DISCUSSION question 3

I’m working on a Economics question and need guidance to help me study.

Objectives

This discussion is intended to help students to achieve the following learning goals:

  • Interact with other students on the concepts and methods of the financial system and their relationships to the market economy;
  • Master their understanding of methods and concepts of Module 3;
  • Share own view of the theme of the discussion; and
  • Earn the discussion credits.

Description

Between 2007 and 2009, the U.S. did experience a severe financial crisis that led to the Great Recession. The Great Recession was the longest and deepest since the Great Depression of the 1930’s. In fact, the Great Recession lasted 18 months and resulted in a decline in the real GDP of -4.5% in 2009 and in an unemployment rate of 10.8% 2010.

Recall that the financial crisis is a significant disruption of the flow of funds from savers to borrowers. The 2007-2009 financial crisis is long gone but its stigmas are still being felt across different sectors of the economies.

You are tasked with investigating the 2007-2009 financial crisis in order to answer the following questions.

  1. What were the origins of the 2007-2009 Financial Crisis?
  2. What were the consequences (economic, social, and political) of such crisis?
  3. What policy prescriptions/recommendations were implemented to get the country out of such recession.

Each student is expected to answer each of the 3 questions (through a posting) to react to at least two posts from other students. Each student is required to participate as this discussion gives you the opportunity to earn the discussion credits. Postings like, I agree or disagree, yes, no etc. do not count.

and replay to 2 student

student post 1

  • What were the origins of the 2007-2009 Financial Crisis?

In the years 2007 and 2009 the U.S. saw a progression of banking disappointments that prompted a drawn-out downturn. The monetary emergency was the most noticeably awful since the Great Depression and caused a huge increment in the government spending shortage. The breakdown of the American lodging market in 2006 and 2007 profoundly affected the U.S. what’s more, worldwide financial frameworks. Since numerous enormous budgetary foundations were intensely put into contracts, the blasting of the lodging bubble prompted a precarious crumbling in bank accounting reports. Inquiries concerning bank dissolvability shook financial specialist certainty, especially after the disappointments of Wall Street firms Bear Stearns and Lehman Brothers in 2008, and accelerated an administration bailout of influenced establishments that fall. Be that as it may, while government mediation forestalled the breakdown of the financial framework, it did little to reestablish monetary development, and the U.S. entered a profound downturn in December 2007. Despite the fact that the National Bureau of Economic Research has presumed that the downturn finished in June 2009, recuperation has been unobtrusive, with the American economy encountering both low development and high joblessness from that point onward. The moderate recuperation has, thus, put a huge weight on the bureaucratic spending plan: low development has decreased duty incomes while expanding claims on the administration’s assets for measures, for example, joblessness protection.

  • What were the consequences (economic, social, and political) of such a crisis?

The 2007–2009 money related emergency devastatingly affected the U.S. economy and dove the nation into a long and profound downturn formally starting in December 2007 and finishing off with June 2009. The emergency was the most noticeably awful U.S. monetary debacle since the Great Depression. In the United States, the financial exchange dove, clearing out about $8 trillion in esteem between late 2007 and 2009. Joblessness climbed, topping at 10 percent in October 2009. Americans lost $9.8 trillion in riches as their home estimations plunged and their retirement accounts disintegrated. On the whole, the Great Recession prompted lost more than $2 trillion in worldwide financial development, or a drop of about 4 percent, between the pre-downturn top in the second quarter of 2008 and the low hit in the principal quarter of 2009.

  • What policy prescriptions/recommendations were implemented to get the country out of such a recession.

The overall money related emergency and worldwide downturn of 2007-2009 were the most noticeably terrible since the 1930s. With karma, we won’t see their preferences again for a long time. Be that as it may, we will see an assortment of money related emergencies and downturns, and we ought to be more ready for them than we were in 2007. Policymakers unmistakably committed errors paving the way to the money related emergency and Great Recession. They neglected to forestall the lodging and bond rises from blowing up, under-controlled the budgetary framework, and blundered by rewarding the planned disappointments of Bear Stearns and Lehman Brothers so in an unexpected way. Few out of every odd one of their money related, monetary, and financial approaches after the day Lehman Brothers petitioned for financial protection was powerful, and the policymaking procedure was muddled now and again. Be that as it may, overall, the strategy reaction was an immense achievement. Without it, we may have encountered something moving toward the Great Depression 2.0.

Source

Arbogast, S., Blinder, A., Boddy, C., L. Chambers, J., Flynn, E., Jones, D., . . . Stout, M. (1970, January 01). The 2007–2009 Financial Crisis: An Erosion of Ethics: A Case Study. Retrieved July 22, 2020, from https://link.springer.com/article/10.1007/s10551-0…

student post 2

  1. What were the origins of the 2007-2009 Financial Crisis?

Financial crisis

Financial crisis is where the supply of money is outpaced by the demand for money. This means that liquidity is quickly evaporated because available money is withdrawn from banks, forcing banks either to sell other investments to make up for the shortfall or to collapse. Recession, on the other hand, is a period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. (Foster, 2009). Marked by high unemployment, stagnant wages, and fall in the retail sales, a recession generally does not last longer than one year and is much milder than a depression. (Foster,2009). Although recessions are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.

The financial crisis that has been wreaking havoc in markets in the U.S. and across the world since August 2007 had its origins in an asset price bubble that interacted with new kinds of financial innovations that masked risk; with companies that failed to follow their risk management procedures; and with regulators and supervisors that failed to restrain excessive risk-taking.

A bubble formed in the housing markets as home prices across the country increased each year from the mid-1990 s to 2006, moving out of line with fundamentals like household income.

The lack of due diligence on all fronts was partly due to the incentives in the securitization model itself. With the ability to immediately pass off the risk of an asset to someone else.

The subsequent subprime mortgage crisis and high default rate, foreclosures of mortgage loans that pulled down banks saving rates. This led to the collapse of I housing market.

Failures of the federal government and private firms to anticipate the falling prices of the households, which led to the collapse of the two main U.S mortgage funds

The investors were caught up in a bubble mentality that enveloped the entire system. (Appel, 2011). Others saw the large profits from subprime- mortgage-related assets and wanted to get in on the action.

Besides, the sheer complexity and opacity of the securitized financial system meant that many people simply did not have information or capacity to make their judgment on the securities they held, instead of relying on rating agencies and complex but flawed computer models.

Jump in the mortgage rate

Failures of the federal government and private firms to anticipate the failing prices of households

The collapse of the two main U.S mortgage funds

Deregulation in the financial industry that allows banks to engage in hedge fund trading with derivatives.

2. What are the consequences (economic, social, and political) of such a crisis?

It cost around $19 trillion in households and many people lost their jobs because companies and governmental organizations could not pay salaries.

Housing bubbles lost around $47 trillion and $14 trillion was lost in output that led to depressed wages since the output was lower compared to the employees (Atkinson & Rosenblum,2013) therefore, many companies and governmental organizations did not pay workers their expected salary in due time.

Threatened the global financial system total collapse and also led to the bailouts of many large financial institutions by their national governments

They caused big declines in the stock prices that led to smaller and more expensive loans for corporate borrowers as banks pulled out of lending. (Atkinson & Rosenblum, 2013)It also led to political instability in the country now there was no enough money to run the country’s projects

3. What policy prescriptions /recommendations were implemented to get the country out of such a recession?

Developing programs to boisterous the financial system and restore economic growth of the country

Enactment of fiscal stimulus programs that used a different combination of government spending and the tax cut

Creation of Troubled Asset Relief Program (TARP) that will aftermath raise finance of the country

Enactment of monetary policy responses that were aimed to influence the level of economic activity by increasing the money supply

Buying of troubled assets from the banks to minimize uncertainty in the market

The United States Congress passed and then-President George W. Bush (Ait-Sahalia & Tamirisa, 2012). signed the economic stimulus designed to help to stave off a recession.

Reference

Ait-Sahalia, Y., Andritzky, J., Jobst, A., Nowak, S., & Tamirisa, N. (2012). Market response to policy initiatives during the global financial crisis. Journal of International Economics, 87(1), 162-177.

Appel, D., & Grabinski, M. (2011). The origin of the financial crisis: A wrong definition of value. Portuguese Journal of Quantitative Methods, 3, 33-51.

Atkinson, T., Luttrell, D., & Rosenblum, H. (2013). How bad was it? The costs and consequences of the 2007–09 financial crisis (No. 20). Federal Reserve Bank of Dallas.

Atkinson, T., Luttrell, D., & Rosenblum, H. (2013). How bad was it? The costs and consequences of the 2007–09 financial crisis (No. 20). Federal Reserve Bank of Dallas.

Baily, M. N., Litan, R. E., & Johnson, M. S. (2008). The origins of the financial crisis.

Foster, J. B., & Magdoff, F. (2009). The great financial crisis: Causes and consequences. NYU Press.

Order this or a similar paper and get 20% discount on your first order with us. Use coupon: GET20