Given the events of the past couple of months, interest, money, and the future of asset allocation is beginning to change. To better understand the conditions we see today, we must go back to the extension of the Housing and Community Act of 1992 which incentivized banks to come up with innovative ways to make houses more affordable to vulnerable populations. The banks responded by popularizing mortgage-backed securities (MBS), which created a massive housing bubble that ended pretty badly as we all remember. During the financial crisis, the Federal Reserve sought to lower interest rates, increase the money supply, extended its discount window program to central banks, and bailed out other banks in a desperate effort to flood the economy with the currency that was needed to quickly re-start the economy. But why? You see, neo-classical economics and monetary theory agreed that lowering the Federal discount rate should promote more borrowing from central banks, which then should have made it easier for private banks to borrow money from central banks, which they could then use to lend to companies at lower interest rates.
From the chart above, we can clearly see how lowering interest rates increased the money supply, and thus should increase the demand for money in the short-run. As the demand for money increases, an increase in investments should follow. Unfortunately, this also implies that inflation levels should have risen as we trade off growth for inflation. Given the amount of money put into the system, we can clearly see that this theory started to work flawlessly during the beginning of 2008 and thus, the economy should have recovered quickly after that. As this happened, the banks began to borrow enormous amounts of money, and the market speculated that higher levels of inflation were soon to follow.
After 2008, many people feared that such a massive increase in the money supply would create rapid amounts of inflation as more businesses borrowed cheap money at the same time that interest rates were reaching zero. The idea at the time was that this enormous sum of money would create growth in the US economy, which would translate into more jobs, but also more inflation. As time went by, nobody could explain why the U6 and U3 unemployment rate decreased as inflation remained flat, despite all of that money that was added to the economy. In 2008, some investor’s even feared hyperinflation as they thought the economy was going to be overstimulated. When inflation didn’t reach the target of 2% year after year, the market knew something had gone terribly wrong.
What Happened?
Although many argue that inflation didn’t surge in the US economy because of anemic growth and over-regulation, that’s only part of the story. Let’s remember that the money demand theory promised an increase in money supply (that did happen), along with an increase in money supply and demand for money as interest rates decreased. It never promised that this effect would occur in the real economy. You see, the assumption was that the money put into the banking system would quickly enter the real economy and spur inflation. Instead, a lot of that money was never loaned while some went into wall street. However, this doesn’t mean that theory was incorrect, after all, there were a lot of rules and constant changing regulations that prevented this money from being lent out, the biggest being the Dodd-Frank Act of 2010.
If you look at the money demand theory from an investor’s perspective, it signals that bonds were going to get pricier as rates went down since there’s an inverse relationship between price and interest rates. For example, as interest rates go down, the price of bonds go up. As a result, lower interest rates increased the price of bonds. Since Bonds and Stocks are often held in portfolios and measured against risk, if the value of bonds diminishes due to an increase in price, then it’s only natural for investors to switch to stocks as they seek to maximize their utility. This should have created a surge in the stock market as we moved from point A to point B, and it did.
In order to better understand why this happens, we can look at the Security Market Line (SML) that explains that for every unit of expected return, investors incur an extra unit of risk according to Efficient Market Hypothesis (EMH). Why would investors take on more risk? Because they have to invest in assets that are correctly valued, taking into account opportunity cost, risk, and total returns.
In summary, not only can old theories be used to explain Ben Bernanke’s plan to restore the economy after 2008, but there’s also significant proof that it did work to some degree. There was admittedly inflation in the stock market if we define inflation as a rise in prices only accompanied by lower value of those assets. The evidence can be seen by higher than expected P/E ratios which signals overvaluation of stocks as investors pay more for earnings. As we all know, money has to travel somewhere once it reaches a market, and it seems that a lot of that money went into the stock market and never reached the real economy, which is known as Financialization. This also implies that the real reason why the economy recovered very slowly (if at all) was because it never got any real help.
Now what?
Since we are now entering a world of higher interest rates and inflation, it is only obvious to think that Bonds will start to become more attractive again. However, that doesn’t mean that the stock market will go down or crash, it only means that returns on an annual basis will be lower compared to periods of lower interest rates. As we shift from B to A, it will be important to remember that major stock indexes such as the S&P 500 will not perform as well when compared to lower interest rate periods. As always, some industries will outperform the market.
References:
- Flynn McConnell Brue Microeconomics [Book]. – New York : McGraw Hill, 2015. – Vol. 20.
- Mankiw N. Gregory Principles of Macroeconomics [Book]. – Stamford : Cengage Learning, 2015.
- Nicholson Walter Microeconomic Theory [Book]. – Willard : Thomson South-Western, 2005. – Vol. 9.
After reading this article, I now have a new outlook on how the economy is actually ran. Learning that the Housing and Community Act of 1922 was meant to better help the economy grow, government thought that lowering the price of housing and lowering income between each household would be beneficial. Unfortunately the economy took a hard left turn and the act failed, creating an economic crisis. As today we are seeing higher interest rates along with inflation on the rise also, the stock market is flourishing and the economy is doing better than it was in 2008.
I have never been extremely familiar with the events of the 2008 financial crisis. My only knowledge of it has been through anecdotes from my parents or from watching The Big Short. Safe to say that I’m not an expert. However, this article sheds more light on the facts of what happened leading up to the financial crisis and the events that caused it (such as the excessive amount of issued mortgage-backed securities). After the crash, the market was flooded with money in an effort to restore the economy, but it was only successful to an extent. US inflation levels failed to return to what they once were, and it left economists confused. However, after several years, it appears that the United States has finally recovered from the 2008 crisis. The dollar is somewhat stable and inflation rates are steadily rising. Hopefully we can learn from our mistakes so to prevent another incident such as this from riddling our nation’s economy.
In 2008, I was still under ten years old; due to this, I was completely unaware of there even being an economy issue. I probably was aware that my parents were stressed, as my father is the parent that provides. As I grew older, it was more apparent that things were a bit unstable- probably from the crisis in that year. Gas would often fluctuate, which resulted in my dad losing his job. Just now, things are starting to feel like a constant increase. This blog has helped me learn about a fairly recent issue and an attempt to solve it that should have been better known in the classes I have attended in my life. The most important lesson from this for not only economics but all sciences is that a speculation and general acceptance for what will happen based off of a solution or action is not always how things go. This was brought to light by the revelations of the “failed” experiment to improve the economy a decade ago.
After reading the article provided, it is evident that the 2008 financial crisis arose due to many economic factors, such as The Housing and Community Act of 1992, and the Mortgage-Backed Securities (MBS) enacted. These utterly failed attempts, led to a crucial recession that did not end until 2008. Moreover, in order to relief individuals and the economy, the government took action. Thus, the Federal Reserve’s Plan was set in motion. The plan was intended to lower interest rates, increase the supply of money to banks, and assist big banks in recovering from the financial crisis. However, the government’s plan did recover the economy, it did not seem to aid or resolve the several unemployed individuals in the U.S. and in result, inflation remained flat. Additionally, another problem that the plan made was taking massive amounts of money and investing it into the stock market, when it should have been invested in bonds. Ultimately, the plan was not a complete success, nor a failure; due to unexpected obstacles, in effect the plan was much slower.
While I do remember talk of the economy being bad around 2008-2010, I was less than 12 years old at the time and did not understand anything about the economy or what was causing all of the problems that adults thought were so serious. This page has helped to explain the causes of the crash. It all relates back to the Housing and Community Act of 1992, which tried to get banks to find ways to makes houses more affordable to people. The banks created Mortgage-backed securities which caused the financial crisis. The Federal Reserve tried to put money back into the economy in order to restart it, and this worked for a time, but banks began to borrow huge amounts of money and people began to fear the inflation would rapidly increase. When inflation didn’t reach its target of 2%, it was realized that something wasn’t right. Anemic growth, over-regulation, and money not being loaned out/being invested in Wall Street rather than reentering the real economy caused the issue. The plan to fix the economy was not a total failure, but it id not work exactly as predicted. As a result the economy recovered very slowly.
Reagan Swearingen
After reading this article i learned that the crisis was led by the Housing and Community act of 1992, the act was intended to grow the economy by raising the money supply and lowering interest rate and seemed to be a great idea at the time but had its upcoming problems in the future. Businesses was borrowing cheap money and jobs were decreasing with no answer. This unintentional act was the cause of the economic crisis leading all the way up till 2008 where the was growth starting to bloom in the economy. At this time i was not impacted by this problems but the common citizens must of been greatly affected by the struggles in the economy.
Growing up as a young kid and even now in my life I have never known much about the 2008 financial crisis. I was never told about it either. If I were to know anything about it then I would have gotten that knowledge from my parents. I wish I had more knowledge about this article and subject but after reading this article I definitely know more than I did before. After reading this article I have noticed that it focuses more on the events leading up to the financial crisis and everything that caused this crisis. Interests rates were lowered and the money supply was rising. Since money supply was going through a rapid increase that caused inflation to increase. Money was starting to decrease in value and everyone started to lose money left and right. The inflation did not help the economy at all because most of the money ended up in stocks. The economy had a hard time recovering from this crisis.
This article seems to demonstrate well how the application of economic principles translates into the real- world experience. When formulating economic theories, economists use both generalizations and the ceteris paribus assumption, creating a hypothetical situation where all factors have been considered. However, even when people act in a rational manner, human nature can be unpredictable and lead to unexpected consequences. In this example, with lowering interest rates and with increasing the money supply, some economists believed that a chain reaction would occur, leading eventually to greater job growth, but also to inflation, neither of which happened for various, but logical reasons. Another component of economics illuminated in this analysis of the financial crisis of 2008 is that even with the best intentions of trying to fix economic problems, sometimes greater problems arise. In 1992 the government attempted to make houses more affordable to those who could not previous afford to buy, a noble pursuit; unfortunately, their actions led to the housing bubble which eventually burst, leading the economy into greater difficulties than previously experienced. Remembering both these factors, human nature’s unpredictability and the possible injurious results from the applications of economic theory, will help those analyzing economics in the future.
“neo-classical economics and monetary theory agreed that lowering the Federal discount rate should promote more borrowing from central banks” After this occurred it would allow the private banks to then borrow money from central banks at a lower interest rate. The government thought if they produced more money to bring back the economy. Then lower the interest rate so it sounds like a great deal, but in the long run the banks and companies are getting money at basically 0% interest rate. The lower interest rates and the increase in the money supply lead to a spike in bond prices and should have led to a spike in the stock market as well but did not. This was a great plan until put into action. With the stock market crash many people lost tons of money due tot the large investments thinking the economy was going up. This was not the right thing to do for a long-term fix on the economy.
Ejtimana. “Interest, Money, and the future of Asset Allocation.” Timanomics.com, 16 Mar. 2017, timanomics.com/2017/02/16/interest-money-and-the-future-of-asset-allocation/.
Being only eight years only in 2008, I had no idea what the economy was much less what was going on with it. This is expected because I was a young child, but as I grew older I remember hearing my parents stress about what was going on with the economy. Still, I did not understand what truly happened in 2008 until now. This article has helped me understand what truly happened with the economy when I was a young girl. The Housing and Community Act of 1992 did not work as well as the government would have liked it to, and the effects were not great. In 2008 attempts were made to try and repair the damaged economy. Interest rates were lowered in hopes that money would be flushed into the economy, but that was not the case. The money was used elsewhere, and the economy did not flourish. This plan was not a complete failure, but the economy is still recovering.
When the crisis 2008 happened, I was a child and I still not came to America yet. Therefore, I do not know anything about the inflation until I read this article. It helps me clearly understand about the cause of inflation 2008. In regards to the Housing and Community Act 1992, the banks were irresponsibly giving mortgages to people who couldn’t afford them. As a result, more homeowners lost jobs and stopped paying their mortgages, which caused more investment losses, and so on in a vicious cycle. Looking back the past, I notice that the economy has experienced a repeated circle like growth, peak, decline, and recession. I hope we can learn many valuable lessons from the past in order to build a better financial plan for ourselves in future.
Back in 2008 me and my family were actually pretty affected by this, my market crashed since we had just moved from Illinois to Missouri so we had two mortgages out and my parents were struggling to just put food on the table. About the whole home act I do believe it was unwise to just give out mortgages to just who ever wanted them. And since you talked about the whole moral issue now with banks being bailed out by the government, the risk of a crash like 08 is still likely. I do see a recession happening within the next few years, but nothing to dramatic like 08.
The 2008 Financial crisis was never brought up to my attention ever. Now reading it about I find it so crazy and more understand on maybe why things were happening at that time for this reason with my family. In this article, it shows and explains how the economy went running down to the ground. At the time, the Housing and Community act of 1992 was following up to one of the reasons why the economy was going down. The banks tried to make houses affordable and then tried making mortgage-backed securities which are the reason for the financial crisis. The plan of this whole system was to get lower interest rates, more money supply into the banks, and to help bigger banks recover from the financial crisis. They believe it would increase jobs, and increase inflation. However, neither happened and inflation remained flat. This all caused the stock markets to go down as well. Leading to people losing much money.
Hailee Cooper
In 2008, I remember my parents taking about the economy being bad, but at eight years old I had no idea what they were talking about. After reading this article, I now understand why the economy was so bad and how it got there. I never thought or cared about the economy, but after reading this I realized that just like other forms of history, we need to learn about the ups and downs of our past economy so that we can learn from these terrible mistakes and do our best to never repeat the negative things in the future. The Housing and Community Act of 1992 was actually meant to help people be able to better afford houses. Instead it took a toll on the economy and was devastating to many people across the U.S. In 2008 attempts to fix or bandage the economy once again had a negative effect. After reading this, I believe the economy will thrive if we stop trying to perfect it. It will correct itself over time.
I am not saying that I know much about anything. But banks can throw all the money that they want to try and fix the problem, but they are offering it at the people who have good credit and who have stable work history. They would not be in the situation of needing help if they had good credit or a stable work history. Most people who need help are the ones who are one day away from living in there car. They need help from the banks and they keep being turned down.
All in all, I personally think the banks should have failed. The banks decided to make pretty risky loans and were lead to believe that the housing prices would go up and when the housing bubble bursted in 2008, everything went downhill from there. The banks money would have been lost in the end and not hard working American’s money if we had let the banks fail. The government made the decision to make the guaranteed bank deposits and guaranteed the mortgages. It was because of the government funding Fanny and Freddy loaning to everyone. Limiting the power of government to guarantee these subsidies would create more incentive for people to compete.
This post highlights the lasting effects of every up and down our economy undergoes. It began by explaining how the Housing and Community Act was enacted with an end goal of making houses more affordable, and ended with a full blown financial crisis. This being ten years ago, we still see the effects today. Economists came up with a solution, and anticipated a different outcome than the one that was present, which is a big take away I grasped from this article- expect the unexpected. The plan was to lower interest rates, increase money supply, thus improving the banking system and getting them out of the hole. This was not the case, however, and the money was either never loaned from the banks or invested in stocks. As a result, inflation did not reach the extent that it was intended to reach. The economy was in need of help, and it received little to none. Today, we see that prices are rising and the economy is beginning to return to normalcy.
In conclusion, the economy is unpredictable. There might be a clear cut plan to improve economic conditions, but those are not guaranteed to work.
i somewhat wish i could’ve been apart of the 2008 crash with the knowledge i have now. with banks giving these kind of incentives there were opportunities to capitalize on real-estate investing and business loans with little to no interest rates. based on the charts at hand and the history we have as a country this would be the time to sit back and wait for the inevitable with it being roughly 10 years since our last recession. those with the information and money could really capitalize on the opportunity. me personally will be ready when this happens again.
Hi I am Hunter Adam. In 2008 I was not much aware of the economy at the time, only that a presidential election was coming up. Since then, I have heard much about the “Great Recession” of 2009. I still did not know what this meant, but this page has helped to explain some of it. When the real estate market crashed, over 7.5 million Americans lost jobs, doubling the unemployment rate. I also do remember hearing my parents say that the government should have let the banks fail instead of bailing them out. An attempt like this from the government to meddle in the world of economics only ends badly, as the economy needs to work for itself with minimal government involvement; just as is stated above. From the page, I also learned that good things don’t last long. The inflation rate was staying steady, when it should not have been at all. Then, the market crashed. Same thing goes for when the stock market is reaching all time highs, it is eventually going to dip lower again or plummet, which was seen in the 1920’s. Let the market do its thing government.
I remember listening to my parents discuss the economic issues and asking them questions about it in 2008, however I was too young to understand what they were talking about and how it affected our family, as well as others across the nation. My parents owned their own house, their own business, and a few houses they rented out. They worried about what the possible inflations would mean for our business, income, and our cost of living. I remember asking why things such as the gas prices were increasing, and why such a small increases would matter. I couldn’t understand how small differences could change so much. After reading this article, I have more of an understanding of the economy, how it can change, and how these changes can affect many aspects of our lives. Theories such as Ben Bernanke’s plan to restore the economy after 2008 are important tools to use and learn from to better understand and improve our economy today.
After reading the article, I understand why the federal reserve wanted to execute this plan. From reading the article, the ideas written on paper seem to make sense. However, we really don’t know how plans will carry out until they are put into action. Many people believe that the federal reserve is to blame for the increase in inflation and the downfall of the economy. I personally do not believe that these were the federal reserve’s true intentions. I don’t think anyone was anticipating the banks borrowing so much money, which is why I feel like inflation went up significantly. I think this happened because the interest rates were so low which could have been a mistake. The U.S economy is constantly changing in order to improve the economy, and I think this is great. From reading this article, I have learned that the U.S government needs to start working together to develop a proper system of asset allocations.
Being that it was 2008 and only being eight years old you don’t really have the ability to handle or comprehend what was going on with the economy. After reading this article, I now understand the reasoning behind why the economy was at a downhill spiral and how it progressively got worse. At the time, I never thought or cared about the economy as any other child would view. However, after going over this article, I realized it is important to learn about the growth along with the downfall of America’s past economy. The Housing and Community Act of 1992 was presented to the people by saying that it was going to help people be able to better afford houses. Rather than helping, it made a horrible dent on the economy. In 2008 any attempts to fix or bandage the economy once again had a negative effect. After reading this, I believe people will see that things need to be done in order to progress change. However, people will say we need change but will not do anything about it.
In 2008 I was only 8, so I had no idea what the economy was, much less what was going on with it. I understand why the government wanted to execute that plan, and the ideas on paper make sense, but there is really no way to know exactly how that plan will carry out until it is actually put into action. I did not really know/ understand anything about the economy until reading this article. I’ve known that the economy is not in the best of shape, but I now see the reasons why our economy is in downfall. It was risky borrowing all the money and in the end it did not turn out how everyone had hoped.
Reading the article above really gave me good understanding about the 2008 financial crisis. Although, I was only 10 at the time and didn’t fully understand or really care about real life adult situations, I do remember my parent’s having kind of a stressful year and it was hard for them to get back up on their feet. This article helps me actually know what happened and how the financial crisis occurred since I was never informed about this crisis before. After the crisis our economy spent years trying to successfully build our economy back up, which has been slowly and steadily rising. Hopefully, we have learned our lesson and this doesn’t happen again.
From what I can understand about the financial crisis of 2008, what started as good intensions ended with global financial implications one of the biggest contributing factors being greed. The administration during this period was encouraging financial frustrations to offer mortgages with lower interest rates and more lax regulations to higher risk borrowers so that more families could realize the American dream of home ownership. Financial institutions saw opportunity to make money building this accumulation of high risk loans into mortgage backed securities, this all snowballed and created the perfect storm. With such cheap credit this mass accumulation coupled with a high default rate led to the financial crisis and ultimately damage the instability to economies all over the world. After the market collapse, in attempt to stimulate the economy the government intervened once again in the form of bail outs of large financial institutions and pumping money into them with the hopes that it would trickle back out into the economy. Based on what I’ve learned not sure I can agree with future government involvement in the financial sector.
In 2008, I was only eight years old and didn’t have any idea of what the economy was nor did I understand it, just like many eight year olds. I’m not really sure if I still know how the economy works, however this page about interest, money and the future asset allocation did add some more light as to what the economy was like in 2008 and what it is like today. I didn’t know nor do I know really how good or bad our economy is. I just know that it tends to go from high peaks to low peaks very frequently, considering. I didn’t really know that our economy was as bad as it was back in 2008. I do find it interesting how the lower interest rates increased the price of bonds, when the money demand theorized that’s exactly what would happen. The money demand theory was very spot on. I do hope as we get further in life the economy stays at a high peak rather than a low peak, but I do know things do fluctuate. Which I know the economy tends to do quite often
While I don’t remember and I was also never even told about the 2008 crisis, this all seemed like a bad idea from the beginning. The idea of banks borrowing from other banks in order to lower interest rates sounds like a crash waiting to happen. By lowering interest rates, banks are not making the money back in order to back these loans. The surplus of money created with lowered interest rates only created a massive amount of inflation. Money began losing its value and purpose. However, the stock market did flourish due to people investing while they still could. This investment in the stock market basically turned money into virtual money. I’m not sure exactly how the economy recovered from this housing bubble crisis, but the stock market is to blame that the economy didn’t entirely crash. The stock market created a safe space for money to be invested into, creating a source of wealth when stocks rose.
Stacy Lambdin
I personally did not know about the 2008 crisis. In many crises the Federal Reserve will lower interest rates among other things. There has been multiple times where there has been an increase in money supply causing the monetary value of the money to go down this also will result in an increase in inflation. People saw that something had gone wrong in the economy when the target inflation was not reached the next year. The relationship between interest rates and the price of bonds are inverses as one of them would increase the other would decrease as it is shown in the graphs. Currently we have higher interest rates this soon means that bonds will increase. As the rates and inflation are increasing it doesn’t mean that the stock market will crash or decline. It just means that there will be lower interest rates in the economy. Slowly but surely the stock market has begun to save the economy.
Victoria May
In 2008 we were 5 years into paying on a 30 year mortgage. I remember thinking how we felt so lucky that we had already been approved for a mortgage but also remember feeling like we were holding our breath because of the housing crisis and what would become of it. Before closing on our mortgage we had to lock in our interest rate. During that time we felt like we were able to lock the interest rate in at a good rate that we were happy with. Little did we know that before the housing crisis began, interest rates would begin falling to rates that were a lot lower than when we locked our rate in, and we were left paying a higher interest rate which meant more interest than others. This left us to feeling like we were overpaying and/or wasting our hard earned money. Lenders were approving people for mortgages by claiming they were a better credit risk than they actually were. The Government stepped in and stopped the banks from giving or approving any more loans to those people who should not have received a loans in the first place.
I have semi-familiarized myself with the occasions of the 2008 financial crisis, but that is only because I have seen the film “The Big Short”. My parents have never discussed the topic at hand with me so I am not exactly knowledgable when it comes to this subject. In any case, this article reveals more insight into the actualities of what happened paving the way to the crisis and the things that made it happen it, (for example, the exorbitant measure of issued contract sponsored securities). The market became overwhelmed with money after the stock market crashed with an end goal to reestablish the economy, however it was just effective to a degree. The United States inflation levels neglected to come back to what they used to be, and it made market analysts confounded. In any case, following quite a while, it creates the impression that the United States has at long last recuperated from the 2008 emergency. The dollar is fairly steady and inflation rates are rising. Ideally we can gain from our oversights so to keep another occurrence, the stock market crash for example, from riddling our country’s economy.
This was a very interesting read. I was actually working during 2008 economic crisis and remember thinking how glad I was that I chose to hold off on buying a home once details came out about the lending and etc. This article did a good job of explaining Bernanke’s plan to pull the country out of a very bad situation. Sadly, it seems like everything didn’t go as planned due to a multitude of reason. That is the thing with theory though, at times they make all the sense in the world but it is very difficult to factor in extenuating circumstances and variables. I can understand how the plan in theory was supposed to work, but apparently the money just never got to the common man. An infusion of money was put into the banks, but most of the people never received any to spend. I am not sure if this was due to people not trusting the banks after information about how the housing collapse happened, or if the banks were more stringent with their lending policies. Ultimately while there was some recovery, the plan didn’t have the anticipated effect on the economy as originally deduced.
The decision to flood the US with money, as well as the decision to bail out banks (who were giving out loans to people who truly didn’t qualify for them and thus couldn’t pay them back) dug the US economy in a huge financial rut. This was mostly due to very low interest rates and an enormous decrease in home prices. (prices that hadn’t been seen since the great depression!) In addition, much of the money that was supposed to get dispersed to aid the economy got stuck in the stock market, thus it never really helped create the improvement needed in the actual US economy. As fear of hyperinflation increased, the actual inflation rate didn’t hit 2% and that’s what signaled a major economic problem. Recovery from the recession proved to be slow because investors were earning less per investment. A $787 billion stimulus package which helped end the minimize the effect and length of the recession.
As some theories may of been faulty, going back to the basics and recollecting on previous theories, answers came. In a time where people only really care about maximizing their own utilities and choosing which stocks and bonds are best, problems arose leading to a number of theories and great minds to come together. Having little knowledge of bonds and stocks, playing the gambling card where it is said to be rising but inflation remaining the same, something must of been wrong.
I think I am part of the majority of people in saying I knew very little about the economic crash of 2008. Of course, I knew the economy was not doing so well in 2008 through my parents’ dinner-time debates, but there was no way I could understand what was happening at the age of eight. With my current knowledge on the economy, taking a look back at the scale of the economic crisis has opened my eye to the sheer chaos of the time. Now learning that it all began with a bill passed in 1992 to better the economy is ironic to say the least. With the hindsight available now, it is clear how such methodology could disintegrate an efficient economy, but it must have been pure chaos realizing how incorrect monetary theory could be in practice, and how unpredictable money demand theory can be in the real economy. The true culprit, however, was the ideology that incentivizing ill-equipped Americans to invest in the housing market without drastic economic backlash.
The banks started putting money into the system. The economy should have recovered quickly after that. As the economy started getting better we started adding inflation. As more money is being loaned out they expected inflation to go up. The more money out there, inflation should go up. Anytime the companies and investors hear inflation, you will see the market take a hit because they are afraid. If inflation comes then it impacts our earning and people start pulling money out of the economy and in return effects the companies. When the economy gets better, inflation should go up. Money is put into the economy when everything is down. Government wants people to save money so they have money for retirement but at the same time, if everyone saves then nobody spends. That effects the economy in a negative way. So they are putting a lot of money out there, cheap money to borrow. They expected inflation to go up.
This article explained why the Housing and Community Act of 1992 was created. The reason that this act was established was due to housing becoming too expensive. The Housing and Community Act of 1992 gave incentive to banks to come up with more innovative ways to make housing more affordable. MBS started to be promoted by the banks, which did not end up so well. The federal reserve decided to use multiple tactics to counteract the problem. They wanted to increase the money supply, lower interest rates, and bail out other banks in an effort to flood the economy with currency to restart the economy, which in my opinion just pushed inflation instead of providing help. Which leads me to my thoughts on the Housing and Community Act of 1992, I believe that if the money loaned to the people were put back into the economy instead of putting it into the stock market, the economy might have been better off than what we are facing today. It was a good idea it just didn’t follow through as they planned.
At the time of the house market crash in 2008, I was around 8 or 9 years old. I was completely unaware of the situation and didn’t notice much of an impact on myself. It wasn’t until years later that I realized that this was a major economic event in U.S. history that was in large caused by the Housing and Community Act of 1992. I see that there was a large overreaction and mortgages could simply not be paid off because there was so many of them with such a high volume. This caused a complete shutdown and failure of the housing market in 2008. I see then that in an attempt to save the market, money was pumped into the economy in hopes to cause inflation. This worked temporarily, but in the long run failed to do what it achieved. Now, ten years later, it seems that America is slowly recovering from this as the dollar is worth what it should be and we are noticing a stable rise in the economy.
The economic crash of 2008 was devastating to the entire nation. I always heard talks of the housing market crash and the bubble, but never truly understood. Its very interesting to me how the plan to stimulate the economy didn’t play out in the economy’s favor and actually caused it to take longer to recover. The money given to banks wasn’t being loaned out at the expected rate, thus causing inflation to never reach the anticipated levels. This down turn in the economy would now take years to recover from. The statement that “the economy never had any real help” (Tamina) stood out to me. The money given to banks was never put back into the economy by consumers which left no way easy way for the economy to recover. As mentioned in previous replies, most of my previous knowledge on the subject is credited to the film, The Big Short.
I remember being a young girl and my parents telling me that we had to sell our house and i never full understood why. I knew it had to do with something related to the economy but i knew my parents were not about to explain the intricate details of the crash in 2008. This page has helped me gain a better understanding as well as a better need to pay attention to future economic problems. I finally understand that this issue did not just start in 2008 but it started in 1992 with the intention of improving the econmy for the long run. All of the new techniques banks were using as well as the stock market added up to be a disaster.
I am not familiar with the events that took place in 2008. I like most people in my generation were to young to fully understand what happened. I do remember my mother being stressed out, but I would have never guess to connect that to these events because my mom was a single mother. Money was always short. It is weird for me to think a major problem with our economy was happening and I was not even aware of it. I am sure if we were going through a crisis now I would know a lot more about it because it would affect me more considering I’m getting ready to move out and go to college. Even though this happened in the past it is a great lesson to be learned from it. Now if this starts to happen again we can either prevent it from happening or we know what to do.
In 2008, I was only eight years old, so the economy was most definitely at the bottom of my worries. However, I do remember how tough that year was. My single mother was struggling to support our family and we had to move in with another struggling family, so we could afford basic necessities and afford to live in a house. After reading this article, I found out why that year was difficult in the financial area and that we were not the only ones losing money. In 1992, there was a Housing and Community Act put in place that aimed to make houses more affordable. As the inflation levels began to rise, the banks borrowed a hefty sum of money and higher levels of inflation were expected to occur. However, the overstimulation of the market resulted in lower inflation rates. The money placed in the banking system never made it to the real economy, resulting in a lack of inflation.
Zoe Cruzanaya
Growing up as the daughter of two successful large business owner I had no clue about the 2008 financial crisis but I do recall hearing them worry about the companies. This article has not only help me what happened in 2008 but it also helped me comprehend the effect. The failed Housing and Community act of 1992 is what caused the crash, while the Mortgage-backed securities (MBS) caused the financial crisis. During the crisis, the Federal Reserve was to lower interest rate, increase the bank supply of money and help the large banks recover from the financial crisis. Unfortunately, it didn’t happen. Instead the money was used somewhere else. Even though we are recovering we can not be too comfortable and remind ourselves it might happen again . There is nothing we can do but to be prepared in the future.
In 2008, I was eight years old. My biggest concern at that time was which toy I was going to play with that day, so it is no surprise that I was completely oblivious to what happened to the United States’ economy in 2008. Through this article, I have learned a lot about a historical event that occurred in my lifetime. It is crazy how something that started out as a great idea with good intentions can be completely detrimental to the economy nearly fifteen years later. One would think that something like this could only go up from there, but some of the solutions that were implemented only harmed the economy. This is a terrible thing that happened, but it is also a tremendous learning experience for leaders now, and future leaders in the United States. I think this can teach people not to try and make every little detail absolutely perfect because there is a chain reaction for anything that is done. Today, the economy still has not bounced back one hundred percent, but it is getting better and in a state where it is considered to be doing well. It is important for leaders to think about the effects their decisions can make to the economy, even if it is fifteen years in the future.
In the small recession of 2008 I had just came to the U.S. from South America so I had no Idea what was going on; however, as time passed by I started hearing about that period of time where the economy had gone down and maybe a few speculation as of why. everybody had their own opinion. reading this article has help me understand why it happened what had happened or at least part of it. The Housing Community act of 1992 is probably what had played the biggest part of the recession back in 2008. inflation level beginning to rise banks started to take out bigger amounts of loans to help bigger banks get up on their feet but that did not happened.
Before reading this article, I didn’t know that the 2008 financial crisis was due to the housing community act of 1992 or anything in that matter, because I was so young to even care about the economy. Now, as I’m older this article really drew my attention to how important little changes in interest rates can affect the inflation or overall the economy. This article explained how the crash was due to the decrease of interest rates of the Housing and Community Act of 1992 which tried to make banks ways to make houses more affordable. When the Federal Reserved tried to put money back into the economy, after it had created a mortgage-backed security, it worked for a time but it ended up going to stocks and wall street rather than the real economy.
-Jessica Salinas
In 2008, I was only about 9 years old so I was not fully aware of the financial crisis that was taking place in America. However, I do recall my parents and family friends being extra worried about finances and that at the time, gas prices were high. One family friend had to sell their house which I now see was due to the effects of the failed Housing and Community Act of 1992. I find it interesting after reading this article that this act was meant to make housing more affordable but ended up causing a financial crisis. Inflation levels were expected to rise but they did not. As a result, the stock market also went down. I found it interesting that a lot of the money that was given was put into the stock market instead of the actual economy which could have prevented the severity of this crisis and the recovery time.
In 2008, I was only 8 years old, and I was highly unaware of the political issues occurring all around me. I had never really heard of the Financial Crisis of 2008 until reading this article. After reading this article, I was shocked to find out that this actually all started back in 1992 by the Housing Community Act. The money that was ultimately placed in the banking system never really made it to the economy, which definitely resulted in a decrease of inflation. I now feel much more informed after reading this article.
-Tara Wunderlich
I remember hearing a lot about this when I was younger. I really didn’t understand it but now after reading this, it makes sense. The Housing and Community Act of 1992, was a way to have banks find ways to makes houses more affordable for people. Even though this was supposed to be a good thing, the banks created Mortgage-backed securities which caused the financial crisis. The Federal Reserve did try to put money back into the economy in order to restart it, but banks began to borrow huge amounts of money, which led to inflation. After reading this article, I feel much more knowledgeable then I did before.
Not sure if I remember this discussion in 2008. However the increased money supply due to lowered interest rates you would think it would create inflation. Also investors feared that inflation would increase. I personally think during this era money supply and the demand for money was available to all investors. But however you have to stay focused on the market and only invest in things that would provide a positive return.
I clearly remember the events of 2008 I had just bought my home in 2007. When this events happened, the housing market was one of the hardest hit sectors. I was upset the interest rates hit all-time lows in the years to follow, and I was stuck with the higher interest rates from before the financial crises. However, a couple of years later I was able to refinance. I also found out that the paperwork to get a home loan was more stringent. Mortgage companies triple checked all applicants and paperwork. Also, I Noticed that when I got quotes, which the mortgage companies were staying away from the variable interest rates as we all learned most of the housing market collapsed because people could not keep up with the increased payment from these types of loans. I also noticed that income was not scrutinized as much when one applied for a mortgage before the financial crisis. Now the verify and check everything and make sure one’s income to debt ratio is within limits financial institution learned from there mistakes. On another note, I also want to the ad we have not recovered 100% from the financial crisis, and my 401k and ML brokerage account speak for themselves.
Do not count on it with the rise of bitcoins, it becomes a whole different ball game. However, it always best to have a back up when it comes to maintain the purchasing power. The biggest question that no one is asking is this: why is the interest/prices rates are so high? It seems that no matter what we do every end up suffering at some point. In the near future, the cryptocurrency will replace the US dollar, because as of right now it is almost useless to point where it can be used as scrap paper or cryptocurrency could replace all forms of money in other countries. Because with the rise of the electronic age, it will keep on getting more advanced. Speaking of housing, the latest trend is more people are renting that buying a house now because it more economical now. Stock and bonds backfire on most people and countries because of their unpredictability.