Made in America:

The Global Financial Crisis

and the ÒGreat RecessionÓ, 2007-2009

 

 

 

á    What are the long-term, structural origins of the global financial crisis of 2008

á    What factors over the past decade led to the global financial crisis?

á    How have governments responded to the crisis?

 

 

Key Terms

1) Deregulation (of Financial Sector)

2) Financialization (of the Economy)

3) ÒChimericaÓ

4) Federal Budget Deficit

5) The Housing Bubble

6) Sub-Prime Mortgages

7) MBS and CDS

8) Lehman Brothers

9) TARP

10) Monetary Policy

11) Fiscal Policy

 

I. Long-Term Causes of the Crisis, 1970s - 2000

 

á     The Decline of Bretton Woods & The Liberation of Capital

 

á     The Rise Neo-Liberalism, De-Regulation, and Financialization of the Economy (as share of profits)

 

á     A Global Imbalance: Savers vs. Consumers

o  US Savings Rate (2) vs. ChinaÕs Savings Rate

o  The Rise of ÒChimericaÓ (Niall Ferguson)

o  The Asian Financial Crisis, 1997/1998

o  Petrodollars – Where to park them?

 

á     The Problem of American Debt

o  The Federal Deficit and Total Debt (Government Held vs. Public),

o  The Trade Deficit (Current Accounts)

o  Consumer Debt (Credit Card, Car Loans, etc.)

o  Mortgage Debt

o  US Debt Clock & Total Debt as % of GDP

 

 

II. The Short-Term Origins of the Crisis, 2001-2007

 

á     The Bush Tax Cuts (2001, 2003)

á     The WorldÕs Bank:  The US Federal Reserve BankÕs Monetary Policy

 

á     A Glut of Excess Capital and the Era of Easy Money

 

á     The Great American Housing Bubble, 2000-2007

o  Prime vs. Sub-Prime Mortgages

 

á     Wall Street to the Rescue: New Financial Products

o  Collateral Debt Obligations: The Mortgage Backed Security (MBS)

o  Derivatives: The Credit Default Swap (CDS) and AIG

o  The Problem of Risk Assessment

 

 

III. The Crisis of 2008

 

á     The Bubble Pops, Interests Rates Rise, and the Sub-Prime Market Collapses

o  Adjustable Rate Mortgages

o  Foreclosures

 

á     The First Victim:  Bear Stearns, March 2008

 

á     The Collapse of Lehmann Brothers (September 15) and the September Crisis

 

á     The Credit Crisis and the Market Crash

 

á     The Decline of Wealth, Consumption, GDP, and Employment

 

 

IV. Governments to the Rescue: Throwing in the Kitchen Sink

 

1) Bailouts

 

á     Direct Bailouts

o  Fannie & Freddie ($400 billion)

o  AIG ($180 billion)

o  The Auto Industry ($25 billion)

 

á     The Paulson Plan:  T.A.R.P. – Troubled (Toxic) Asset Relief Program ($700 billion, a Bailout)

 

á     The Geithner Plan (T.A.R.P. + some private money, $465 billion, or, another Bailout)

 

2) Monetary Policy

 

á     The Federal Reserve and European Central Bank: Injecting Liquidity and Preventing Deflation

 

á     Interest Rates – 0%

 

á     Quantitative Easing (or, ÒPrinting MoneyÓ)

á     The Federal Reserve Balance Sheet

3) Fiscal Policy

 

á     The Return of Keynesian Economics

 

á     Government Stimulus: Spending and Tax Cuts

 

á     Deficits since 2008 and Beyond

 

 

Looking Forward: An Opportunity for Reform or Back to Business as Usual?