At which point, a new Administration would begin: massive spending and enacting various regulations to address the causes of the Great Depression. This would help to provide stability to: the economy and it created a foundation for placing some kind of support in the different economic structures (i.e. banks / the stock market). What all of this shows, is that the lack of taking any kind of action from the federal government would make the situation worse. As it would cause the depression to begin and have devastating effects. Then, when they finally decided to do something about it, the policies would essentially negate each other. What put an end to the Great Depression was: the massive amounts of government spending on social programs and new regulations to address the underlying causes.
Causes of the 2008 Global Economic Crisis
The causes of the 2008 Global Economic crisis began with deregulation and globalization. What happened was, deregulation was taking place in response to various calls from politicians, who felt that government had become too intrusive, in the matters concerning the economy. Where, many analysts and economists believed that if various regulations were reduced they could be able to compete more competitively. The reason why is because this pressure was increasing, due to the fact that the globalization (the reeducation of trade barriers) were making many businesses more competitive. In the financial world this was troubling, because some of the different laws from the New Deal (the Glass Steagall Act) would limit the size and the activities of: banks, brokerage firms as well as insurance companies. The Glass Steagall Act was: a law that forbid various financial institutions from becoming involved in each other's business activities. The idea was that by limiting the size and activities of these industries, you can control their risks and possible exposure to the economy (in the event of a financial collapse). As the economy began to grow, various financial institutions would begin to call for the dismantling of the Glass Steagall Act. (Stareny, 2010, pp. 47 -- 48) Once the law was repealed in the late 1990's this would cause the size and scope of financial institutions to increase dramatically. At the same time, various hedge funds would begin to explode. They would trade in host of different instruments. This is important, because it shows how the innovations in the financial world would set the stage for various trading activities. (Baru, 2009, pp. 3 -- 38)
Then, the Federal Reserve was dramatically lowering interest rates in the aftermath of the September 11th. This was in response to the terrorist attacks and the lingering dot com bubble that was hanging over the economy. Over the course of time, this would lower interest rates to such a point, that many banks and other financial institutions were offering easy terms (on a host of different lending products). This would cause many consumers and businesses take out a significant amount of debt. At the same time, mortgage rates and the reduction in lending standards at various financial institutions (through deregulation) would make these products widely available. In many cases, the traditional standards of qualifying for various loans were often waved. As the belief was that the high amounts of debt would translate into increased income, from the interest of the different loans. All of these: consumer, business, residential and commercial loans were packed into what is known as tranche. This is where, they will take different mortgages and bundle them together (offering a higher interest rate). At which point, they would be sold to large financial institutions, banks, brokerage firms, hedge funds and individual investors around the world. Once interest rates began to increase and the economy started to slow, this would cause many people who owed money to different financial institutions to default on their loans. This would have ripple effects on the credit markets, as no one could be able to trade these loans. This is because there was no way to accurately value them. As the economy began to slow and the value of real estate declined even more, the price of would become difficult to determine. This would affect the liquidity of businesses and financial institutions. As they did not have access to the credit market (because they are frozen) and they were holding assets they could not sell. Once the various loans began to default this would have a ripple effect on large insurance companies that had underwritten the debt and were financially liable. When put these different elements together, it would mean that institutions such as: Lehman Brothers would become insolvent...
In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%." (McElvaine R.S. p. 39) This is further evidence not only of the inequality of general wealth distribution, but also of the severe imbalance that was to create havoc in the economy. This dilemma was also further exacerbated by the fact that the Federal Government encouraged this situation. For example, President Coolidge signed the Revenue Act of 1926, which
Great Depression Angela Thomas The Great Depression was a pivotal time in the history of the United States and as a result, American business, banking, agriculture and society were drastically altered. It is commonly believed that the crash of the New York stock market at the end of October 1929 caused the Great Depression, but in reality this turbulent period of American history was brought on by a number of factors. And
There was little support for an Equal Rights Amendment, largely due to the belief that there were other problems to solve first, but the mindset of women was well set for what would be their need in the workforce during World War II. However, while large numbers of women worked during the Depression, scholars often see their status slightly decreasing because the American Federation of Labor, for one, did
Thus, when stricter regulations should have been implemented, they were not, and the avoidable became utterly unavoidable. The president Hoover's initial reaction was to allow the market to fix itself, thus going alongside his lassiez-faire beliefs. Yet, he was forced by Congress to act, but did so minimally (Wilkison 1). Thus, it was not long before the nation was in demand of a more hands on president who was
Depression The Great Depression Pre-Depression Economy Summary • Write a journal entry describing a weakness in your chosen character's sector of the economy that would later contribute to the Great Depression. • Write a summary of the weaknesses in the American economy that contributed to the Great Depression. The Great Depression was one events of the twentieth century that defined the entire century. It was the longest lasting and most widespread financial crisis in the
Weak governmental intervention and stubborn responses by overzealous investors led to the stock market crash in October of 1929. Non-existent money artificially inflated the prices of stocks traded on the market and caused firms to produce more than they could sell. When reality hit, it was too late to prevent the market from crashing. President Hoover reacted by stimulating construction and public works projects. Urging firms to keep wages steady
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