What Led us to the Crash?
In 2008 the world economy faced its most dangerous crisis since the Great Depression of the 1930s. It was affecting millions of Americans and was one of the hottest topics in the Presidential campaigns. In fact, people cannot understand clearly the reasons why we have a financial crisis. What led us to the crash? Let’s discuss about how bank caused the financial crisis.
Looking back on the history, after the Depression of 1920-21, the United States embarked on a period of economic prosperity such as these goods came new forms of consumer credit and bank expansion. In 1929, the stock market crashed and the Great Depression began. It took eight years from the start of the boom to the bust. Subsequent investigations revealed the extent of the fraud that preceded the crash. In 1933, Congress passed Glass-Steagall in …show more content…
Banks would be allowed to take deposits and make loans. Brokers would be allowed to underwrite and sell securities. But no firm could do both due to conflicts of interest and risks to insured deposits. From 1933 to 1999, there were few large bank failures and no financial panics. The law worked exactly as intended. However, in 1998, banks got the green light to gamble. The Glass-Steagall legislation, which separated regular banks and investment banks, was abolished. On the other words, the bank’s deposits were guaranteed by the FDIC, the government, to engage in highly risky business. For instance, people save money at the bank. The bank will use this money to invest risky market. The risky investment created some bad finance led to the crash of 2008.
Due to repealing the Glass-Steagall, the banks were able to create too much money, too quickly, and used it to push up house price and speculate on financial markets. Every time a bank makes a loan, new money is created. In just 7 years, they doubled the amount of money and debt in the economy (from $477 billion to $881 billion.) All
In 2008 the world economy faced its most dangerous crisis since the Great Depression of the 1930s. It was affecting millions of Americans and was one of the hottest topics in the Presidential campaigns. In fact, people cannot understand clearly the reasons why we have a financial crisis. What led us to the crash? Let’s discuss about how bank caused the financial crisis.
Looking back on the history, after the Depression of 1920-21, the United States embarked on a period of economic prosperity such as these goods came new forms of consumer credit and bank expansion. In 1929, the stock market crashed and the Great Depression began. It took eight years from the start of the boom to the bust. Subsequent investigations revealed the extent of the fraud that preceded the crash. In 1933, Congress passed Glass-Steagall in …show more content…
Banks would be allowed to take deposits and make loans. Brokers would be allowed to underwrite and sell securities. But no firm could do both due to conflicts of interest and risks to insured deposits. From 1933 to 1999, there were few large bank failures and no financial panics. The law worked exactly as intended. However, in 1998, banks got the green light to gamble. The Glass-Steagall legislation, which separated regular banks and investment banks, was abolished. On the other words, the bank’s deposits were guaranteed by the FDIC, the government, to engage in highly risky business. For instance, people save money at the bank. The bank will use this money to invest risky market. The risky investment created some bad finance led to the crash of 2008.
Due to repealing the Glass-Steagall, the banks were able to create too much money, too quickly, and used it to push up house price and speculate on financial markets. Every time a bank makes a loan, new money is created. In just 7 years, they doubled the amount of money and debt in the economy (from $477 billion to $881 billion.) All