The Great Panic: The Crisis, The Walking Plague

Throughout its history, the United States has experienced a series of panics, or economic downturns. Some financial experts believe that the way the economy is set up in this country contributes to panics being cyclical. In other words, there is no way to avoid an eventual bump in the road when it comes to the economy. The Panic of 1893 was one of the biggest in the country’s history, with unemployment across the country reaching record highs and banks failing at an alarming rate. When compared to the Great Depression that occurred decades later, the legacy of the Panic of 1893 as one of the worst we have experienced holds.

Prior to the crisis in 1907, banks were considered full service financial institutions. In the year 1913, the Federal Reserve System was created by congress to help stabilize the financial market by acting as the lender of last resort to the banking institutions. Nonetheless the great depression still hit the economy between 1929 and 1933 which led to the stock market crash and market share value decrease by 80%. By the 1980s, the economy had stabilized again and there was increase in computer analysis, electronic information transfer, increased importance of global markets and deregulation of financial institutions.

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)

The Economist begins by explaining how the “subprime” loans are aimed at those with a bad credit record. This give readers an idea of how the financial crisis started. As the article progresses, they made many assumptions without backing their statement up with evidence. For example, they assume that subprime borrowers were poor and less likely to be white than those who could get a lower, fixed rate mortgages. Although readers may think this makes sense, but since its not supported by an evidence or statistic, this statement may not be entirely true. The Economist is consider to be a neutral and high quality news company. This article indeed was neutral as it was not written in favor of a liberal or conservative view. However, in the article,

On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman 's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman 's demise also made it the largest victim, of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman 's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest

It is clear that the most popular terms, which could be seen on media including the Internet, newspaper on the late of 2000s, are Global Financial Crisis (GFC), credit crunch, sub-prime crisis or bankruptcy. The financial crisis, started in the late of 2007 in the USA and quickly become international phenomenon, is seen to be the worst crisis since the Great Depression, 1929-1933 (Hull, 2012). GFC was a steel punch, which has probably destroyed the biggest and unbreakable economy in the world, the USA. It seems that the idiom “Too big to fail” may not true in all circumstances. There were some big financial institutions receiving bailout from the government and some announced go bankrupt such as 160-year-old bank and the forth-largest bank before the crisis, Lehman Bothers Bank . There were a lot of researches, books and journals discussing and debating every perspective the turmoil including causes, determinants and consequences. Further more, there were some researches of

Years before the crisis occurred, investors were looking for some place to put their loads of money to make more money. In the past these investors would go to the

The Financial Crisis was the worst economic event to occur in the United States since the Great Depression in the 1930’s. Millions of people lost their jobs, assets, and life savings as a result. The crisis also affected millions of people all around the world as the event unfortunately made low income citizens in other countries even poorer. The causes of the Financial Crisis are pretty clear, greed seemed to fuel the entire event. Anything that the executives and other high ranking people of financial institutions could do for more money, they did even though it came at the expense of others. Had the government not stepped in and bailed out some of the companies that were on the brink of bankruptcy, who knows how much long the Financial Crisis could have lasted. Now you would think that lessons would be learned by this horrific event, but that is not necessarily the case. While the government took measures to prevent another Financial Crisis America could easily have another Financial Crisis again in the future, and this one may be worse than the first.

The 2007 - 2009 financial crisis was the worst financial and economic crisis since the 1929 stock market collapse leading to the Great Depression, hence it has been dubbed the Great recession. This disruption in the economy due to the lost confidence in the financial institutions undermined the stability of the financial system and led to the loss of jobs and trillions of dollars in wealth and savings for entities within the economy. The gravity of the U.S crisis influenced the global financial system leading to a worldwide crisis.

The end of 2007 confirmed the conventional view that the initial financial problems were concentrated in institutions exposed to mortgage securitization. But how it is that financial imbalances were transmitted into macroeconomic disruptions? What mainly channeled the crisis to other sectors was the resulting contraction in credit, of banks and other financial intermediaries. It is important to differentiate between the loss of financial actors associated with mortgages, which was the initially crisis, and the losses caused by the after effects, also called second-round effects, which had significant consequences on the supply of credit. It will be analyzed in detailed above, how the problems associated with the housing bubble resulted in the contraction of credit supply by financial institutions.

Accounting’s Positivistic Tendencies: Overlaying a Social Science with Pure Scientific Rationale
Tutorial 5 - Week 6

On September 15, 2008, the infamous investment bank Lehman Brothers was forced to file for Chapter 11 bankruptcy by the federal court. The firm was entangled in risky business that ultimately led to its demise because they did not take reasonable care to avoid acts that were foreseeably damaging to the United States economy.

The financial collapse of 2007/2008 was due to the significance of sub-prime mortgages and mortgage-backed securities. A sub-prime mortgage is a mortgage given to individuals who are refused prime mortgages. Whilst mortgage-backed securities is when banks securitise mortgages by pooling them together and then selling them to investors. Investors then receive monthly interest and principal payments, whilst banks receive a fee for the sale. In 2007/2008 those who had sub-prime mortgages were failing to keep up with principal payments, which was exacerbated by rising interest rates. Meanwhile, subprime mortgage-backed securities decreased in value forcing banks to sell them at low prices and incur a financial loss on those remaining. Consequently, these factors made institutions suffer with reduced demands for mortgages, declines in stock prices, falling liquidity in the market and having to write off millions of bad debt. As a result, this started the financial crisis of 2007/2008.

Nationwide Building Society is a mutual financial institution dealing with mortgage loans, investments, retail banking, current accounts, loans, house insurance, travel insurance and credit cards. It is the largest building society in the United Kingdom and the world. It falls under the banking and financial services sector. The great recession of 2008 hit the banking and financial services sector hard as the recession led to the financial crisis of 2007-2009.

The global financial crisis has raised many concerns for the need to restructure the approach of risk and regulation in the financial sector (KPMG 2011). Figure. 4 has shown the structures of Basel III. It aims to increase the capital and liquidity of banks and therefore maintaining the stability in banking sector with full effect in 2019 (Banks For International Settlements 2011).