The Great Recession
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- เผยแพร่เมื่อ 30 ก.ย. 2024
- There’s already been much discussion over what fueled the Great Recession of 2008. In this video, Tyler Cowen focuses on a central theme of the crisis: the failure of financial intermediaries.
By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.
In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.
Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.
When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.
What could have been done to prevent all of this? You’ll have to watch the video to find out.
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It seems like 90% of what I read about the financial crisis are conservatives blaming it entirely on the government or liberals blaming it entirely on the market, so it was quite a pleasant surprise to see how much this video seems to focus on just explaining what happened without an ideological axe to grind.
Great use of animations, too.
conservatives and liberals? Dont you mean republicans and democrats? I think the liberals tend to blame the government, not the other way around...
In my experience, Democrats/liberals usually see government as a solution to social problems such as poverty or racism and support policies such as the minimum wage and affirmative action, whereas Republicans/conservatives see government as a source of market distortions and support policies such as tax cuts and deregulation.
Of course, things always change. Republicans used to be the party of free trade, but from a recent survey, more registered Republicans oppose free trade than registered Democrats.
Eric Hamers Do you mean liberal like the British Liberal Democrat party?
+Deegan this is an issue of political connotation. Many people refer to democrats as liberals even 5hoguh they are only liberal in certain areas. for instance they are liberal concerning marriage and sexuality, but not liberal concerning how much the government may intervene in the economy. Very frustrating, but unfortunately people misuse these words constantly, and others hear it used incorrectly and repeat.
Yeah but don't talk like republicans support real free trade because they really don't.
I think that any content that try to explain the 2008 financial crisis that doesnt mention the artificial low interests rates is kinda incomplete... I feel kinda weird disagreeing with economics PHD's >.
A MR post from Cowen from 2008 indicates that he believes markets should have realized that the Fed was keeping rates artificially low and reacted as such:
marginalrevolution.com/marginalrevolution/2008/10/my-views-on-the.html
Tyler Cowen: "12. I have a long and complicated view on the relevance of Austrian Business Cycle Theory which resists easy summation, but markets could have and should have been more cautious in response to Greenspan’s easy money policies."
No 13-minute video is going to be able to cover everything, and this is probably why Cowen chose not to emphasize it. But note, his saying "easy money" indicates that he mostly agrees with you.
hmm.. I dont think we can expect markets to be cautious, EVER... I believe they will always respond to incentives, beeing good or bad, artificial or not, they DO know that rates are artificially kept low, but they want to take advantage of that no matter what... that's why I argue that the problem in the first place was the signaling mechanism.
HIIIIIAI PESSOAL MXDEEGAN AKI
Your right it should have been made explicit, the low interest rates caused people and firm to spend and borrow more, thus creating a general feeling of good times. Thus when the lending institutions went under rest followed suit.
true
Both the professors are just Brilliant!!
This channel is the one consistently reliable source of study! Thank you Sirs :)
No mention of the purchase of loans to subprime borrowers by GSEs? Odd to leave that out.
Why? Private loans were delinquent at a much higher rate than GSE loans, and GSE loans only represent a small overall share of the total amount of money lent.
Jeffrey Smith Are you kidding? Before their conservatorships, Freddie and Fannie was responsible for over $5 trillion in mortgage debt. Their bailout makes TARP seem tiny in comparison if you consider TARP was paid back. cnsnews.com/news/article/true-cost-fannie-freddie-bailouts-317-billion-cbo-says
Freddie and Fannie were the central player in backing subprime mortgages and I believe they still are today.
I'm not kidding, it's a fact. The Private sector has been more reckless than GSE's on mortgages. papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831
Jeffrey Smith Right, I could have read that link right off of the Wikipedia page too.
That paper's entire premise relies on the fact that GSEs are 100% guaranteed by the federal government. In fact, the majority of their bailout was put into the national debt which is a burden on the taxpayer. It's embarrassing that the author said that Freddie and Fannie were "more successful" in maintaining "prudent" underwriting when their defaults ended up costing the taxpayer over $300 billion dollars on their own not to mention the trillions in assets and liabilities obtained by the federal government after the conservatorship.
It's quite disturbing that this author would completely ignore the amount of volatile assets and the magnitude of the two companies contributed to the housing crisis in order to justify nationalizing even MORE of the lending market to "to create a single dedicated mortgage securitization agency that would seek to maintain market stability." Are you kidding me? Create an even larger government monopoly for housing lending? This is some mickey mouse banana republic nonsense that countries like Venezuela and Brazil are suffering through. Do you even watch the videos on this channel?
Sorry, I'm not buying into this statist nationalization snake oil sales pitch that is currently bankrupting countries. Competition may lead to times of volatility in the market because companies will use what is available to maximize their profits but it was pseudo crony government entities like Fannie Mae & Freddie Mac, regulations (like the Community Reinvestment Act and the Home Mortgage Disclosure Act for example), and the subsequent bailouts that led to the complete distortion in the market. These GSEs held over half of ALL the outstanding mortgages and many of which were subprime.
It's a powder keg waiting to happen but this idiot lawyer from Harvard thinks we need to hand all responsibility over to government because the government will regulate itself. Quite stupid indeed.
GSEs need to be retired for good. They're a disaster which do more harm than good. www.heritage.org/research/reports/2013/01/a-housing-market-free-of-fannie-mae-freddie-mac
Lol. You keep your conspiracy theory, I'll stick to the evidence.
Thanks for playing.
the one thing I dont like about this video is how he just kinda glosses over certain things as arbitrary, or given. he never talks about how or why housing prices ever fluctuated in the first place, or anything like that. as if a lot of these factors are just the ghost of george washinton moving scales up and down on the economy
Joe Drizzle Because demand went down for some houses, and supply was still there
Great video, I would love more on this topic.
Our financial institutions nearly crumbled I don’t thing people comprehend how serious things got in 2008 because of greedy individuals
when you put it like that, it looks as if its a benefit for banking/financial executives to be as irresponsible as possible....in fact its a benefit to them if the economy crashes...they still get their bonus/salary and they can buy up real assets on the cheap.
This channel is very good
"So, far there's been no market turmoil comparable to the crisis of 2008. So, we just don't know exactly how well the new institutions will work."
-Repo market failure
-Covid Lockdowns
-Gamestonk
plz make a full length video..on recessions (all from the history to modern times)
Great subject! It would be interesting for me to know more about the impact of the stimulus packages and various toxic assets buying programs. Did they work? And what about the new regulations already in place: who's assessing if they're working or not?
Powerful
I enjoy these lectures they really help me....Thank you proffessors
That was a great video, I'd love to see a whole series on the topic.
Ugh. Near 7:00 or 8:00, he seems to imply that the problem was...lack of a government guarantee, such as FDIC. No, the problem doesn't come from watchful investors, it's when people ignore the risks *because* of the "guarantees".
Yet to see channels with such a mix of intellect,quality and lucid explanations.
Request the makers to also deep dive in the world of economics to cover the intricacies of it and to make the education and science of money even easier to understand.
I want to know why your viewers are so less in short run instead your explaination are awesome. Please explain it with economics!
Excellently explained, humor-filled video. Kudos to you !
Requiem for Greed (th-cam.com/video/J_jYXod5ehc/w-d-xo.html), an award-winning animated film narrated by Adam Smith and Karl Marx is describing what politicians do for votes, bankers for money, and media for ratings. Also, what happened before, during, and after the Great Recession.
what made the housing price fall the economy was able to handle all the stress untill the price of the houses fell in america so how did that property market get affected
Well this is August 2018 and those regulations that you are talking about at the end of the video no longer exists.
swap the $100,000 house price example to $1 million. Sounds more realistic.
You probably live in San Francisco or something lol. There are $100k houses all across the US, these days more like $200-300k though
The first half is an explanation from the book “The house of Debt” - do check it out.
how the fuck were these Lehman Brothers bosses not held accountable?..like if I were a shareholder in Lehman,,id be fucking pissed!
I was 18 when the recession hit. It was hell trying to get work and be able to afford college.
I remember being called lazy and entitled by the news and by my family because I couldn’t afford to move out on my own.
Its made it so I fight emotionally to spend every dollar I have to and am alway afraid of losing my job and falling back into that hole.
Yes,we are interested in learning more about it.
mandé
This is so amazing and great
Wow! No mention of the federal reserve? You just got an F in my book. The government and the federal reserve were the main culprits! And yes, another financial crisis is coming to due to decades of the federal reserves artificially low interest rates.
Bullshit they were the main culprits. Don’t try and shift blame off Wall Street gambling away peoples money.
I am not sure why the Federal reserves did not just take over the bad mortgages, and take lower payments from the home owners. If out of work, even give them a 1-2 year payment break period, instead of buying up the Mortgage securities and making people homeless. There would not be a mortgage crises, and house prices always go back up. The drop in house prices happen, but they are always temporary, especially as a population tends to continue to grow the demand for homes will always be there. I know some people would say that would be unfair to bail out home owners, but it is far better than bailing out the banks and all the zombie companies in the S&P today, and that debt that keeps on growing today. Buying bad mortgages with the full intention of recouping the money back, would probably see today's debt go down especially as more and more people are in work today. The whole financial crises seems to have been on big con job to get tax payers money from bad debt. Most of these mortgage securities are still on the Feds balance sheet today after decade!
I love this channel
There's also A.R.M. loan effects on the poor, high gas prices in the mid-2000's, oversupply of houses, and Credit default swaps. Shrinking demographics in the Midwest also contributed. Still a good video though.
Absolutely love your videos, not sure why the views are not as high as I thought it should've been. I am quite worried as of 2019 about what the overnight repo rate spikes might be indicative of... fingers crossed nothing majorly is going wrong.
Over confidence = greed. Be clear.
I would love to see a video on the economy of this year after the war of russia, covid lockdowns and everything that has happened in the last 4 years
if you dont own you home 100% you will loae it soon. if you do own it 100% it will be worth less then half of what it is now soon. The end!
Pittsburgh was one of ONLY 3 places that prospered in the 2008 recession
The other 2 were like a town in Kentucky and Dallas
dolar kaç olur
Can tell you where most of the blame rest is the former fed chairman of the Federal reserve Mr. Alan Greenspan which he was born of over eating in the real estate market which he could easily stopped but he failed to see what was going to happen
Business people's use Economic regression period to buy stocks and shares if they try to buy them in Economic depression time means will it be more cheaper?
An good explanation of what happened. But why were standard lowered to buy a home ? No down payment to purchase a home ?? Where did that come from ?
Can you tell me what the total value derivatives that in country and do you see a Bubble in this market and what happens when you have a rapid deflation
Man, very complex systems. Govt shoudnt have intervene in the first place.
make for of this kind
There was a lot to learn but no mention was made of how home prices fell...economic bubble and all
One word: fraud
What will be the cause of next recession according to you? Wt do u think
how do you give incentive for being responsible?
Were there any loans at all by purely private entities at 0 or 5% interest?
I know one thing: sub prime mortgage. 😀
create more videos on different topics of economics
Great video and such a hard work in animations! Thanks
I think you did a very good job of this.
The next bubble would be the student loan.
This is brilliant information mate. I moved to do the same course on your website , but there is no option to like the video there. So this might be increasing the no. of views but not likes. Just saying! Thanks again for the awesome content..love it!
Thank you for the suggestion!
-Roman
Great stuff. Thanks!!
I love this channel so much
😎
That house is huge.
a lot of information
Thank you!
how come people couldnt pay off their dept to banks
Брайан КатСтер
The banks rigged the economy
please explain what are money market funds.
A money market fund is a mutual fund that invests in highly rated (safe), short-term debt. The're like a savings account that you can write checks from, but they typically offer a higher rate of return than traditional savings accounts.
They're highly liquid! The funds are the perfect place to park cash if you plan to invest, but haven't yet, or if you just want an extra percentage point above your commercial bank's savings account.
Was 2008 really a great recession or just a temporary pull back? Was 2008 really that bad?
2008 will look like the calm before the storm if you give the modern economy some time.
To me it was. I didn’t have a job for over two years.
Great!
Great video
Has the Fed had a role in the 2008 financial crisis and/or beginning of the recession? If it has, what role would that be? At least in the consensus or neo monetarist view (maybe other views also if not too much/long)
I don't know if this is a neo monetarist view, but from my understanding, it seems to me that there is pretty broad consensus among economists that the Fed's loose monetary policy did feed the bubble. Basically, all the additional funds going into the housing bubble would not have been there if the money supply hadn't increased so much.
Much of the disagreement is in 1) how much blame belongs to the Fed (some like John Taylor believe it deserves all of it). 2) what exactly would have happened had the Fed had tightened (I think the bubble would have popped earlier and things would still have been bad, but not quite as bad), but moreso 3) should it be part of the Fed's job to pop bubbles?
Right now, it's not. Their dual mandate is to combat inflation while minimizing unemployment. Mainstream economics believe the two goals to be at odds with each other, resulting in a delicate balancing act. How much more difficult would it be to have a third mandate? Furthermore, exactly what test should the Fed use to detect that there was an asset bubble?
Who exactly are you talking about when you say neo monetarist? Stephen Williamson? A lot of what he writes goes over my head, but I don't think he blames the Fed that much (but perhaps because he is himself a central banker at the St. Louis Fed).
I don't think the Fed caused a global savings glut - that's demography, not policy.
The Fed controls the number of dollars that exist worldwide. Yes, I think it did play a role in the savings glut. Not all of it, because the people could choose to spend instead of save, but a significant role.
Nouriel Roubini's _Crisis Economics_ in chapter 3 talks about how Greenspan "kept rates far too low for too long." Thus, after the dot-com bubble popped, the economy didn't actually correct itself, delaying the inevitable. "The result was the housing and mortgage bubble. By pumping vast quantities of easy money into the economy and keeping it there for too long, Greenspan muted the effects of one bubble’s collapse by inflating an entirely new one." Comiskey & Madhogarhia in "Unraveling the Crisis" have a similar interpretation.
My take is that the Fed's role was actually secondary to the bad incentives created by mortgage-backed securities (the one area I thought this video underemphasized). When the lender is lending their own money, they have an incentive to screen borrowers carefully for default risk. When the lender is lending money from a CDO investor, they stop caring about default risk.
Refer to Keys et al (2010): "Did Securitization Lead to Lax Screening?" which found that loans with a FICO score just above 620 were actually more likely to default than those with a slightly worse credit score, 620 being the level at which it is much easier to securitize a mortgage loan. That's the smoking gun to me.
So we never learned our lesson from the late 1920's?
Those who were involved in the events of the late 1920's remembered, but over time they died, and even their children, who heard the stories, died. Their grandchildren and great grandchildren just thought of it as boring "history", and forgot the lessons of previous generations. Who wants to listen to boring "history" and even worse, "economics". Right?
Gerry Wenham And this generation is even more arrogant and dumb. We’re doomed.
Why did house prices fall ?
Zohaib Hameed
Capitalism ran out of poor people’s money
What are hedge funds?
Thomas Heaven
Thieves
How likely is for this to happen again?
Right now fairly likely I'd say. I predict a start of a global recession by the end of the year due in part to political events accross Europe, America, Russia and Asia. Think BREXIT, Trump, possible conflicts with China in the south China sea, Russian sanctions and falling oil prices.
M
100%
So far this is the best video explaining the crisis with a clear, short and organized description of what really happened. Even-tough it doesn't question the fundamentals of the economic system in place that produced and will continue to produce such dramatic consequences , it does much better than 100's of interview and debates you watch on TV that adds more confusion than clarity. I hope Marginal revolution Uni will continue producing videos that deconstruct the complexity of economic subjects with a clear explanation and intuitive animations with an elaborate criticism of the fundamentals of the economical system in use.
"Sheer excess confidence"? That's an understatement and an euphemism. I think the term is "greed."
Interesting video, but I think a number of points need to be considered first.
1. There was already a government guarantee on the risky assets of the financial crisis, just not in the form we understand the FDIC to be. Fannie Mae and Freddie Mac purchased up mortgage balance sheets to open up more credit to the market. That guarantee, along with artificially low interest rates provided an incentive to banks to turn a blind eye to lending standards.
2. The credit crunch did not "hurt" the economy. It may have been a symptom of the recession, but the recession would have helped purge the market of problematic assets and reset lending standards to something more reasonable. What hurt the economy were the prevailing causes of the recession, namely artificially low interest rates and incentives for no money down borrowing.
3. To solve the problem it may require us examining the credit market and its role in the economy. Just as the investors were certain that US housing was a sure thing, I think too many people are sure that credit expansion is the sure fire way to sustainable overall growth in the economy. If anything, this crisis is perfect illustration of the flaws in such an idea.