Basics:
In 2008, the United States of American, along with the
entire world, experienced a devastating financial crisis. In the U.S., financial
giants such as Lehman Brothers Holdings, Inc., a global financial service
company went bankrupt. Insurance giant AIG had to be bailed out by the government
and the housing industry was in a spiraling downward spin. Some economist label
the 2008 financial crisis as being even worse than the Great Depression of
1929. The following websites, books, and articles give a perspective on what
caused this great financial downfall. Many different reasons were given and
each format gives the reader a deeper awareness of what can happen when
financial institutions begin to spend more than they earn and government
agencies become lax in enforcing regulations.
College students studying Business and Finance
or Social Science could use this information. The Business student could
appreciate the financial aspect of the articles, while the Social Science
student could gain insight into the reasoning behind the decisions that were
made during the crisis.
Website
The Causes and Effects of the 2008 Financial Crisis
“The Causes and Effects of the
2008 Financial Crisis” is a video published on YouTube in 2012. This video was
originally published under the title “The Crisis of Credit Visualized” by
Jonathan Jarvis and published on Vimeo. This video has also been published on
the blog cite Cash Money Life as part of Ryan Guina's blog on
the same subject. The video is a very simplistic explanation of what many
believe to be the causes of the financial crisis of 2008. The narration and
animation explain to the viewer the relationship between homeowners and
mortgage companies, mortgage companies and institutions (such as insurance
companies), and institutions and Wall Street. It also explains what a CDO
(Collateralized Debt Obligation) is and how the slowing, trickle-down effect
led to the financial panic on Wall Street. The video helps the viewer
understand how the buying and selling of mortgages and risk taking in the form
of sub-prime mortgages, played a major role in the financial crisis of 2008.
Website
Full Interview: Ben Bernanke Reflects on 2008 Financial Crisis
On the ABC News program, “This Week,” which aired on October
11, 2015, former Fed Chairman Ben Bernanke speaks with Georg Stephanopoulos
about the 2008 financial crisis. The former Chairman discusses some of the
events that caused the crisis. Mr. Bernanke reflects that the 2008 crisis was
worse than the Great Depression of 1929-30, in respects to the immediate
financial crisis. Bernanke cites that mortgage problems, housing problems, a
slowdown in the economy, and panic were the major causes of the crisis. The
fall of AIG was a critical concern because of the ripple effect it would have
on the economy. Relaxed regulations on sub-prime mortgages, bad judgement, and
excessive risk taking also had a major impact on the financial crisis of 2008.
Mr. Bernanke comments on many aspects of the events leading up to the crisis as
well as what has been done to stabilize the financial situation in the United
States.
ABC News has been a respected leader in broadcast news since
the early 1980’s, when Roone Arledge took over the programming and introduced
long running news shows such as 20/20
and This Week.
Book
AFTER THE MUSIC STOPPED
Alan S. Blinder’s book, After The Music Stopped, was
written in 2013, five years after the financial crisis of 2008. Mr. Blinder,
the former vice chairman of the Federal Reserve Board, waited to write his
opinions on the reasons for the crisis so he could have a firm grasp on the
conditions that led up it. He writes that the United States financial system
had become too complex and unregulated and these situations were how the crisis
began, starting in 2007. The 2008 financial crisis not only hurt the economy in
the U.S., but also influenced global financial systems. Blinder’s book offers
answers to many questions about how the crisis occurred and what can be done to
avoid another in the future.
Lexile level based on other title by the same author:
1209L-1610L
Book
Image
source: http://www.hachettebookgroup.com/titles/henry-m-paulson-jr/on-the-brink/9780446561938/
On The Brink
On The Brink, a book written by Henry M. Paulson, Jr. in
2010, gives the reader insight into the causes of the financial crisis of 2008.
Paulson cites that meetings with mortgage institutions such as Fannie Mae and
Freddie Mac created decisive moments that contributed to the economic crisis.
He also includes narrations of his personal meetings with President Bush,
President Obama and then Federal Reserve Chairman, Ben Bernanke, concerning the
causes of the financial crisis and solutions that would benefit the U.S.
financial system. This book covers important decisions made by the Federal
Government during the crisis as well as policies Mr. Paulson believes should be
put into operation in order to avoid a similar crisis in the
future.
Book
Rethinking the Financial Crisis
Rethinking the Financial Crisis, a book written in
2012, is an edited collection of well-known economists’ views and opinions on
the financial crisis of 2008. The authors assess areas of the financial system,
and the role it plays in the economy, the costs and benefits of financial
innovation, and the responsibility of the government in regulating finance, to
name a few of the topics covered in the book. One contributor to this
collection, Burton Malkiel, assesses the behavioral aspect of the financial
market as it relates to its performance. Robert Jarrow writes about
collateralized debt obligations and credit-default swaps, giving his opinion of
which systems would or would not make the economy more efficient. Simon
Gilchrist contributes a chapter pertaining to the U.S. economy and how economic
activity is effected by disruptions in the financial markets.
Edited by Alan Blinder, author of After the Music
Stopped: The Financial Crisis, the Response, and the Work Ahead, Andrew Lo,
and Robert Solow, this book offers insight into the causes of the financial
crisis of 2008, and how it affected the economy of the United States.
1209L-1610L
Journal Article
The Financial Crisis: Why the Conventional Wisdom Has It All Wrong
Richard Kovacevich gave a speech in Washington, DC, on July
17, 2014, where he makes the bold statement that TARP (Troubled Asset Relief
Program) started the financial crisis of 2008. Forcing banks to take money they
did not need caused the market to assume that all banks were in trouble because
they (the banks) were taking government money. Kovacevich states that not all
banks should have been bailed out. His opinion is that if smaller institutions
would have been allowed to go bankrupt, larger institutions could have been
sold, greatly reducing the financial crisis. Kovacevich’s speech includes
topics such as regulatory failures, risk taking, and the concept of too big to
fail. He offers his opinion about what Congress should have done and what
regulators should look for in the future, to prevent another financial crisis. He
concludes his speech by stating that the United States has “lost the respect,
admiration, and confidence of the rest of the world.”
Journal Article
Image
source: http://www.theatlantic.com/
How We Got the Crash Wrong
Author William D. Cohan writes in his article How We Got the Crash Wrong, firmly
denies that the causes for the financial crisis of 2008 were cause by the
amount of leverage Wall Street had on its balance sheets and risky investments taken
by financiers. Cohan often refers to the 2004 SEC rule change, which allowed
Wall Street to make more risky investments, but refutes this as being the cause
of the crisis. Cohan’s opinion is that it is not the amount of leverage Wall
Street had, but how the financiers managed the risks they were taking. He
states that it was the greed of corporations and shareholders that led to
increasingly risky investments. This, he states, is what brought about the
financial crisis of 2008. He concludes by writing that in order to prevent
another financial crisis, financiers should always have “something close to
their full net worth on the line every day.”
This article was published in the periodical The Atlantic,
in 2012. The Atlantic is a journal known for its articles relating to Diplomacy
& International Relations, Economics, News, and Politics & Government.
Journal Article
The 2008 Financial Crises and Implications of the Dodd-Frank Act
In her 2011 article, “The 2008 Financial Crises and
Implications of the Dodd-Frank Act,” Diane Scott Docking claims that the
financial crisis attributed to the year 2008, actually began in 2003. Decreased
interest rates and a belief in the growth of the housing industry caused
lenders and borrowers to give and take beyond their means. The article includes
a table that gives examples of ballooning mortgage payments when interest rates
reset and graphs that show monthly mortgage rates ranging from 1987-2010 and
housing market trends. Supply and demand in the housing market were not
balanced, according to Docking’s article, which led to the panic of financial
institutes. Docking also discusses how the 2008 financial crisis affected the
corporate treasury managers, saying that AAA-rated money, investments and
mortgages disappeared because of subprime mortgage lending. She concludes her
article writing about what the Governments’ solutions are and what impact the
Dodd-Frank has had on corporate America.
Website
Image source:
http://blog.check-and-secure.com/101115-malvertising-the-economist-spreads-keyloggers-via-banners/
The Origins of the Financial Crisis: Crash
Course
The article “The Origins of the Financial Crisis: Crash
Course” is the first in a series of five articles, which endeavors to explain
the causes of the 2008 financial crisis. The articles states that one cause of
the crisis was financiers of not only American banks, but also European banks.
Low interest rates and frenzied buying and selling of mortgages was given as
another reason, as well as risky investing with the abundance of money that was
being traded before the crisis. The collapse of the insurance company AIG is
also being credited as being a cause for the crisis. The bankruptcy of Lehman
Brothers and ratios in capital are given as the final reasons. The article
states that these were the primary cause, which led into secondary and tertiary
fallout, which led to the financial crisis of 2008.
Other titles in the series: “The dangers of debt Lending
weight,” “Monetary policy after the crash Controlling interest,” “Stimulus v
austerity Sovereign doubts,” and “Making banks safe Calling to accounts.”
The online version of The Economist publishes
articles from the print version and is an authority in international news,
business, politics, and science and technology.
Subsequent titles source: http://poli487.mathewson-phd.com/wp-content/uploads/2013/08/Economist-Schools-Brief.pdf
Website
The 2008-2009 Financial Crisis—Causes and Effects
Ryan Guina, the primary author of the blog site Cash Money
Life, writes a down-to-earth explanation of the circumstances that contributed
to the financial crisis of 2008. This blog, written in 2011, designates several
major reasons for the financial crisis. Guina begins with market instability,
which he describes as the inability to establish new lines of credit, hurting
the entire economic stability of the United States. Guina goes on to state, as
many other writers on the subject have, that greed was a leading factor.
Sub-prime mortgages were issued to almost anyone who asked, however, many
defaulted and lenders and investors suffered. Mortgage rates increased and the
housing market was flooded, which led to a decrease in housing manufacturing
and the loss of jobs. Financial institutions had to adjust their lending
policies and many had to either merge with other companies or be bailed out by
the government. He concludes his blog by writing that credit is not a bad thing,
but the misuse of credit is what led to the catastrophic events that caused the
financial crisis of 2008.
Cash Money Life is a blog site that caters to people
interested in personal finance, small business news, and career information.
The site has been featured on websites such as The New York Times, The Wall
Street Journal, MSN Money, and many more.
Summary
The topic, What Caused the 2008 Financial Crisis, was chosen
after a conversation with a student from Alabama State University. He is studying
finance and mentioned that for his final project he had considered doing researching this topic. I have no knowledge of finances or the financial world.
The topic, being so far outside the scope of my knowledge, was a challenge.
Finding information on the topic was relatively easy, since it was such a
catastrophic event in American history. Understanding the financial jargon and
knowing who was an authority in the field required some extra research on my
part. However, I learned much about how the financial world works, not as an
entity unto its own, but as a global network that moves from Main Street to
Wall Street and around the world.
References:
Blinder,
A. (2013). After the music stopped: The financial crisis, the response, and
the work ahead. New York: Penguin Press.
Blinder, A., Lo, A., & Solow, R.
(Eds.). (2012). Rethinking the financial crisis. New York, New York:
Russell Sage Foundation.
Cohan, W. (2012). How We Got the Crash
Wrong. The Atlantic, 309(5), 36-39. Retrieved December 6, 2015,
from Literary Reference Center.
Crash course. (2013, September 7).
Retrieved December 6, 2015, from http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article
Docking, D. S. (2012). The 2008
financial crises and implications of the Dodd-Frank Act. Journal Of
Corporate Treasury Management, 4(4), 353-363. Retrieved
December 6, 2015, from Business Source Complete
Full
Interview: Ben Bernanke Reflects on 2008 Financial Crisis. (2015, October 11).
Retrieved December 6, 2015, from http://abcnews.go.com/ThisWeek/video/full-interview-ben-bernanke-reflects-2008-financial-crisis-34403233
Kovacevich, R. (2014). The financial
crisis: Why the conventional wisdom has it all wrong. CATO Journal, 34(3),
541-556. Retrieved December 6, 2015, from MasterFILE Premier.
Paulson,
H. (2010). On the brink: Inside the race to stop the collapse of the global
financial system. New York: Business Plus.
The 2008-2009 Financial Crisis – Causes
and Effects. (n.d.). Retrieved December 7, 2015, from
http://cashmoneylife.com/economic-financial-crisis-2008-causes/
The
Causes and Effects of the 2008 Financial Crisis. (2012, July 23). Retrieved
December 6, 2015, from https://www.youtube.com/watch?v=N9YLta5Tr2A
