2008 Financial Collapse Summary

2008 Financial Collapse SummaryDave Levengoodas well adult to run low vs. How an Economy Grows and Why it CrashesThe Great receding of 2008 was non lonesome(prenominal) the heavy(a)st frugal crash of this decade, it was the largest economic crash since the Great Depression. The Great Recession has been studied extensively since it happened, and on that point are finite conclusions as to wherefore it occurred that gage be drawn from the facts. First, in erective government regulations of the banking system all in allowed the hem in Street banks to carelessly loan step to the fore money to essentially some(prenominal)one who asked for it. Second, many a(prenominal) of those loans, which fenderly stimulated the caparison burp, were defaulted on when the nearly 8 gazillion long horse housing bubble burst, leaving behind billions of dollars of debt. Third, this debt destroyed consumer impudence in the large banks, causing a drop in the standard market as people withd rew their money. The lack of credit as Ben Bernanke describes it, nearly threw the American Economy into an abyss much deeper than that of the Great Depression. Two work that both outline the ca intentions and results of the Great Recession are Peter Schiffs How an Economy Grows and Why it Crashes, and the HBO film, Too Big to Fail. Schiffs book uses a comical portrayal of the U.S. parsimony in the form of islanders of the nation Usonia, with tip as dollars. HBOs documentary focuses more(prenominal) on the day-to-day actions by the government and banks trying to prevent this deferral forming into a depression. In all however, both works draw on and allude to the known businesss in the U.S. economy that led to the Great Recession.Too Big to Fail implies that the skip of the entire economic lapse was when President Reagan deregulated the banks, giving them much more freedom to bring forth out loans. This freedom was then abused by overconfident banks and thus the recession o ccurred. Schiff does non share the same tidy sum outright in his book, however his comments on the frequency and careless loans by the banks cannot be overlooked. That being said, Schiff focuses extensively on the changing pass judgment of currentness over the course of the recession. after being taken off the specie standard, Schiff describes how the U.S. economists were free to change their currency as needed to sustain growth. The solo reason why this worked was because the U.S. had be bewilder such a large economic player that the Reserve Note was backed up by the veritable reputation of previous years. Had other nations not accepted our dollars as a reserve note, we would have a much more difficult cartridge holder borrowing and spending money today. Furthermore, Schiff describes the acts of the Federal Reserve inflating currency as the re-officialization of the dollar bill into , then of its original value. This crack of instability in our currency was heavily leaned u pon during the great recession when the value of our currency was questioned. later on the large investment banks lost money, consumers seriously questioned the value of the dollar. As straight with all expectations, when confidence and expectations are low, they tend to be self-fulfilling prophecies in that they come true because people think they will. Therefore, Too Big to Fail describes the original cause of the recession as the deregulating of the banks by Reagan, while Schiff exponent argue that the underlying cause was because of the insecurity in the value of the unify States dollar.The second cause of the Great Recession was the housing bubble. While there may have been some disagreement in the underlying causes of the recession between the two works, both Schiff and Too Big are in agreement over the catastrophic consequences of the bursting of the housing bubble. Too Big to Fail details how the banks were truly sunk by the defaulting of housing loans. In forcing merge rs and subsidies, the problem was constantly the poisonous assets which were the housing stocks. After the burst of the bubble, all of the large Wall Street banks were left with billions of dollars owed to them in the form of housing debts. zero knew if those debts would be repaid, however given the look of the housing markets at the time, the banks off-key the worst. Schiff also details the housing bubble as the hut rut. After political and fiscal dancing by the leaders of Usonia to re-stabilize their fish note, things in the Usonian economy began to look up. Schiff describes the hut rut as a piecemeal idea at first, with large dependable borrowers striving for the American ideate of owning a hut. Then, the government stepped in to help subsidize the buying of homes and restricts take rates from being too high for risky buyers. This was approximately be bid a large political move to gain re-election by qualification it appear as though homes were provided to all of the coun try. The result of these subsidies and restrictions was an upward spin in the hut-market. The spiral increased speed until it was completely out of arrest of the government that originally regulated it. All semblance of legitimate value was lost, as consumers just demanded to get a hut to attain loving status. As this towering house of cards grew and grew, so did the doubts and fragility indoors the market. Finally, the peak was reached and instead of all buyers of huts and small sellers, there were only sellers of huts. The prices crestfallen exponentially, and thus the hut bubble burst in a striking fashion. Therefore, Schiff describes how the subsidies and interest rate restrictions promoted excessive buying of houses by people who could not afford them, and Too Big demonstrates the effect of those defaulted loans on the banks that made them.The last act of the recession was the actual bailing out of the major companies, subsidies given, and eventually silver injections f orced onto Wall Street banks. This part of the recession is the part most focused on by Too Big to Fail. The first eye mask to fall was the bailing out of Bear Stearns by the U.S. government as it was bought JP Morgan. This fall then caused the next smallest bank, Lehman Brothers, to get hit hard by cockeyed consumers. The combination of Richard Fulds ignorance in the Korean negotiations, and poor loan choices by the bank itself led to Lehman Brothers declaration of bankruptcy. While this causes an appreciation in the U.S. dollar for a short span, the lack of confidence originally in Lehman Brothers spreads like a disease to all the other banks in the system. One font of the recession that the film covers that Schiff does not is AIG. AIG took on an unbelievable amount of housing risks, expecting all of the assets to go up, however when the housing bubble crashed hard, so did AIG. The effect of AIGs faltering was extrapolated throughout the economy due to the massive size of it o f the company. Providing insurance to essentially all areas of the economy, AIG was too big to fail however, when it did, it jeopardize to take down the entire system with it. In an attempt to re-stabilize the system, herds grass Geithner, a policy-maker during the recession, attempts to merge the investment banks to boost confidence, however that fails miserably. The eventual excogitate that is decided upon is a 700 billion dollar bailout that would be used to secure the toxic assets that were such a problem to the investment banks. However, after discovering the toxic asset plan too slow, Henry Paulson, secretary of the treasury during the recession, decides to give direct cash injections to the bank, with the hope of them modify it out. The only problem with the tarp bailout, is that the banks did not lend out the money. The economy continued to slope downward(prenominal) until 2009 when the market finally stabilized. While the collapse of AIG and the investment banks were truly shuddery notions, the true threat that faced the economy was the lack of credit. As expound by Ben Bernanke, the ability to borrow money and pay it back add-on interest is the heart and soul of an economy. Without credit, an economy will grind to a halt. This lack of credit is addressed by Schiff as well, who describes the governments policies towards the lack of credit as simply throwing fish at it until the economy corrected itself. The only sure policies that Schiff addresses by the government during the recession is the bailing out of Freddie Mac and Fannie Mae by George Bush to stop them from hurting the economy any more than they already had. Schiff believes that the savior of the U.S. recession was China, in the form of lending the U.S. the money necessary for the cash injections and stimuli. The problem that Schiff describes with this plan is necessity to refund China all of the debts that we owe it. Therefore, Schiff details how China supplied our government with the real money necessary to stop the bleeding of the housing market, while Too Big to Fail shows the steps taken to stop the bleeding itself.In conclusion, the Great recession of 2008 was an event long in the making, starting with the deregulation of the banking industry by Reagan and formation of the Fed by FDR. This caused weakness in the economy that was exploited by the crash of the housing bubble, and the resultant contend for cash by out government has left us trillions of dollars in debt. The largest problem coming out of this recession is the probability of another bubble in the form of treasury bonds. If this bubble develops and the government does not eliminate it before it has time to grow, we could be facing a much large and more permanent crash. Luckily, this recession did not turn into a depression. This is sketch in an article by Chris Isidore, a senior economics editor program at CNN who attributes the survival of our economy to the trillions of dollars poured i nto the econmy by Ben Bernanke. While Schiff may not have agreed with the extensive borrowing to finance this, there is no doubt that Bernanke saved our economy from total collapse, even if he did use any mean necessary. Schiffs epilogue sums up the current federal agency of U.S. political leaders, in that they do not have the courage to do what is necessary to fix the economy, instead worrying about their jobs and money. Hopefully we can learn from the mistakes shown in both of these works and ensure a inactive and steadily growing economic future.