A major advantage of the built in or automatic stabilizers

A MAJOR ADVANTAGE OF THE BUILT IN OR AUTOMATIC STABILIZERS MAC

Such was the pressure that Northern Rock was nationalized in February 2008. Immediately the bankвЂ™s shares fell by 32 per cent and queues formed outside branch offices as frantic depositors rushed to withdraw their savings. On 14 September 2007, the British public became aware that Northern Rock, which had moved into sub-prime lending after concluding a deal with Lehman Brothers, had approached the Bank of England for an emergency loan.

Meanwhile, the European Central Bank was forced to intervene to restore calm to distressed credit markets which were badly affected by losses from sub-prime hedge funds.

In August 2007, the French bank, BNP Paribas, suspended three investment funds worth в‚¬2 billion because of problems in the US sub-prime sector. It seemed as if financial meltdown was not only a possibility, it was a certainty unless drastic action was taken. At the same time Lehman Brothers, the fourth largest investment bank in the US, declared bankruptcy.

A MAJOR ADVANTAGE OF THE BUILT IN OR AUTOMATIC STABILIZERS MAC

In September, Freddie Mac and Fannie Mae, which together accounted for half of the outstanding mortgages in the US, were subject to a federal takeover because their financial condition had deteriorated so rapidly. During 2008 the financial crisis developed with a sudden and terrifying force. The US Treasury helped finance its sale to J. In August, Bear Stearns, an international finance house heavily involved in the sub-prime market, teetered on the verge of bankruptcy. In April 2007, New Century Financial, one of the largest sub-prime lenders in the US, filed for Chapter 11 bankruptcy. The US housing boom collapsed and sub-prime mortgages, which had been an attractive investment both at home and abroad, now became a millstone round the necks of those financial institutions that had eagerly snapped them up. Moreover, a full-blown financial crisis quickly emerged. As Eichengreen and OвЂ™Rourke (2010) report, the volume of world trade, the performance of equity markets, and industrial output dropped steeply in 2008. However, during 2007вЂ“8, an astonishing and unexpected collapse occurred which caused all key economic variables to fall at a faster rate than they had during the early 1930s. What caused this serious downturn and what lessons did policy-makers draw from it?Д«y the late twentieth century, the memory of international financial seizure in the US and Europe, mass unemployment, and severe deflation had receded. Why did the eradication of unemployment prove to be so intractable? In 1937вЂ“8 a further sharp depression hit the US economy, increasing unemployment and imposing further deflation. Why and how did the depression spread so that it became an international catastrophe? What role did financial crises play in prolonging and transmitting economic shocks? How effective were national economic policy measures designed to lessen the impact of the depression? Did governments try to coordinate their economic policies? If not, then why not? Why did the intensity of the depression and the recovery from it vary so markedly between countries?Д®ven in recovery, both the UK and the USA experienced persistent mass unemployment, which was the curse of the depression decade ( TableВ 2).

What are the key questions that we should ask about the Great Depression? Why the crisis began in 1929 is an obvious start, but more important questions are why it was so deep and why it lasted so long? Sustained recovery did not begin in the United States until the spring of 1933, though the UK trough occurred in late 1931 and in Germany during the following year.

A major advantage of the built in or automatic stabilizers