Understanding the Financial Crisis: Origin and Impact - Elizabeth Warren (2008)
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The financial crisis of 2007--2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. More Elizabeth Warren: https://www.amazon.com/gp/search?ie=UTF8&tag=tra0c7-20&linkCode=ur2&linkId=c9d1ae2f26f6147fa6411c76739d2dc5&camp=1789&creative=9325&index=books&keywords=elizabeth%20warren It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008--2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 7, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity". The bursting of the U.S. housing bubble, which peaked in 2006,[5] caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[6][7] The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for subprime borrowers, overvaluation of bundled sub-prime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making.[8][9][10][11] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[12] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009. In the EU, the UK responded with austerity measures of spending cuts and tax increases without export growth and it has since slid into a double-dip recession.[13][14] Many causes for the financial crisis have been suggested, with varying weight assigned by experts.[15] The U.S. Senate's Levin--Coburn Report asserted that the crisis was the result of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street."[16] The 1999 repeal of the Glass-Steagall Act effectively removed the separation between investment banks and depository banks in the United States.[17] Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.[18] Research into the causes of the financial crisis has also focused on the role of interest rate spreads.[19] In the immediate aftermath of the financial crisis palliative fiscal and monetary policies were adopted to lessen the shock to the economy.[20] In July 2010, the Dodd-Frank regulatory reforms were enacted to lessen the chance of a recurrence.[21] http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308
Comments
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Hillary is the wicked witch of the west and this (uh-hem) lady is the wicked witch of the east.
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A ONE TIME CHILDREN'S CANCER DONATION , (OUT OF A SETTLEMENT) , & THE RIGHT WIFE , & WE OFF !!!!! PWW
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God Liiiiizzzz, add all the extra comments you want........
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I think I'm getting a native American fetish...
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I love the little curl at the end of Warren's hair. #HotElizabeth.
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Wow, that guy was really hating on Jeff's slides.
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This is an interesting video and points to the lack of understanding of the needed action to reverse the causes of the crisis.
Jeffrey Frankel makes several statements that are indicative of the lack of realisation of those factors which needed to but have not been addressed by legislators. He says about the thinking of the impact of the Sub Prime crisis that " The hope was it could be contained".
This may have been a hope but the very concept of "containment" of any change in the economy is purely a myth. No change can ever be isolated and that belief held by governments and economists that it can be is itself is a problem. That is because there is no disconnect in the economy at any time and belief in such is just plain wishful thinking.
The second major misunderstanding is he lack of realisation even in 2008 that the problems would not be over by 2009 or even 2010. That should have been noticed by competent economists since there was no reason to believe the structural issues had been addressed.
What is evident is the lack of changes in economic thinking by governments or their advisors (which incidentally still persists) and that is evident in the words of the other speakers.
The second speaker , Gregory Mankiw, states that nobody believed that housing prices would a fall by 20%.
Why did economists believe this? An economist who believed this would have to have been negligent in that he or she would have had to ignore the fact that no product can simply rise in price ad infinitum when compared to other products in the economy. At some point there must be price equilibrium across differing values of products particularly across building products even given the scenario that government had gotten into the act of promoting home ownership by legislating against banks who refused high risk borrowers.
He is however stuck on the fatal flawed thinking that he has wrongly learned from the teachings of Keynesian theory. He puts forward the theory of 'Insufficient aggregate demand". There is no balance in this statement to consider supply as an opposite abstract and no price considered at all.
What he is talking about is the lack of what is in reality an abstract term which describes non abstract activities which are the mutually agreed exchange of goods and services involving comparative prices and quantities (essentially buying and selling).
He has made a classic mistake in reasoning of multiplying abstracts to get another more abstract and obtuse belief.
Then he starts on the belief that lowering export prices by falling currency values would lead to better export competition for the US. The missing part of this is the fact that lowering of the value of a currency will cost the purchasers of imported products and the US is a large importer of consumer goods which results in a balance of payments problem.
A further a statement that the bail out of banks would be more or less an 'investment' for the taxpayer and 'get the financial system working again' is likewise another confusion of ideas in that it places emphasis on a practice that rewards a failure rather than a success.
That confusion is that he assumes a government buying a failed institution is good practice when the opposite theory is applied to almost every other business and every other individual in the economy. Why would one assume that bailing with taxpayer money a private business that had made incorrect financial judgements represents a road to normality and not a road to destruction of the financial system.
This because had been based on businesses that are profitable rather than running into losses like the banks did.
It's not rocket science to understand taht rewarding business failure more than rewarding business success is not the way to go.
I agree the view that Bernanke is clueless is the main thing Mankiw gets really right.
The unfortunate history since 2008 of the failure of the Federal Reserve's QE (with it's imaginative Bernanke driven policies) is testament to the failure of Bernanke economics.
This failure of QE and low interest rates is supported by former reserve chairman Greenspan who has issued dire warnings of the future of the US dollar as a fiat currency.
It does not take much financial understanding to realise that the price of any goods and services is a result of the abundance of the product and the relative abundance of the product being used to buy it (e.g. US dollars) so an excessive availability of one will reflect on the relative to the other.
But apparently that concept of price, supply and demand is either unbelievably not known or misunderstood by many of the economists on this panel.
The third speaker, Warren, begins with a statement about the relative incomes of a families over the previous 30 years she bases her time line on compared to them in 2008.
The inaccurate of this fact is that the size and composition of families has itself shifted over the previous 30 years. Families of the years up to the 1980' and 1990's were of a very different size and different composition than families of 2008. Single person families represented 30% in 2008 but only 20% in 1978.
This makes the comparative figure really misleading since she applies them as if they are the same size.
This fact distorts the figures greatly since single person families do not need the spending or income of two person or more families. Single person families have a higher capacity to spend net incomes or save.
Yes the families put away less in 2008 than they did in 1978.
You have to ask why? Yes, the average person does spend more on credit than they used to and there is a reason which Warren has largely ignored in her inquiry into this problem.
That specific reason is one that was touched on by the previous speaker, Frankel, touched upon as did Mankiw mention but it seems did not realise was the elephant in the room.
Warren even mentions the changed deposit on home loans from 18% to Zero and realises that is a worry but she too is focussed on ignoring what she had just said and has not even thought to deeply question the cause of that reality. She instead just switches to a description of
The elephant in the room is that the risk taking that caused the housing crisis had roots in the changing housing finance environment that had risen over many years. That was the intervention of the government into mortgage lending which effectively caused the situation that Warren described - i.e. borrowers got loans for houses and banks could not refuse them even to people without a deposit for fear of government legal action against them for refusing.
Effectively the risk of a mortgage default was transferred from the borrower to the lender who could by law walk away from the transaction at any time without financial consequence.
So the house bought in a district where there were poor employment prospects , no industry growth and taken out by someone without a regular job and no real deposit became the property of a bank who could only sell it for a big loss.
No wonder there was a housing mortgage crisis. Warren is so confused by her own inability to connect the dots.
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Warren firstly says firstly that the consumer had no risk in mortgages and see that as a problem but turns around and places the whole responsibility on consumer goods sellers and personal credit for the cause of the GFC.
This is despite the largest growth period in the US had been without the multitude of consumer laws that existed from the 1970's onward. That she completely ignored and took a short term view of the situation with the inherent inaccuracies that pervade every short term view.
Additionally she then compounds and confuses the whole issue of private personal credit card debt with housing mortgage debt despite her saying that mortgage debt was brought about by loans that were too easy to get and people borrowed too much to get bigger houses and more credit.
The reality of consumer products is that Houses are consumer products not just computers or TV's or other domestic appliances. Houses are not production goods but she doesn't understand this either.
She further compounds the confusion by admitting that housing loans were too easily obtained but doesn't seem to understand that this is not the fault of the lender but the fault of the borrower and the body who is assisting people who have no deposit or credit credentials to get a loan and in the case of housing this was government legislation which made it happen. ..
Robert Lawrence speaks on the Smoot Hawley tariff which is if properly understood to have been a mistake which can only have caused more poverty. This along with the internal restriction of quotas on farm production. This would have been a necessary result form the action of tariffs which ignore the economic principle of comparative advantage. They restrict the free flow of goods and services which is a necessary requirement for any efficient exchange of goods and services.
However the cutback in spending is a neecessary event since the imbalance this over spending introduces is worse than the disease of loss of production in the first place. It distorts the accounting decisions and applies a scheme where political motives are introduced by the so called "stimulus" since that is how it is allocated - by political lobbying .
However most importantly the whole argument about 'Stimulus' has since been answered in the negative since it has failed dismally in Japan and the US of late particularly if accompanied by deficits which were highlighted as another problem by the first speaker.
The Japanese situation of repeatedly failed Stimulus should have been well known by the economists in the US in 2008 but maybe they are too as the first speaker a said a long way from Japan. -
This is her take on it. There are also other opinions conflicting with her. She is so far to the left that she is really not credible. The same can be said for those on the far right.
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PERHAPS THE BEST CLUE ABOUT THE NATIONAL DEBT , FOR DONALD TRUMP IS , TO EXPLAIN THAT IT IS TOO HIGH . pww
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With Elizabeth& Bruce for a lawyer , we would both win billions , and THERE IS CERTAINLY NOTHING WRONG WITH THAT ! PWW
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the album--BRUCE-AMOUR AMOUR AMOUR with the song MADAME JULIE-1970'S FRANCE
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PLEASE AVOID MISUNDERSTANDING ME , I FEEL BERNIE SANDER & ELIZABETH WARREN ARE TWO OF THE BEST . PWW
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BERNIE SANDERS-ELIZABETH WARREN----FREE TUITION & HIGHER MINIMUM WAGE .
HOW ABOUT TOUCHING THE BRAKES ON IVY LEAGUE SCHOOLS & WITH THOROUGH RESEARCH PROVEN SCHOOLS WHOSE GRADUATES WHO HAVE DONE THE MOST GOOD FOR THE COUNTRY , & MAYBE SOME TO MANY OF THE OTHER SCHOOLS JUST A CONSTANT RATE OF TUITION , OR A SLIGHT REDUCTION IN OTHER CASES ???
TAKING INTO THE SKILL OF THE LABOR , & THE NUMBER OF DEPENDENTS TO RAISE , (IR THEY ARE NOT SCHEARERS) , & HAVE A SOMEWHAT LESSER RAT OF MINIMUM WAGE INCREASE FOR THE OTHERS ???
THIS RESEARCH COMMITTEE DOES NOT HAVE TO TAKE THE VIEW THE POLITICIANS DO TO GET VOTES .
WHAT ABOUT A MANDATORY BUDGET TRAINING PROGRAM FOR THE PEOPLES , WITH REWARDS FOR THOSE WHO DO FOLLOW THE DETAILS & PENALTIES FOR THOSE WHO DO NOT ?!!!!! PWW -
WHEN YOU REACH 65 YEARS OLD & STILL WANT TO F IND SOMEONE & MARRY & RAISE A FAMILY , & YOU ARE PUTTING ALL OF YOUR SAVINGS INTO ANNUITIES INSTEAD OF IRAS , YOU SHOULD NEVER BE TAXED FOR ANNUITY TRANSFERS !!!!!
WHEN YOU ARE OVER 65 & PUT ALL OF YOUR SAVINGS INTO ANNUITIES INSTEAD OF IRA , YOU SHOULD BE REWARDED AT EVERY TURN !!!!
AT THE VERY LEAST YOU SHOULD NOT BE PENALIZED WITH ANNUITY TRANSFER TAX !!!!
WHEN YOU TAKE THE IMMENSE RISK OF KEEPING HEALTHY TO DRAW MEDICARE PART B , YOU SHOULD NEVER BE TAXED , BUT THE AMOUNT OF PART B SHOULD BE RAISED .
THOSE TAKING THE RISKS & KEEPING HEALTHY SHOULD NEVER BE PENALIZED BY BITTER ENVIOUS , OUT OF SHAPE SENIORS WHO HAVE NOT KEPT FIT ENOUGH TO GO WITHOUT ANY MEDICAL INSURANCE !!!!!!!!!! PWW
PS WHAT IN THE HELL IS WRONG WITH THE GOVERNMENT ALLOWING THE SICK MAJORITY TO CONSTANTLY PENALIZE THE FEW WELL ???!!!!!!!!!! -
What the fuck is that pink girl in the background doing to her face at the end of the video , quit that you sicko.
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Bernie, 2016!
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THE NATIONAL INQUIRER;S ARTICLES ON QUEEN ELIZABETH & THE ROYALS , PAUL HOGAN , & KIRK DOUGLAS , REMINDS ME OF ELIZABETH.S LAW , & THE WARREN FAMILY LINE--PAUL , KIRK , & DOUG & NAT .
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YOU DO A LOT OF DEDICATED RESEARCH , MUCH MORE THAN MOST .
IT'S JUST THAT SOME OF US NEED SPECIFIC HELP SO BADLY , SOMETIMES....
THANKS FOR WHAT YOU CAN DO .
THIS COUNTRY PROVIDES A LOT FOR MANY-TOO MANY MISUSE THAT PRIVLEDGE ! PWW -
I THINK IT IS MORE THE IGNORANT TORTURIING THE SKILLED & THE WEALTHY , THAT ARE THE PROBLEM MUCH MORE THAN THE MILLIONAIRES & MOST OF THE BILLIONAIRES .
BILL GATES WOULD LIKELY BE FAIR & JUST . PWW -
It is definately heading towards life & death .
SENIORS ARE PUSHED ASIDE & GRADUALLY MURDERED BY HOMICIDAL LOUTS & WORTHLESS POLITICAL MESSAGES TELLING US HOW TERRIBLE IT IS .IT SEEMS IT WOULD TAKE REAL DUMBOS WHO COULD NOT SAVE ON 2 INCOMES , UNLESS THEY HAD TOO MANY KIDS-SOME DELIBERATELY RAISE CRIMNALS!
ELIZABETH WARREN SURE HAS A TACTFUL , CONSIDERATE APPROACH--TOO PROFESSIONAL & WORTHWHILE FOR THE COUNTRY ! PWW
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