Comparing The Panic Of 1907 And The Great Recession Of 2007-2009

Such an event caused many problems in the country. The first problem had been that when banks lost tons of money due to the stock market crash, they also lost the life’s savings of so many hard

These periods of financial panics along with the inelastic money supply had long beleaguered the country. Bank failures, business bankruptcies, and unstable economic development were results of the lack of a central banking system (Federal Reserve System 8th ed. pp. 6-7). The Panic of 1907 was a bank run of epic proportions that exacerbated the problem. Depositors withdrew their savings from the second and third largest banks in the country. These banks were not able to generate enough funds to cover the demand and subsequently closed their doors. Their closings rapidly spread fear across the country leading to one of the largest runs on the banks the nation had ever witnessed (Schlesinger pp. 41).

To understand the Panic of 1893, one must look back 20 years to a very similar situation that arose with the Panic of 1873. The country was experiencing a post-Civil War hangover that caused the economy to experience inflation. After the war, efforts were increased to expand the railroad. These efforts required substantial investments that were mostly unbacked. The country was already running on a large trade deficit. The large trade deficit along with these investments put a massive strain on bank reserves, which plummeted in New York City during September and October 1873 from $50 million to $17 million. Similar causes came 20 years later with the 1893 panic.

In this essay, I will briefly explain what happened during the financial crisis of 2007-09, and also discuss the contribution of the government to the financial crisis.

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

This is when americans began to take their money from the banks for being unreliable since they could not get their money back. More than 600 banks failed in this time.

Many who were afraid of losing their reserves swarmed the banks that were still in business to withdraw their

The 1930s, the period of the Great Depression is perhaps the most unstable financial time in United States history. The decade where more than 40 percent of nation’s banks disappeared crippled the economy for years and caused the Senate to pass the Glass-Steagall Act (part of the U.S. Banking Act of 1933). The main purpose of the legislation was to separate commercial and investment banking, limiting commercial banks’ securities and activities within commercial banks and securities firms and to restore confidence in the U.S. banking system. For the next 30 or so years, there was a substantial government safety net and government played a huge role regulating the economy and maintaining the aggregate demand through fiscal and monetary policies. (Arthur MacEwan. “Inequality, Power, and Ideology: Understanding the Causes of the Current Economic Crisis.” Real World Macro, Economic Affairs Bureau, Inc. November 2012.)

The United States economy along with most developed countries experience cycles of booming years, which are also subject to periods of economic contractions. The cycles in an economy are dependent on many factors and recognizing historical trends can provide forecasts to where an economy is heading and reduce recurring mistakes. Mark Twain once said, “History does not repeat itself, but it occasionally rhymes.” (Carr) The Great Recession of 2008 precisely emphasizes Twain’s historical understanding with respect to the Panic of 1907. Almost exactly 100 years after the financial crisis of 1907, the poem known as The United States economy, holds a stanza rhyming it with the 2008 financial crisis. The tail of these two events is compared to better understand the elements in an effort to rhyme the next line of the poem with a new set of syllables. Before understanding these elements, a financial crisis is defined as “A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated with a panic or a run on the banks, in which investors sell off assets or withdraw money from savings accounts with the expectation that the value of those assets will drop if they remain at a financial institution. (Investopedia)

In America there have been great economic struggles and triumphs. The many great leaders of this country have foraged, failed, and overcome some very difficult times. Comparing the Great Depression of 1929 and the Great Recession of 2008 has revealed similarities that by learning from our mistakes in 1929 could have prevented the latest recession. I will discuss the causes of the Great Depression and the Great Recession, and what policies were implemented to reverse the economic downfalls.

The year was 1928 and the American economy was thriving like it had never been before. With Henry Ford’s sponsorship of the assembly line, the automobile industry was rising and vehicles were becoming more affordable. The end of World War I was also having a positive effect on the American economy. The events leading to the crash of ’29 were recognizable and now as economists look back some ask how did we as a nation not see this coming? The actual crash did not occur overnight, it lasted over the span of five days, days that America will never forget.

The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.

A financial crisis is a circumstance in which the worth of financial establishments or assets plummets quickly. A financial crisis is frequently related to a panic or a run on the bank. When this occurs, investors tend to sell assets or associated with a panic or a run on the banks, in which investors sell off assets or take out money from banking accounts with the anticipation that the value of those assets will decrease if they stay at a financial institution (Investopedia, 2016). The purpose of this paper is to provide a summary of the financial crisis of New York City and Orange County.

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of