Finding Fact Through an Aggregate of Opinion

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As I wrote about last week, my interest in the Great Recession lies in exactly what caused the events leading up to the crash.  Now, I believe that most of my information will be derived from subjective feeds such as interview transcripts, court proceedings, and blogs about the crash.  The reason I believe this type of information is just as useful (if not more) than objective data because it incorporates a humanist perspective into the equation.  And really, if it weren’t for the inherent human flaws in the system, the Recession may have never of happened (plug for Adam Smith there). Continue reading

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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

A Theory Disproven. A Few Billion Dollars Misspent. A Country in a Crisis.

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Social ills are rampant in parts of America.  As seen in The Wire, our country has high rates of crime.  Noticing this, spending to combat this problem increased dramatically.  From 1987 to 2007, the year of the advent of the current recession, federal spending on corrections rose an inflation-adjusted 127%.  Furthermore, total state general fund expenditures on corrections rose 315%.  In trying to rid our country of one problem, we contributed to the creation of a massive other one – a deep financial 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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Whose Fault Was It? Reagan? Greenspan? Someone Else? Everyone?

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I really like that Jordi posted that first quote regarding history and those who do not know it are doomed to repeat it.  In fact, when it comes to the Great Recession as a whole, I’m not really concerned all that much about learning exactly what happened during the crash.  I think everyone is pretty well aware, having lived through it, what happened.  Moreover, as we fix everything over the next half a decade, people will be paying attention to what regulations are set in place and what other measures are taken to “prevent” this from happening again — or at least try to.  Continue reading

Recession caused by greed of Americans?

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The documentary Inside the Meltdown illustrated the details of the recent recession in America do to sub-prime mortgages. After the fall of several big companies such as Bern Sterns and Lehman Brothers, government saw no solution but to intervene, they needed to act to help the economy survive. Wall Street had gambled by entering into the house market, many firms had made massive investments in sub-prime mortgages not knowing that it would become toxic for them in the future. Companies that decided to invest in this market had been enjoying immense profits for several years. They would buy mortgages; put them into securities and sell them to investors. However, the bubble that had been giving them great success started collapsing and companies began losing billions of dollars in bad mortgages. The meltdown began on 2007 rumors spreading that the house market was going to collapse. By spring of 2008 when CNBC rumored that Bern Sterns was in financial problems, things began going downhill. Something that government had to take into consideration was the huge web that connected every single company to the world in unforeseen ways. When the president of the Fed, Ben Bernanke, saw Sterns in the midst of going bankrupt, his fear of entering a recession became true. In the next few days CNBC announced that JP Morgan was buying Bern Sterns for $2 per share. More companies that have been involved in this risky market one being Lehman Brothers. Although government had helped Bern Sterns, they did not offer the same support due to moral hazard and political pressure; Lehman Brothers announced their bankruptcy shortly after. Everything froze the next day, nobody was making loans to anybody and the market was collapsing. Government had to act quickly so Paulson and Bernanke proposed a bill that Congress would eventually pass — a $700 billion bailout plan. This documentary gave everyone an example of how greed and social economic status can bring down an entire economy. People where buying houses that they couldn’t affored. This can be a lesson to not only business people but to Americans to understand the implications of buying something that they can’t afford.

Learning About Household Leverage (no, not the popular TNT drama series)

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When asked to investigate the economic recession of 2007, I was really at a loss for inspiration.  The financial crisis was something that I really did not know much about.  However, one thing I did know is that the housing bubble burst and at least partially caused the recession.  So I began my educational journey by learning about household leverage and the housing bubble. Continue reading