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Economic Crisis in America Essay

Augustine Bookie December 10, 2012 Abstract Fall of 2008 For the past several years, a declining economy has enslaved thousands of people in a life of hardship. The state of the economy has spurred mass furloughs, financial losses and homelessness. With no end in sight, people are becoming desperate in their attempts to support their families and maintain civility. While the government attempts to combat the depreciating economy, personal securities are increasingly declining.

A recession is a significant decline in economic activity, measured by the job market, inflation-adjusted income, the total amount of goods and services produced by a country and other indicators. It begins when a country reaches a peak of economic activity and ends when the country reaches its trough. The period on the way up from the trough to the peak is known as an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

This paper will focus on the 2008 financial crisis that was an avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street. It will examine the fall of two financial institution such as; Lehman Brother and

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Mortgage giants Fannies Mae and Freddie Mac. It will also define what impact did the collapse of theses large financial institutions have on the society. The most recent peak was in December 2007, and the economy has been on the way down since then. Before December 2007, the American economy had been expanding since November 2001.

In other words, the expansion had lasted for 73 months. The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street. The speed at which some of the supposedly strongest and most respected financial institutions have melted down is stunning. Lehman Brothers disappeared almost overnight. Shareholders in Freddie Mac and Fannies Mae were virtually wiped out. Lehman, Fannies and Freddie, had too much leverage. Think of a homeowner with a 96% mortgage and credit card bills.

If the value of the house declines only 5%, the homeowner is wiped out. The total leverage of companies like Lehman is difficult to calculate, but it is not unlike that of a highly overdeveloped homeowner. Small declines in the value tot TTS assets Jeopardize their financial competence. Lehman Brothers was founded by German brothers Henry, Emanuel and Mayer Lehman, Jewish immigrants to the US from Germany, in 1850. Henry set up a general store in Alabama in 1844 and was later Joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds.

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