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Lehman Brothers Recession Of 2008

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In September of 2008, Lehman Brothers, one of the largest investment banks in the United States, declared bankruptcy. The collapse of the company came in great shock to many in Wall Street and the financial sector, and served as a contributing factor to the Great Recession of 2008 (Mishkin and Stanley 178). From 2004 until 2006, the housing market was booming. Innovative financial instruments such as collateralized debt obligations (CDOs) and mortgage-backed securities had gained popularity in this market. The mortgage brokers who originated these securities had an “originate-to-distribute” attitude. Their aim was to originate the security, earn their fee, and quickly sell it to interested buyers. This created a problem because they did not …show more content…

This refers to money's ability to quote the specific price of goods and services (Mishkin 54). If money did not serve this role, goods and services would have to be quoted in a relative, instead of absolute manner. Therefore, one good could have different prices, with the price of the good depending on what it is being exchanged for (Mishkin 55). For example, one banana could be worth ten grapes or half a watermelon. This problem is solved with one's ability to quote the prices of goods and services in terms of money. As with money's "medium of exchange function," money's role here clearly facilitates transactions, allowing them to occur in an efficient manner. Bitcoin’s limited ability to serve as medium of exchange also impairs its ability to serve as a unit of account. Since a limited number of establishments accept it as payment, a limited number of goods (the goods of those establishments) can be quoted in terms of Bitcoin. In addition, the digital currency’s increased volatility means that goods and services quoted in terms of Bitcoin have to have their prices constantly updated. Therefore, this cryptocurrency has very limited ability to serve as an adequate unit of …show more content…

An additional function of money is its ability to serve as a standard of deferred payment. Many Economics textbooks choose to include this function as a subsection of the other three or do not include it at all (such as Miskin's tenth edition of The Economics of Money, Banking and Financial Markets), but since other popular Economics texts (Campbell et al. 38) include it as a separate function, it will be discussed separately in this paper. This function refers to money's ability to settle or repay outstanding debt and pay taxes (Campbell et al. 39). From a legal standpoint, if one repays a loan utilizing money, the loan is considered repaid. The same could be said about Bitcoin, but one's ability to use it would have to be previously stipulated in relevant contractual agreements. Short of such agreement, Bitcoin does not possess this function of money, since most debt repayments and obligations do not accept the digital currency as a valid form of payment. In addition, Bitcoin cannot be used to pay

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