This is a pretty tidy summary of the financial crisis which you’ve surely been hearing about. I’ll post a bit of it, it’s worth checking out the whole thing though. Al Jazeera:
The roots of the panic in financial markets around the world are deep and complex but they lie in the convergence of three factors.
Millions of people pursuing the “American dream” of home ownership, politicians and regulators who dismantled a system of financial safeguards and then ignored warnings of impending disaster and financial markets and institutions disregarding risk in their headlong pursuit of profit.
Let’s go back to the beginning – or at least to the year 2000 – when the ‘Dotcom’ boom went bust.
That drove down stocks and sparked a recession and then came the attacks of September 11, 2001 – a body blow to the US economy.
To hasten economic recovery, the US central bank, the Federal Reserve headed by Alan Greenspan, used the most powerful weapon in its arsenal – it cut interest rates repeatedly.
Lower rates made it easier for banks to lend and consumers to borrow and spend.
“It did stimulate the economy,” says Clyde Prestowitz, the head of the Economic Strategy Institute.
“And it stimulated housing, because effectively the cost of investment was negative, you could borrow money for virtually nothing.”
