Alan Greenspan who is an American economist obliged as Chairman of the Federal Reserve of the United States from 1987 to 2006, was born on March 6, 1926. He is a highly educated economist and in his life he took many years of experience from the economy of the world. People look for his advice and follow his judgments to develop the growth in economy. He was the world's most powerful economic policymaker in Federal Reserve for two decades. He is currently works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. He assisted a total of five terms under four presidents, from Ronald Reagan to George W. Bush. Since he became chairman of the FED, and the country's economy has reflected many positive results. He has done a tremendous job. “The Age of Turbulence” and the humorous subtitle, “Adventures in a New World”, is discussing about Alan Greenspan’s history in government and economics, capitalism and analysis of global economic construct, also focus on current and future issues in the global economy . It also provide perceptions into the intellectual foundations of his economic worldview. The book is divided into two distinct parts. The first part is a biography of Greenspan’s life and career in Federal Reserve and the rest is essays on the main economic issues challenging governments over the next few decades. In this book Alan Greenspan discussed about the housing bubble which is created by his low interest rate policy and this policy effect the economy of USA.
Alan Greenspan unquestionably committed to market forces, but his low interest rate policy creates housing bubble and recession in the economy. Many people thinks that he is right in his decision but sometimes peoples argu...
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...with the run up in housing prices and subsequent collapse of the market”(source5).Therefore we can say that although Greenspan do so many right things for US economy but his few mistakes made financial crisis in global economy.
Alan Greenspan who was famous economist and chairman of Federal Reserve Bank, developed a new challenging ways for economy. Sometimes his massive misdirection played a huge role in causing the recession but he also developed the growth in US economy in his career.
Works Cited
1. http://www.theguardian.com/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan
2. Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve” by William Fleckenstein, Frederick Sheehan
3. http://en.wikipedia.org/wiki/The_Age_of_Turbulence
4. http://epress.anu.edu.au/agenda/015/02/mobile_devices/ch10.html
5. http://www.cnbc.com/id/24016186
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
Sprague, O.M.W. “The Federal Reserve Act of 1913.” The MIT Press 28.2 (1914): 213-254. JSTOR
However prior to 2008, nearly everyone was blind to their impending doom; investors, bankers, government regulators, the general population, and even the chairman of the Federal Reserve, Alan Greenspan, a man who was considered the economic guru, was fooled into believing the prosperity America had been enjoying would last for the foreseeable future (“Rethinking” 20). By this time there had been only mild economic downturns or, at most, short periods of turmoil. Financial institutions and large corporations had grown accustomed to the decades of economic prosperity resulting from the post-war economic boom, long forgetting the lessons learned from the Great Depression (“Rethinking” 20). In fact, economists concluded that America had entered a new era of calm. After a generation of portfolio managers and investors profiting from decades of favorable returns on stocks they believed the modern economy was impervious to major calamities (“Rethinking” 20). As inflation rates fell from record highs in the late 1970s and early 1980s to the record lows that they are today, interest rates followed enabling Americans to borrow more money from
Mishkin, Frederic S. Board of Governors of the Federal Reserve System, "How Should We Respond to Asset Price Bubbles?." Last modified May 15, 2008. Accessed April 12, 2014. http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm.
Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas". The 2007 financial crisis was composed of the fall of many major financial institutions, an unknown increase in mortgage loan defaults, and the derived freezing up of credit availability (Brue). It was the result from risky mortgage loans and falling estate values (Brue) . Additionally, the financial crisis of 2007 was the result of underestimation of risk by faulty insurance securities made to protect holders of mortgage-back securities from risk of default and holders of mortgage-backed securities (Brue). Even to present day, America stills suffers from the aftermaths of the financial crisis.
Diamond and Rajan (2009) found that investment misallocation is the proximate cause of the credit crisis. In response to the crisis, corporations, governments, and households reduced on investment and decreased consumption. Federal Reserve provides an adaptable monetary policy to guarantee that the world did not suffer in deep recession. The low interest rates increase a large of demand of housing. House pricing become more value for sale and rent in many countries. Credit crisis is initially occurred in U.S because the financial invocation of U.S. Hence, there is more marginal-credit-quality buyer into the market.
Metzler, Allan H. A History of the Federal Reserve, Vol I and II. University Press Books, 2002
John Maynard Keynes, British economist, journalist, was born on June 5th 1883, in Cambridge, England. His father, Dr. John Neville Keynes, was an economist and a philosopher. Keynes attended Eton and then Cambridge University. At first he studied Mathematics but then turned his attention to Economics when he was offered the job at the British treasurer after the First World War when the British economy was at pressure. A man who gained a modicum amount of wealth during 1919 to 1938, married to Lydia Lopokova in 1926 and passed away in April 21st, 1946. Keynes believed that price level has to be stabled in order to have a stabled economy, and that is only possible if interest rates go down when prices rise. He also believed that the market forces alone will not deliver full employment but boosting government spending (main force of the economy in Keynes theory) will aim in his theory full employment or close to that. He believes by Governments intervening and spending will finally stop recession, unemployment and most importantly depression. For spending will increase the aggregate demand of the economy.
John Maynard Keynes classical approach to economics and the business cycle has dominated society, especially the United States. His idea was that government intervention was necessary in a properly functioning economy. One economic author, John Edward King, claimed of the theory that:
The causes of the Great Recession all started as hundreds of billions of dollars was given to the United States abroad and financiers conceiving were to make a profit and what better way but the real estate market. Since the Community Reinvestment Act of 1977 and an expansion made in 1995 the than President Bush endorsed the program that created Option adjustable rate mortgages (nick-named “Pick-A-Pay”) to allow for bank to sell these options even though they were high risk (Conservapedia, 2013). The Community Reinvestment Act of 1977/95 is defined as to framework financial institutions, state and local governments, and community organizations to jointly promote banking services in the community” (Office of the Comptroller of the Currency, n.d.). That being said, there were three individuals, and firms that contributed the most to the recession including Senator Charles Schumer D-NY, Fannie Mae, American Ins...
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
The housing boom has caused the house prices to rise continuously up to the point of Great Recession. Deregulation allowed people to buy houses with a very small down payment, meanwhile the value increased so quickly, that a person could gain money on a turnaround in a matter of months. Many people took advantage of this opportunity and the housing market collapsed. Although weak regulations are one of the major contributors, it is important to mention the lack of financial education among
Bernanke, B. (2009, January 13). The Crisis and the Policy Response. Speech at the Stamp Lecture, London School of Economic, London, England. Retrieved from http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm
Batra, Ravi. Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy. New York, NY: Palgrave Macmillan, 2005.