The Economic Crisis of 2008: Causes and Solutions

Dipak Basu and Victoria Miroshnik
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Dipak Basu: Nagasaki University
Victoria Miroshnik: Tsukuba University

Chapter 7 in International Business and Political Economy, 2015, pp 81-93 from Palgrave Macmillan

Abstract: Abstract ‘An open, competitive and liberalized financial market can effectively allocate scarcer resources in a manner that promotes stability and prosperity far better than government intervention,’ Henry Paulson, the US Treasury Secretary said in Shanghai in March 2007. Now this sounds like a big joke given the fact that both the US and UK governments have nationalized banks and financial institutions in order to avoid a complete meltdown of their financial system. On September 7, 2008 the US government nationalized two huge US banks, Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation). That means in effect that the government is paying for the losses of the shareholders and investors in these banks – $5.4 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding. These liabilities are equal to all the publicly held debt of the USA. Both the USA and the UK, along with their European partners, have allocated a vast amount of money to support their struggling banks. This program is designed to buy a mountain of defaulted housing loans and other worthless assets from banks and finance companies and will cost an estimated $700 billion to $1 trillion

Keywords: Stock Market; Financial Institution; International Business; Mortgage Market; Hold Debt (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1057/9781137474865_8

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