QUESTION
at least 150 original words
Your textbook begins Chapter 12 by reminding us about the 2007-2008 financial crisis. Watch the following video lecture discussing the crisis and what happened after.
After watching Chang's video, choose ONE of the topics below.
1. Research Financial Complexity: Use these terms in your answer: Derivatives, Credit Default Swaps, financial instruments
2. Research Stock Buybacks. Use these terms in your answer: Shareholder profits, retained earnings, research and development (R&D)
3. Research one if the Financial Crisis from Chang's list. Use these terms in your answer: bailout, bonds, speculation
Summarize Chang's comments on financial crisis in general and on your chosen topic in one paragraph and summarize at least one news article on our chosen topic in a second paragraph. Make sure to include the terms listed with the topic in your answer.
The Khan Academy videos Aggregate Supply and Aggregate Demand can be useful in this assignment.
video link https://www.youtube.com/watch?v=qMYmUbiVWr0&feature=emb_title
| Subject | Economics | Pages | 5 | Style | APA |
|---|
Answer
Financial Crisis
According to Chang (2019), financial crisis stems from increased deregulation of the financial markets. The deregulated financial institutions leveraged their increased freedom and engaged in risky business ventures that led to the numerous financial crises that plagued the world from the 1980s. Additionally, Chang asserts that economists who made unfounded claims such as total control over factors such as recession laid the ground for deregulations, thus leading to the financial crisis. The government, in response to the decrease in federal income resulting in cut spending in the economy mostly on welfare problems causing suffering and misery to the public. One of the financial crises on Chang’s list is the 2007-2008 financial crisis. The crisis also stemmed directly from the effect of deregulation. Financial institutions leveraged deregulations to engage in the securitization of debt. Issuing of mortgage-backed securities created a bubble that busted and resulted in one devastating financial crisis that forced the government to bail out several major real estate, insurance and financial companies to keep the economy afloat.
According to Amadeo (2020), there are several factors that led to the 2007- 2008 financial crisis. Top of the list is deregulation. Financial institutions had a lot of liberty that led to the creation of the mortgage-backed bonds, a financial derivative whose value depended on the value of underlying real estate asset. When the housing bubble busted, the value of the mortgage-backed bonds were wiped out, causing a serious financial crisis. Secondly, speculation on the rise of the value of the derivatives increased financial institutions appetite for more risky debt such as the mortgage-backed securities. Amadeo (2020) asserts that the financial crisis in 2007 -2018 had similar characteristics as the stock market crash of 1929 as both were fueled by reckless speculation in the financial market. The bubble burst led to the need for a government bailout to save major corporations and the economy.
|
. |
References
|
|
Amadeo, K. (2020). Causes of the 2008 Global Financial Crisis. The Balance. Retrieved 10 November 2020, from https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176.
Chang, H. (2019). Economics for People with Ha-Joon Chang [Video]. Retrieved 10 November 2020, from https://www.youtube.com/watch?v=qMYmUbiVWr0&feature=emb_title.