How the US-made crisis affected the Global Economy

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In my last post I talked about greed and its involvement in the financial crisis. I want to switch gears and talk about globalization and the emerging challenges that the world’s economy faces in my final paper. In the United States, we have yet to see evidence of a sustained recovery in the housing market. Mortgages delinquencies for both sub prime and prime loans continue to rise along with foreclosures. The commercial real estate sector remains troubled. Two particular uncertainties include the phasing out of government programs that has propped up demand, and the houses working through the foreclosure process potentially resulting in an increase in supply of houses. Much uncertainty still remains as to whether mortgage rates will stabilize and not jump as a result of the phase-out, causing decreased demand for housing. The fate of the homes in the foreclosure process is another uncertainty. If there is a surge in foreclosures, there will be a significant increase in supply of houses on the market, which could damage prices and hinder recovery. Given such uncertainties in the economy the United States faces significant challenges.

As an advanced economy with slower growth, the United States will face difficulties of timing in phasing out stimulus programs. Nevertheless, this US-made recession has affected the entire world’s economy. In my final paper, I will analyze how this recession has affected the world and what programs have been developed to help overcome this recession. Financial institutions need to understand that their actions not only affect the United States economy, but the world’s economy as well. The era of new global financial challenges that the world has arrived at has indeed highlighted not only the interdependencies we see occurring in a globalized world, but also the deficiencies that plague the current world financial systems and institutions. Must global organizations set the standards and redefine the role of financial institutions?  How can global organizations meet the needs of the many challenges that became apparent after the 2008-2009 financial crisis? Should countries collaborate with each other to make these reforms? These are questions that I hope to answer in order to come to a discovery of a solution at large.


Deregulation and New Financial Legislation Set the Stage for the Financial Crisis

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For my previous two posts, I focused on the financial reform and regulatory legislation and securitization’s impact in the Enron crisis.  Doing research for both of these posts introduced me to the controversial topic of financial regulation and deregulation.  For my final paper I’m focusing on the financial regulation and deregulation that influenced behavior and was responsible for the financial crisis that’s led us into the Great Recession.  There are many questions that need to be addressed for this topic.  Why and who desired the new regulations and the deregulation of the financial markets in the US?  How was this legislation needed or not needed?  What were the pros and cons of some of the pieces of legislation?  Where did the regulatory system fail and why?  Researching these questions will paint a clearer picture of what set the ground work for the financial crisis. Continue reading

Further Research: Alan Greenspan’s Take on the Causes of the Recession

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In preparing to write the final paper I have come to the conclusion that I desire to focus on how the actions of economists and large firms like Lehman Brothers led to the current economic recession. My preliminary explorations suggested to me that both economists and Firms like Lehman brothers had a sense that the market was now safe and that they could predict its course of action with ease. As I mentioned in my post last week, the belief that the market had become “inherently stable” led market actors to make decisions that ultimately resulted in financial crisis. Moving forward, I want address the question of why they acted in the manner they did in a little more detail, but more importantly I want to understand how the actions of economists and large firms caused the market to collapse. In addition, I want to see if there was a chance to avoid this recession by looking at the case of Lehman Brothers and exploring their organizational actions prior to the recession; hopefully enabling me to identify points in time where actions could have been taken to avoid the downturn, what those actions were, and who should have undertaken them. However, to do so I still need to look more deeply into the causes of the recession.

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Best of How To Understand the Great Recession

CONGRATULATIONS, Will! Your post on Financial Innovations in the Banking Industry is this week’s Best of the Blog!

The Blog Council for this week (Macey, Jessie, and Jordi) would also like to highlight other notable posts:

Derek for Most Passionate: The Great Recession: Making Fools of Economists

Emily for Best Use of Resources: The Great Recession and Reform

Molly for Most Original IdeaLehman Sisters?

We would also like to give a SHOUT OUT to Christian for redefining eloquence in An Eloquent Reflection on Innovation in The Wire

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How to Reform? The Big Question

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In wake of the financial crisis the public is demanding more regulation on the banks and other financial institutions that have put the country’s economy where it is.  These regulations range from total transparency with derivatives, breaking up of the “Too Big To Fails” (TBTF), and other restrictions on financial institutions.  Anyone can easily see that this is a complex topic, now throw politics into the mix.  On the Baseline Scenario many author and financial reform bloggers have discussed this topic and its issues. Continue reading

Brooksley Born: The Doomsday Theorist

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The recent cry for stronger financial regulation, to the surprise of some, is nothing new. While its typical of government to take a reactionary approach to any sort of  new regulation, more than 10 years before the financial meltdown there was one voice in Washington warning about an impeding financial collapse. As highlighted in the PBS Frontline Special “The Warning”, Brooksley Born, the Chairman of the relatively Continue reading

Lehman Sisters?

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“Having too many men involved in business might cause them to take more risks, and having more women would probably be good in lots of settings. Women are the brake pedal.” – Economist Terry Burnham.

Has anyone ever noticed how much testosterone is on Wall Street? Men are everywhere! Do you think that if more women had held upper level management, including CEO positions, in financial institutions across the country, that the financial crisis would have been less severe? After shuffling through various articles on the Freakonomics Blog, I was directed to a piece from the New York Times opinion section entitled, Does Wall Street Need an Estrogen Injection? I found this article intriguing as it focuses on more sociological and less technical causes of the financial crisis (more in my area of expertise!).

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