The Banking Crisis- Joe Baraiolo, Mikey Darisse and Connor Whooley

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Causes of the Crisis:
  • The immediate trigger of the crisis the was bursting of the United States housing bubble which peaked in 2005–2006.
  • (housing bubble)
  • Steadily decreasing interest rates backed by the U.S Federal Reserve from 1982 onward and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing construction boom and encouraging debt-financed consumption. The combination of easy credit and money inflow contributed to the United States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load.
  • The United States Senate issuing the Levin–Coburn Report found "that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.

The Crisis Itself: (financial crisis)
  • As the slowed and many banks received bailouts, global markets started to slow as well.
  • U.S. European banks lost an estimated 1 trillion dollars in toxic assets.
  • A lot of the banks became insolvent, meaning they don't have the capital to cover it's losses. They had become unhealthy banks.
  • The current ratio of household debt to gross domestic product was 30-50% until 1980 when it leveled to 50%. Then from 2000 to 2008 it skyrocketed to 100%.
  • Americans lost on average a quarter of their net wealth.

Solving the Crisis:
  • To clean up the banking system the government could do a number of things including: take over all the banks and help clean them up, buy up all their assets, give money to the banks, or help the banks without becoming their owners.
  • But the FDIC doesn't shut down all the banks have the government take them over because it is too political; it is a practical challenge to have the government take over the bank. It is a global crisis, and that makes it even harder to advocate shutting down all the banks. The government might not even have enough people to take over all the banks.
  • So far, the US federal reserve and other reserves around the world have created a greater money supply in order to stop the spiral.
  • The money came in stimulus packages in 2008 and 2009.
  • Governments also stepped in by bailing out many financial institutions that were in trouble.
  • In 2010, US President Barack Obama announced the stabilization of global markets officially ending the crisis, as of then, the market had risen 75% from 2008.

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Works Cited

"Late-2000s Financial Crisis." Wikipedia, the Free Encyclopedia. Wikipedia, The Free Encyclopedia. Web. 12 Jan. 2012. <>.

Mandel, Michael. "A Simple Guide to the Banking Crisis - BusinessWeek." Businessweek - Business News, Stock Market & Financial Advice. Bloomberg Businessweek. Web. 12 Jan. 2012. <>.