and everything owned by an individual are their assets.In reality, the United States is among the richest countries in the world, though a few people creating a major gap between the richest, the middle class and the poor control most of its wealth. For more than a quarter of a century, only the rich American families have shown an increase to their net worth.Thisis a worrying fact for the less fortunate in the country and calls for assessment (Baranoff, 2015).
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.