Lesson 7: Monetary Policy and the 2008 Financial Crisis
September 24, 2019
Review:
- Exam 1 Results
- Starfish Reporting
Presentation:
- Money for Nothing: Inside the Federal Reserve (0- 8:20)
- Monetary Policy and the Financial Crisis of 2008
- Historical context
- Tech Stock Bubble (NASDAQ) bursts in Spring 2000
- Tech job losses post-bubble weaken the economy
- Bush II elected and takes office in Jan 2001
- 9/11 and continued economic weakness
- Wars in Afghanistan and Iraq
- 2004 Election
- Political pressure to stimulate economy
- Continue video (47:30-55:45)
- Federal Reserve
- Central Bank for the US and, in some ways, the World
- Alan Greenspan
- Federal Reserve Chairman (1987-2006)
- Free market champion appointed by President Reagan
- Ben Bernanke
- Federal Reserve Chairman (2006-2014)
- Promised to continue Greenspan policies
- At the eye of the storm in 2008
- Kept interest rates too low for too long (2001-2004)
- Continue video (55:45-1:02:15)
- Housing Bubble
- Began inflating in 2001
- Low interest rate environment
- Financial engineering of mortgage debt
- Mortgage backed securities
- Derivatives (aka “financial weapons of mass destruction” – Warren Buffet)
- Alt-A, Subprime, NINJA
- Academic models and theories
- Hubris
- Historical context
Assignment:
- Watch Money for Nothing: Inside the Federal Reserve
- Read Why the Fed Lowered Interest Rates Again (NY Times)
