Monetronic Financial Crisis

Financial Crisis of 2007-2008 originated in the United States spread to the financial systems of many other countries, including CIS countries, by means of the domino effect. Bankruptcy of one of the largest Americans Bank, Lehman Brothers Holdings PLC, in someway was a launcher of this global crisis the scope of that can be compared with the Great Depression of the 30s of the last century. No one could have even believed that a crisis in the local market of subprime mortgage loans in the USA would have such enormous affect on the financial systems over the world and crash banking sectors of many countries one by one.

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

American debt held by households is rising ominously, plus our economic policies change. That debt balloon powered by radical income inequality will become the next bust. It drives by spending on domestic demand or more likely consumer spending not just by the wealthy, but by everyone else. An important explaining about the unity that emerged from our latest research has shown as relatively that ten percent were prosperous, saving, and investment in which natural and interests to find the path of them in the financial markets, but primarily ninety percent had borrowed. As the result many Americans concern about the financial crisis and the cartoon uses to sarcasm, irony, and logos to convey its message.

On September 15th 2008, Lehman Brothers, one of the United States’ largest investment banks, declared bankruptcy. This event occurred during the Great Recession, a time period where economic activities in the United States had significantly declined in the early 21st century. The Great Recession occurred for numerous reasons; however the primary reasons are due to the housing bubble as well as the subprime mortgage backed securities. What made matters worse during the recession was the day September 29, 2008 when congress could not come in agreement to pass a bailout plan that would have otherwise saved Lehman Brothers. The period of its collapse is an interesting part of United States’ finance industry’s history; this is primarily due to the frequency that which this sort of event can occur actually occur in real world economics. The United States’ housing bubble is an example that is applicable to the black swan theory. This theory is summarized as, “An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict.” (“Black Swan Theory”). The severity of the housing bubble effect had rendered the Fed’s primary tool of open market operations to be ineffective. The Fed had to rely on other measures that are infrequently used; in this case was quantitative easing. Quantitative easing is the injection of reserves into circulation to promote economic activity as well as decrease the unemployment rate. This

Not since the great depression was there such a devastating economic crisis as the 2008 financial crisis. A crisis rooted from the burst of the housing bubble in the U.S. thus leading to the government being brought down, ruined economies, crumbled financial corporations and impoverish lives of numerous individuals.

As the world’s largest economy, every move the United States makes has widespread effects throughout the global markets. Around the world, there has been speculation of whether the U.S. will raise interest rates by the end of 2015. With all indications pointing to a rate increase, concerns have arisen about the potential ripple effects on the rest of the world. Fundamentally, raising interest rates come hand in hand with an appreciating U.S. dollar. In many parts of the world the U.S. Dollar is used as a major benchmark of current and future economic growth. For developed countries, a strong U.S. dollar can be viewed as positive, however emerging economies will face a different fate. As the world becomes more financially intertwined,

Ben Bernanke, the chairman of the Federal Reserve, insists that “The 2008 economic crisis could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs.” The 2008 economic crisis is known as the worst financial crisis since the Great Depression of the 1930s. Most economists believe that the crux of the economic crisis is the subprime mortgage crisis, which happens mainly because of the faulty monetary policy. Consequently, the paper aims to analyze the impact of monetary policy on the 2008 economic crisis. The essay will briefly introduce the economic crisis, explain the subprime mortgage crisis, and talk about the US government’s response to the trouble. In addition,

In this framework, the loss of liquidity is the result of a market failure, and if the central bank can solve that failure by lending, the result should be an unambiguous social good. After all, central banks are designed to create liquidity and, in the spirit of the classical doctrine of the LOLR (Bagehot, 1873), they should respond forcefully in a crisis. Former Federal Reserve Chairman Ben Bernanke described the crisis lending as nothing new and noted that “We did what central banks have done for many years and what they were designed to do: We served as a source of liquidity and stability in financial markets, and, in the broader economy, we worked to foster economic recovery and price stability.”6 Moreover, in the recent crisis, despite a massive loan book that included loans to institutions well outside its traditional network of depository institutions, the Federal Reserve had zero defaults or even delinquencies on those loans even though the crisis proceeded in several increasingly severe waves. While it is never possible to know what could have happened if the situation had worsened further, that all these loans were repaid underscores the important role of liquidity in driving the crisis and raises the question of why liquidity regulations are necessary at all as long as there are sufficiently robust capital

To begin with, Keynes came up with a theory that challenged monetarist model, that was widely employed in 1930s, as a reflection of the unprecedented events of the Great Depression. From Keynes’ point of view, it was the failure of the free market theory that led the world into financial crisis. Keynes stressed the fact that non-interventionist policies proposed by monetarist economists were the main cause of the depression. He believed that during the liquidity trap governments’ best response is to stimulate the aggregate demand in the economy to offset lack of confidence among consumers and investors (Field 2011). Fear of future unemployment, uncertainty about the impacts of recession, incentives consumers delay

Monetarists highlight the importance of a fall in the money supply. They point out that between 1929 and 1932, the Federal reserve allowed the money supply (Measured by M2) to fall by a third. In particular, Monetarists such as Friedman criticise the decisions of the Fed not to save banks going bankrupt. They say that because the money supply fell so much an ordinary recession turned into a major deflationary depression.

The purpose of this note is to briefly examine the different approaches in interpreting the financial crisis by mainstream and heterodox economists. To emphasize the drawbacks in the neoclassical (mainstream) view, and criticize it from the post-Keynesian (major heterodox) viewpoint. The latest financial crisis of 2008 and 2009 will definitely become a cornerstone in the history of economic though and, correspondingly, the development of capitalistic system. It is a turning point as the neoclassical (mainstream) theory that has seemingly been a driver of the late 30 years of development lacks the ability to comprehensively explain the causes of frequent economic downturns, and provide policy implications for preventing crisis from occurring again and again.

In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary

The article by David Wheelock, “The Monetary Base and Bank Lending: You Can Lead a Horse to Water...”, discusses major issues with the monetary policy during a financial crisis. In the Fall of 2008, the Federal Reserve took action to dramatically increase the size of the monetary base, which doubled in size in under two years. Unfortunately, the money stock associated with the monetary base increased by a much smaller margin, and the ratio between the M1 money multiplier and the monetary base fell from 1.6 to 0.84 (Wheelock). Essentially, this means that the currency in circulation has skyrocketed, but the sum of that currency in the hands of the public and deposits made at depository institutions has increased minimally. This is due to a significant drop in in the lending behavior of banks, and a substantial increase in the amount of excess reserves held by banks. According to an article by Greg Mankiw (the author of our book), excess reserves shot up from around 2 billion to above 850 billion following the collapse of Lehman Brothers in 2009. Using what we have learned about markets and prices, it is clear that these significant changes can present catastrophic alterations to the economic state of a nation, and the activity of the U.S. banking system over recent years expresses this fear.