Summary: The 2008 Financial Crisis

Words: 650
Pages: 3

Kaiwing Tso
Econ 394FI
Gerald Epstein
The Financial Crisis: How did we get here? The global financial crisis of 2008 was one of the worst market crashes since the 1930s Great Depression. With rising prices of homes and low interest rates, people wanted to buy houses to avoid their high prices later on, but this became a grave mistake for many people. They could not pay back their loans on houses due to difficulties with subprime mortgages in the United States which led to a global crisis as huge banks such as Lehman Brothers leading towards bankruptcy. The United States government had difficulty in how to handle the crisis as they left many people questioning the state of the country.
The crisis could be traced back 1999 to when the Glass-Steagall Law was repealed by Bill Clinton stating that, “The Glass-Steagall law is no longer appropriate.” This act was used to prohibit commercial banks from getting involved in becoming investment banks. When Clinton took the act away, this gave banks permission to take on heavy risk-taking investments that ultimately helped form the financial crisis of 2008. The
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Some held on to the belief that they were “too big to fail” thinking that the government will help out if their stocks plundered. Lehman was however in too deep of a loss to come back into business and was forced to file for bankruptcy. They were not going to be bailed out because if such a deep wound were to be mended by the government, then risk is nonexistent to the markets and that investments will become unbearably huge, destroying the market and the capability to regulate itself. This is also called moral hazard where one person takes the risk while another bears the cost of that risk. The lack of one of the most powerful banks drew turmoil all around the globe because of its huge