Econ 24-1: First Written Assignment:
Due via email to delong@econ.berkeley.edu by 5 pm on Thursday November 17:
The coming of our current Lesser Depression required four things:
A wave of increased savings hitting the United States and looking for safe assets in which to invest itself.
A collapse of lending standards in housing finance so that investments in mortgages that were in fact highly risky were sold as--and were believed to be--safe investments.
A failure of risk controls in high finance so that the highly-leveraged banks and shadow banks that were supposed to manage their own risks and distribute and diversify risks throughout the economy instead concentrated them--and were threatened with bankruptcy when the housing bubble collapsed.
An inability or unwillingness by the Federal Reserve to cut off the crisis in its early stages and fix it.
A mechanism that turned financial distress on Wall Street into a large-scale collapse in employment.
That's: "required five things…"
Suppose that you have to tell this story to somebody who is unfamiliar with any economics and with the history of the past five years. Write 400 words (i.e., between 300 and 500) explaining as best you can to this unfamiliar audience just how this all happened.
