The United States of America Financial Crisis

2007-2008
By: Darrah Mitzi F. Faraon
Quiz 3/ Project
Economics 2

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Table of Contents

Title Page 1

Table of Contents... 2

Introduction.. 3 5

Body.. 6 8

Conclusion 9

Resources.... 10

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INTRODUCTION
There was never a time where there is no problem occurring in a certain company. Problems and different
kind of situations may appear during the course of expanding your company. The worst possible thing that
can ever happen is financial crisis. This is especially if your company affects not only other branches of
your own company but affects the way of things globally. Crisis is best described as to where something is
in a time of being in a difficult or hard situation. Now, we can say that a company can be stated in a
financial crisis if the money or asset in a bank is valued drastically lower than its value before. One of a
real life example is the Federal Reserve banks in United States of America. Federal Reserve banks
serves as the central bank responsible in USA. There are twelve (12) branches located in the entire
continent of North America. These company or banks were established for the handling of monetary in
USA. Here in this project, I would like to share some opinions as to how the US should have handled
financial crisis and what is the main root that caused everything to slowly fall apart, what the futures
probably going to be like, and also my own solution to this (financial crisis) kind of problem. First lets talk
about the financial crisis that happened in the Federal Reserve banks in US. US as a first-world country,
we almost always think that they can and they will control everything to fully improve their country more.
Not just improve it by technological means but also by economical means. But clearly as we can see
specially now in the internet, many things has been and is happening in the economy of US. Notable
among these are the financial crisis that has begun way back 1920-1930s. This economic crisis is called
the Great Depression. The Great Depression is the longest economic downturn of the US. Economic
crisis was spread out throughout the Western side of the globe when the stock market crashed and went
bankrupt. Being from the highest economic environment, in a just a snap of a finger, the economy took a
downward spiral. This is because when the stock market was trying to sell stocks, there was no one to
buy a single stock. We all know that the stock market is where economists, entrepreneurs or mostly
businessmen gain profit from. Without anyone buying in the stock market, many stock market closed
down. Few agents often put their clients savings in the stock market. When these stock markets closes,
the people started to panic and tried to get their savings from banks. Too many people withdrawing from
banks, the banks starts to close to as they do not have enough monetary left. Other businesses closed up
too because there were no people to buy things from them because consumers have already allotted
budget that is needed particularly only for their basic needs and no time for luxurious needs. This is why
there were many banks and businesses that went bankrupt and close up. Many Americans lose job and
houses. Businesses limited their staffs. Many people were fired so that the companies will be able to
balance out the remaining monetary in their hands to give as a salary to their staff. Because of multi-firing
in companies, unemployment and poverty rose in the West. Jobs were taken away from people, having a
hiring for a certain job serves as a suicidal wait for the longest line for a not-that-much pay, even farmers
who are believed to be in the safe zone because of us assuming that they will be able to feed their
families by their plantation was seriously affected by the Great Depression. This was the greatest
economic crisis the US ever had. Now lets talk about how the Americans slowly stood up and fought for
their own economy. As the US economy falls rapidly, suggestions to once again improve and stand up
from the fall of economy were always heard of to help improve their economy fast enough. Many
programs and institutions were held to contribute to this improvement. One thing that helped progress the

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collapse of the economy was the building of different kinds of resource energy that will not need huge pile
of money. The proposed and made real was the construction of solar powered energy, the hydraulics
energy, dams, and wind turbines. These projects or programs really did help improve and did aid recovery
to America. This required manual labor to operate every day which is why there was a big increase to job
offerings. Unemployment gradually decreases as people were being started to hire. If we were living at
the time when the economy of Great Depression were taking place, who would have known that in at
least 100 years, the US can still stand up and still be considered as the most powerful and influential
economic model in which it highly influences different economies around the world.

As of 2007, once again another financial crisis slowly creep up in the US economy. Suddenly there were
another same kind of pattern like what happened in the Great Depression. Banks were once again
lending too much and getting paid too slow. Unemployment rates were once again high. There was an
issuance of bonds backed by mortgages but they paid a low rate of interest whilst the bottom tranches
were often rated as junk but paid a very high rate of interest. In other words, we can say that the Federal
Reserve banks were able to produce fast money/monetary and used this cut-edge to issue mortgages
with higher prices to people who are clearly not qualified to receive it. This caused panic in banks for fear
that the wealthy people wont want any mortgages and loans in banks and the middle class and lower
class cannot borrow any loans and mortgages anymore. Mortgages is where a certain borrower borrows
from the lender by lending his or her own property in exchange of the loan or money that will be lent by
the lender. The wealthy people stays wealthy and middle class people together with the lower class
people stay low in economy. The prices of home for the masses were priced so high, that no lower class
to middle class people were able to afford. The ultimate goal any type of bank is to issue enough
mortgages and loans to those who are in need. This affected not only the financial sectors in US, but also
the financial markets globally. The casualties in the United States included a) the entire investment
banking industry, b) the biggest insurance company, c) the two enterprises chartered by the government
to facilitate mortgage lending, d) the largest mortgage lender, e) the largest savings and loan, and f) two
of the largest commercial banks.1 Not only the banks, financial sectors and financial institutions were
affected but also the auto industry was greatly distressed by this crisis. Because of the high rates of
unemployment emerging throughout the country, banks were unable to issue loans for fear that the
considered as one of the legit cause of financial crisis in US. Without issuing loans and mortgages there
werent anything to help regulate or fund the cash flow needed in a bank. As scary as it can be seen at
this point, it was still not the climax year to consider this as the second great depression the US has ever
had. Here, the mortgage debts are the seen problem. What happened here in the year of 2007 was just
the tip of an iceberg. Basically, in the year 2007, it is only the signs of the slow deflation and hardships to
come in the year 2008.

1 http://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264
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Now in the 2008 financial crisis has totally took over yet again in the US. As stated by Pedro Nicolaci Da
Cost - The year 2008 marked the worst of the financial crisis, a time when the Federal Reserve struggled
to prevent the financial system from collapsing and triggering another depression. All the banks were
suffering including the top 5 investment banks in US. Not only the banks but also some financial
institutions were at risk of losing capital and slowly failing to help improve the economy. Throughout
September 2008 the US government and Federal Reserve had been searching for a way to stabilize the
financial markets. The plan they devised was to buy troubled assets from the banks in order to reduce
uncertainty in the markets. This plan was called the Troubled Asset Relief Program (TARP). TARP was
tweaked slightly in October to allow the TARP program to buy equity stakes in the banks as well as
buying the assets.2 2008 is where the US was totally deep within the depression of economy.

2 http://www.wallstreetoasis.com/financial-crisis-overview
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BODY
* What is your own opinion on the topic you selected? What was the real cause of the crisis? Try

to trace it and explain.

Personally, I chose to discuss about the US financial crisis because the US economy is where
almost all of the economies reside upon. Whatever happens in the US economy, will definitely affect us
globally. As for the cause as to what really happened, is not fully determined. We can only assume that it
is not only the fault of the Federal Reserve banks, but also by the investment banks, commercial banks,
financial institutions, financial firms, mortgage lenders, investors and others. It probably started from the
banks wanting to first help the masses but eventually failed to and instead made the masses be deeper in
poverty rather than helping them escape it. The unemployment rates were higher than they ever were
because of jobs taken away from them and the businesses not being able to attain and give new jobs.
This are few of the probable main cause of the financial crisis in the US.

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* How do you see the future based on that topic?

By analyzing what happened in the said crisis in the US, I can say that the future can be seen in a
dark light. There are hardships together with success. We can never say what the future would bring but
for now, I can say that when there ups, there are downs. If what happened in the US way back WW1
where the US economy was at its greatest and suddenly it being taken away from them in the Great
Depression, they did recover from it significantly. But still, it did turmoil back down in the year 2007 up to
2008. The US were able to recover again but who knows when the economy will bring the US back down
again. The future is a scary place. But as for now, being enlightened and seeing the financial crisis
outside our country I can say that the future can hold deeper crisis than there ever were before. The crisis
before was because of banks wanting to help poverty be banished. But as time goes by, the population
will keep on growing. As we cant control people from inflating the population even the poor people who
cant afford keeping the family stable but still adding population, the wants of these banks to help and
offer loans and mortgages even though the lower class people may never be able to pay off can lead to
bankruptcy that can eventually be the greatest downfall of the US.

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* Explain how your selected topic can impact the country's economy?
The Philippine economy depends upon the US economy through the monetary ($). We all know
that the US dollar is used in most international transactions, so it stands to reason that anything that
happens with the US economy will affect international finances in a substantial way. Not only has this but
US also have the buying power that affects the Philippine economy. If the dollar is not much as it used to
be, the Americans are buying less. This will cause the US to reduce the demand for exported products
from different countries. Like in the Philippines, if for example we export a product like dried mangoes
from Cebu, if the US dollar is not as much as it used to be, they will buy less which will result to the
Philippine economy to deflate.

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CONCLUSION
As a student who have been blessed in this generation to be able to know many facts not only in our
country but to other countries as well through the power of internet, it is embarrassing to know that I may
have not used the internet in better ways. Through this project, I have seen and researched about the
financial crisis in the US. Thinking about it, it had never crossed to my mind that there are other countries
as well that experiences economic crisis not just here in the Philippines. In the US, knowing that there
were a time where there was Great Depression and them being able to recover from it is such an eye
opener that US really have the greatest power economically.

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RESOURCES
http://www.wallstreetoasis.com/financial-crisis-overview
http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-fiveyears-article
http://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264
http://positivemoney.org/issues/recessions-crisis/
http://blogs.wsj.com/economics/2014/02/21/federal-reserve-2008-a-timeline-of-fed-actions-and-financialcrisis-events/
http://www.theguardian.com/business/2011/aug/07/global-financial-crisis-key-stages
http://www.history.com/topics/great-depression
http://www.britannica.com/event/Great-Depression/Causes-of-the-decline

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