BY: MICHAEL D. BORDODEPARTMENT OF ECONOMICS

RUTGERS UNIVERSITY

AN HISTORICAL PERSPECTIVE ON THE

CRISIS OF 2007 – 2008

OUTLINE

1.Explain Financial Crisis of 2007 – 2008

2.Compare and Contrast Crisis with other past occurrences

3. Combating Future Crises

• Glass Segal Act

• Financial Securities Modernization Act

• Alan Greenspan

• Extensive Borrowing

• Link Established

• Housing Bubble Burst

• Bankruptcies

• Credit Tightening

• Recession

• Capital Injections from Gov.

In the past we have seen:

Tightening in Policy Bust & Recession

Asset prices Increase

Bubbles created because of:

From loss of Fundamentals to

value assets

Financial Innovation Leverage

Similarities with Past Economic Crises:

What makes this Crisis Unique?

Low Capital Ratios

Very High Risk

Enormous Amounts

of Leverage

Combating Future Issues:

1. Fed developed series of new programs which would provide liquidity in times of need • These would only benefit firms having severe solvency issues and that

would have an extremely harmful tole on the economy if they were to fail

• This is contrasts the previous way of helping firms by Buying Treasury Securities

2. They also plan to act with greater speed in regards to monetary policy decisions.

3. Michael Bordo (author) suggested that they provided excess amounts of liquidity in the market in 2001 – 2004 and that this was also an issue. • So do not utilize liquidity measures for to extensive a period

Questions?