This article is explaining how the markets are kept stable by one thing and one thing only and that is consumer confidence. If people are not buying thing and investing then the economy is bound to crash. The banks began to get more power because they were taking risky loans by people who could not afford to pay them back. Low interest rates made it possible for people to take out these large loans and buy new things. Because of the housing market appreciation by 15% people were taking out loans. The thought process of the average consumer was to buy money cheap and invest it in a house because its an easy way to make a few bucks. Because of this common thought process there was a massive influx of houses being bought thus creating a bubble that was only bound to pop. When people had to pay back the banks they could not do it because they were losing their jobs left and right and had no income. Many families filed bankruptcy. When businesses started to go under the government created relief programs that would pump money into the economy for large chunks of the companies thus making the gov own the companies. These relief programs helped the companies and the economy stay afloat for a while but the recession was so rapid and deep that the only was was to wait it out.
.This video explains how the economy crashed because of unsustainable debt due to low interest rates. Because of this banks got greedy and started to lend money to people that knew couldn't pay them back. The loans were packaged and sold as financial assets on the foreign market. These packages were considered very safe and due to their status people would buy them without a second thought. When the obvious happened and people couldn't pay back their loans it started a dominoes effect, affecting the entire economy causing investment to slow. Once this happened large corporations were close to bankruptcy when the fed created bailout programs funded by the average taxpayer. The research involved with this video agrees with the fact that the fed did help the economy recover.
Brian is talking about the correlation between lowering the interest rates to 1% and how it is giving people a metaphorical green light to take out loans. As he continues explaining he brings up the housing market and how it was appreciating at 10 to 14 percent. At this time consumers are thinking I can take out a loan at 1% and buy a house that is appreciating at these insane rates and it seems like a great deal. Because the rates were so low it was also encouraged bankers to take on more risky loans giving them more leverage. He brings up the 70’s when farmers bought too much land and how the population was betting on oil prices going up forever. He explains that when the large companies started to fail the fed created a solution called quantitative easing. Quantitative easing was when the fed would buy bonds and pump cash into the marked in attempt to stabilize the economy. The government created TARP and invested 700B USD in attempt to fix the banking system. Brian explains how the worst part of the crash happened after TARP and Quantitative easing and how it could have made the entire economy worse. Brian's speech in a nutshell was about how if the fed and Gov didn't get involve the economy could have fixed itself.
This article explains that there was a massive influx in unemployment since 2004, the dow was sitting at 12,000 to 13,000 points until march. March was the month that the FED would intervene in hopes to stabilize the economy, many americans were hopeful of this plan. The FHA guaranteed 300 Billion in new loans, in response the Dow fell again to 10,962.54. The large corporations were holding lots of strain from the collapsing markets but some couldn't take the heat, in september Lehman Bro’s declared bankruptcy dropping the dow another 500 points. The fed had been loaning large corporations Billions of dollars for large % of equity, in turn taking ownership of the companies. In september the dow rebounded 400 points as a result of the fed bailing out these large corporations, many of businesses wanted in. The Fed reserve chair Ben Bernanke sent the bank bailout program to congress, 9 days later the largest dow drop in history occurred dropping almost 800 points. The next few months over 320,000 jobs were lost. The market dropped to record lows, the obama administration and team of economic advisors added much needed confidence to the economy that raised the market to over 9000 points.