2008 Economic Crisis

The government gets money in several ways:

1. Taxation, both indirect and direct.
2. Borrowing, in the form of selling bonds
3. Selling goods and services
4. Printing and minting bills and coins.

In general economic crises are caused by economic issues which grow so large that they start impacting other areas outside of economics.

In terms of what caused the most recent global economic crisis

• The collapse of the sub-prime mortgage market.

  The sub-prime mortgage market collapsed due to too many people defaulting on their mortgages. This was in turn caused by several factors including general weakness in the markets as well. The initial collapse caused other people to have to call in debts. However, debtors relied on these excessively high valuations in order to leverage themselves.

• General weakness in the markets
• Prime Minister of Bhutan Jigme Yoser Thinley blamed the global economic crisis on "insatiable human greed".
• The growing sense of entitlement and lack of willingness to sacrifice.
• Mathematical Complexity of the markets. This allows some financial institutions to behave as leeches on the market without actually contributing to overall productivity. This also prevents government regulations from being written to stop these actions, as they are not easily understood by legislators. Further, lobbyists can usually stop such actions from taking place.
• Continued Government Spending. The failure of most governments to reign in spending, and instead continuing to print money to compensate for deficits contributes to overall weakness of the dollar and the market.
• Decreased financial regulation in particular areas. Whenever there is decreased financial regulation in a particular area, companies jump into these niches to squeeze out profit.
• Excessive financial leveraging which did not take into account proper risks.

I agree with many of the s to this question. The "root" cause for this financial melt down is "GREED." Money has never been the problem. It has been the love of money. Because of this greedy love for money organizations that lacked morals began creating lending programs, fraudulently inflating property values and even committing mortgage fraud to get people qualified that could not afford to buy.

What causes me more worry for me is that our government thinks that the solution is to give the banks more money to get more people to borrow.

Here is a Fact...

If the nation is incapable of paying their debt today, what make us think that consumers will be able to re-pay even more debt in the future? The key to resolving this problem is not loaning more money. It is teaching and empowering the nation's consumers to get debt free. People need to learn how to be GOOD STEWARDS of their money.

Let us focus on helping one another to make the right decisions and get out of this mess.

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The Mortgage problem is the result of corporate greed run amuck. And the damage caused in the '90s by changing banking regualtions is small change compared to the fleecing of the middle class with the tax code. That's why they can't pay a mortgage.

See: How has the Income Tax contributed to the economic crisis of 2008?

and: What is the main cause of the current economic crisis in the US?

Millions of people ended up in these kinds of mortgages, called subprime mortgages; knowingly or not, these people ended up not being able to repay their mortgages. At the same time, housing prices started to fall. So imagine this: you buy a $500,000 house with mortgage of $475,000 and a down payment of $25,000. With the initial interest rate, your mortgage payment each month was only $400. But then interest rates rose (and these people had mortgages with adjustable, instead of fixed, rates on them), and so your payments went up to $600 or $800. The problem is you don't have enough income to pay that each month, so you can't afford to make your mortgage payments. Meanwhile, the value of your house falls to $400,000. That means that, even if you sell your house, you will still owe the $100,000 difference. The result of this is that people in this situation go bankrupt, and the lender ends up owning the house.

This problem has happened millions of times in the U.S. but also in other countries where the same lax practices were taking place, e.g. Spain, Canada, the U.K., etc.

Lenders that gave out too many mortgages of this type then found themselves having a lot of people not be able to pay back their mortgages. The lender then ends up with the foreclosed house, but it can't sell the house for very much because housing prices are falling. This means that the lender has lost a LOT of money on the one house. If banks loose $200,000 on a million homes, that's already $2 billion in lost money.

This is all simplified, of course.

The other problem is that these mortgages were being bundled into investment opportunities that companies like Lehman Brothers and other companies then sold shares in to investors. All these people are now also loosing their money.

The results are that bank in trouble don't have enough assets to stay in business; the problem is so massive that only government bail-outs can keep the banks in business. Because so many banks have so many bad mortgages, which are a kind of loan, so they have bad loans, it's hard for any bank to offer credit/loans for any reason right now--they just don't have enough cash to cover everything.

The problem then turns to businesses: small businesses rely on credit to expand, make payroll, etc., and without credit business starts to shrink, jobs are lost, and the economy overall tanks because no one can get any credit at all, so the economy is being forced to switch to a cash economy: if you don't have the money already, you can't buy anything.

The fundamental reason: Financial Leverage was misused to manipulate markets for decades. Organizations were never regulated and compelled to hire more ethical traders and managers rather than B-School MBA Grads who have just learned to make money at any cost. US officials while rescuing the global giants claim it is just a real estate correction due to bad debts in banking system. Whatever the case, the market sentiment have changed forever, and valuations will come under immense pressure from now on...be it real estate, equity, debt, bond, products, services, or...anything

A man jumping from top floor out of a 100 storey building can feel flying with joy until his reaches the ground floor with a big bang. This is the case with most inflated companies and their greedy management, we only know when they actually burst. We should watch and regulate them starting from their intention to climb that building from ground zero!

Some Food for Thought: The golden rule is "do not expect the market to behave and act for your profit". They are playing for their own profit. Win-Win is only a term used to convince or induce not-so-smart investors. There will still be a bunch of guys who have profited from these crashes. After all, nobody is throwing money into the Atlantic Ocean, if you lose someone else gains. Unfortunately, incentives for playing smart (mostly doing bad) are huge and accepted by legal systems, regulators, government and modern society at large.

American Debt They have been spending money that doest exist. they have now spent so much that the collateral they put up wont cover the debt. and in order to keep spending, even modestly, they have to loan more money, the lender knowing they are unable to repay are nervous about lending the money. as a result the organizations that provide work cant get the finance they need to continue and end up having to put people of. This has a snowballing effect. For instance America has been buying cheep goods from China for years with American money. and china has been lending it back to them and making interest on the deal. If the US dollar losses value then the Chinese will have to ask for higher interest in order to recoup for Chinese imports into the US. The tentacles go every where. For every dollar the US owns They are about 200 dollars in debt.The price of self regulation, human greed and corruption.

Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, and many mixed economies feature a variety of government-run enterprises and governmental provision of public goods.

Economies ranging from the United States to Cuba have been termed mixed economies.

We are lucky to be able to look at the past and see what has happened before to our economy and country. The great depression itself started in 1929 but by some estimates ended in 1933...There was a second recession in 1938 so some say that the Great Depression lasted from 1929 to the early 1940's however most scholars really put the end of most of the fundamental problems halted in 1933. So in a sense the greatest depression in the history of mankind only lasted 4 years. We are facing a crisis that many are quick to label the greatest danger since the Great Depression but is FAR from it.

When the Great Depression occurred economists had no real basis to compare that economic crisis. And because of that they advised many policies that inflamed the situation more. They also made great suggestions and policies that helped the country out of that Depression. Our current Economic Crisis is not much different from the Great Depression or all the other recessions this country has faced (roughly one every decade). We are in FAR better shape and we also have the benefit of proven policies that WORK and we know what does NOT work. I dont have any doubt in my mind that this recession will not reach the scale of the great depression, neither in terms of economic loss nor in terms of length. No one can tell but I'd say the worst hasn't come and next year will be our worse year yet. However within two to three years we will be back on the rise and within 5-7 we will be back at pre-crisis times. Unemployment will never hit 30% again like it did...although I think at maximum it could hit 15%.

There are always industries that thrive in economic crisis's and just because the majority of people are doing bad doesn't mean you have to.