ipl-logo

2008 Financial Crisis Essay

1130 Words5 Pages

This caused a liquidity crisis, in which the volume of exchanges in the market declines and makes it hard to find the value in assets. By September 2008 the crisis became far worse when the risks expanded from 1% to 4.5% and everyone panicked as they knew a financial disaster set in. Interest rates would spike making credits cease to function and this resulted in investments declining at a fast rate by more than 30%. This sent a large shock to aggregate demand followed by a continuous decline in the stock and housing markets. This would reduce household wealth and consumption as well, which was once a provider of a secure channel where aggregate demand sank. This is when the government decided to step in and take financial control of a few mortgage …show more content…

The Federal Reserve bought assets from banks and paid for these purchases by crediting their reserve accounts. The banks kept the funds as their reserves with the Fed instead of lending them to private clients. The reason for not lending those funds in the private sector is owed to the fact that the banks were concerned for their own balance sheets and didn’t want to risk making loans in a bad economy. Also the Fed was paying high interest on surplus reserves, which made it a safe investment for banks. Since the Fed adjusted the interest rate they were able to control the amount of additional currency being admitted into the economy. Funds were used to purchase equity in banks and other financial institutions so the Fed can guarantee its’ loans to them. Their focus was to bail out the automobile industry as it was one of the nation’s most profitable industry. Finally with the American Recovery and Reinvestment Act, a $787 Billion package was put in place to enhance aggregate demand into the economy. The package has over $250 billion in tax cuts as well as $500 billion for the government to spend on unemployment, infrastructure, education,

Show More
Related
432 Words | 2 Pages

As a result, the nation was shaken and terrified. Additionally, it impacted the economic confidence of industries and customers. Leading to the 14 000 000 dollar loss in the stock market (Doc 3). Consequently, a number of businesses, banks, and a other organizations declared bankrupt. In a similar way, the public authority's efforts to become a part of the financial system resulted in more significant harm.

Read More
1182 Words | 5 Pages

Over the past year, American politics have been the forefront of many people’s minds. However, before the recent election, political parties concentrated their efforts on the primaries, where they chose a candidate to represent their values. Regarding the Democratic party, the two main contenders were Hillary Clinton— who later went on to be the Democratic nominee— and Bernie Sanders— an elderly Socialist Jew who appealed to the younger generation. As a part of his platform, Sanders expressed his desire to make college free, causing the topic to become a main headline in the media. Although Sanders failed to become the Democratic nominee, his idea persisted throughout the election, as Hillary Clinton included the ideology in her campaign.

Read More
468 Words | 2 Pages

This being the cause of prices concerning stocks and shares to increase, to the point that it was nearly impossible to invest in the market. This being a factor in causing companies to terminate their employees swiftly, and if an individual remained employed, their wage decreased dramatically below the minimum wage. Many counterparts had invested in the stocks with loans or borrowed money, and when the market crashed, their share had been utterly wiped out, leaving them with absolutely no money. Individuals who had their money in banks, became skeptical of the banks and started to withdraw their money, to preserve their remaining savings. This, causing the banks to have to take out loans from bigger banks so that they could pay the individuals their money.

Read More
462 Words | 2 Pages

To increase reserves the FED buys securities and pays for them by making a deposit to the account maintained by the FED. The FED lower reserves by selling securities and collects from those accounts. These sales and purchases of securities are done under the supervision of the Federal Open Market Committee. The FOMC uses this tool to control the interest rates and money supply in the US economy( www.federalreserveeducation.or g, n.d.). The simplest answer as to why the FOMC tinkers with the sales and purchase are the goal of maintaining a balance or equilibrium in the economy in the US.

Read More
535 Words | 3 Pages

Bank deposits were not safe to be used because the banks failed people and thus people simply lost their savings. Banks that were still there were unsure of the economic situation and they were only concerned for their own survival and this caused them to stop giving more loans causing a decrease of the people using them. How the situation was resolved? There was a new deal that had been presented.

Read More
460 Words | 2 Pages

When the stock market crashed, wealthy people had all their saved money wiped. People couldn’t really take loans out because they were in debt owing money to the bank. After banks shut down, then local stores, factories, and restaurants all shut down. This then escalated into unemployment. Over 600% of citizens were unemployed and had no income.

Read More
985 Words | 4 Pages

The Banking Act of 1935 regulated the nation's interest rates on loans and money supply by creating a seven member board (Danzer et al. 675).(Ask about same source different page citing) Franklin Roosevelt also helped stabilize the banks by restoring the people's hope in them. Roosevelt once broadcasted that “Hoarding was now out of style.” (??)

Read More
957 Words | 4 Pages

However, the recession of 2007 was affected largely by the house bubble collapsing. The financial industries had designed complex ways for people to receive lends. There was a larger risk later that neither the investors of firms

Read More
683 Words | 3 Pages

half of its value in a month (Oakes 719). During the 1920s, the shift from an agricultural economy to a consumer goods based economy was taking place (Oakes 719). The shift caused crops to be valued very low, causing many people being to be unemployed, spending of what little savings they had, and then relying on “rickety credit and financial systems” (Oakes 719-720). Something very similar can be observed between the cause of the great depression and the most recent economic disaster. In both disasters, banks made risky investments or gave out risky loans, which lead to a much more disastrous financial meltdown (Oakes 720).

Read More
1247 Words | 5 Pages

The Federal Reserve was established to help the fiscal issues the United States were facing and going to face in the

Read More
1331 Words | 6 Pages

Because they could no longer continue to expand, a slowdown was inevitable. While profits went up, wages increased – which widened the distribution of wealth. Because banks didn’t have guarantees with their customers, a situation was created causing most people to panic when times got hard. Very few regulations were placed on banks, enabling people to spend money recklessly in the stock markets. This series of events set off the worst economic downturn in the history of the industrialized world (History.com, par.

Read More
1005 Words | 5 Pages

The forty-six billion the Fed gave to lenders was two-hundred times more than the daily average. The quick infusion of cash was a far cry from normal Fed operations. On the day of the 9-11 attack, the S&P 500 dropped 4.9% and continued to go down causing markets to crash in less than a weak. The Federal Reserve’s quick and decisive action, however, helped the markets return to normal in just over 19 days. This action helped keep the U.S economy stable and prevent an economic

Read More
596 Words | 3 Pages

There were 10,000 banks that went out of business. Around one-half of all banks either closed or merged with other banks. The role of the Federal Reserve and government increased. Tighter regulations were put on financial markets and banks. The Federal Reserved shifted to a policy of maintaining high employment and fast growth.

Read More
438 Words | 2 Pages

"Great depression?" they gasped. Consumer confidence plummeted, as did consumer spending (which accounts for a stunning 2/3 of US GDP). Corporations, in a mass panic, swiftly switched into a mode of panicked layoffs and cost cutting. The banks, already spooked, continued to tighten their lending not just to consumers but to corporations and other banks as well. And ditto for the rest of the world.

Read More
1101 Words | 5 Pages

The Federal Reserve had the power to manipulate the money supply in the economy in order to promote economic growth, but during the Great Depression, it had failed to do so. Friedman and Schwartz stated “For it is true also, as we shall see, that different and feasible actions by the monetary authorities could have prevented the decline in the stock of money-indeed could have produced almost any desired increase in the money stock. The same actions would also have eased the banking difficulties appreciably. Prevention or moderation of the decline in the stock of money, let alone the substitution of monetary expansion, would have reduced the contraction's severity and almost as certainly its duration” (qtd in Barber 435). Friedman and Schwartz therefore saw the policies pursued by the Federal Reserve as a factor that increased the length and severity of the Great depression, rather than a major cause for it.

Read More

More about 2008 Financial Crisis Essay

Related Topics

Open Document