For a class assignment on the 2007-08 economic crisis. We focused on the idea of a "Shifting Economic Position" as the major reason for the crisis (as per assignment) - Leave a comment if you
For a class assignment on the 2007-08 economic crisis. We focused on the idea of a "Shifting Economic Position" as the major reason for the crisis (as per assignment) - Leave a comment if you download, please!
In order to figure out how to tackle a solution, we need understand what type of predicament we are in.
Worsened Cyclical Economic Shift Deep Recession 2008
Below average Economic Growth
High Unemployment Rates
Decreased Consumer Spending
An Atypical Cycle An Atypical Cycle Each of the past six recessions has been accompanied by a bear market, with the Standard & Poor's 500-stock index losing, on average, 31%. By that measure, the stock market's current decline -- with the S&P 500 down 43% from its peak -- is already worse than usual. Bigger the Bubble Bigger Burst
Problem: Job market is deteriorating and that it is taking the unemployed longer to find work
Sub Problem A : Companies are less efficient due to workforce cuts
Sub Problem B : Family Incomes Down, less consumer buying power
Sub Problem C : Unemployed become liability of Government
Fiscal Policy : Expand Government Spending to create projects that hire unemployed i.e. highway project , however increases government deficit
Option 1: Use its own reserve money to buy government bonds - Buying bonds translates to income for the U.S. government, will allow the Government to sufficiently expand monetary policy
Option 2: lower interest increase consumer spending and investment aggregate demand will rise, there will be an increase in economic growth and therefore firms will demand more workers (this has not been working due to poor investor confidence)
Tax Policy : Give Business tax breaks if hire onshore instead offshore
Recession Proof Jobs
Research in Energy Alternatives
International Business in growing markets
Environmental Sector, targeting Global Warming
Education, people go back to school during recession
Fixing Home Market These include an infusion of capital that would allow banks to step up their lending activity, Ms. Wachter, the University of Pennsylvania economist, said, and a restructuring of troubled mortgages in order to reduce the number of foreclosed homes flooding the market. If banks expect home prices to continue to tumble, they will be reluctant to lend, even if they have the capital to do so, and the number of people willing to buy a home will remain low. Problem : Stop Downward spiral of home prices Solution : Reduce Growing Inventory, Government help restructure loans to prevent defaults Problem : Keeps banks doors open to new investors Solution : Bail out will take bad loans off books, which will hopefully unfreeze credit markets due to reduce liabilities of banks
Problem: Consumers, Businesses, and Corporations do not have access to capital because banks are hoarding cash
Solution: Bail Out: TARP Treasury taking Equity stakes down Graph indicates banks and other financial institutions reluctance to lend as compared to previous years, due to fear of defaults and illiquidity WSJ
“ For the first time since the crisis intensified at the end of the summer, credit markets thawed slightly after the threats to the financial system were tamped down by the U.S. government's move to take stakes in major banks. But lending remained tight in nearly all markets and may not ease significantly for weeks, market participants said.
Referring to the possible fallout in the broader economy from the credit crisis, he added: "We don't yet know what that is, because this situation is so unprecedented. Every road sign has been obliterated."
Kent Engelke, managing director at the brokerage Capitol Securities Management,
Bernanke states that the credit crisis is on its way to being fixed, but has a long way to go.
TARP, to create a set of mechanisms that would create market-based price discovery by buying assets from institutions.
The crisis moment may be past for the Big Four. They are due the biggest capital injections in the Treasury bailout plan, getting $100 billion of the $250 billion, including Merrill Lynch, which will soon belong to Bank of America.
BIG FOUR J.P. Morgan Chase, Wells Fargo, Citigroup, Bank of America
It would be foolish to bet against the Treasury's backstop, and these banks will make money again. It just isn't clear they will make it quickly enough to give investors reasons to rush back into them.