The Legacy of the 1920s

Who coined the term “The American Century?

Henry Luce

When was the Glass-Steagall Act created?

1932

What does the Glass-Steagall Act do?

Separates commercial and investment banks and created deposit insurance

When was the Glass-Steagall Act repealed?

1999

Why do most banks oppose regulation?

It reduces profits they could gain by making riskier investments

The repeal of the Glass-Steagall Act is thought to have contributed to what financial crisis?

The Great Recession

What new banking regulation act was created in 2010?

Dodd-Frank Act

What does the Dodd-Frank act do?

Created the Consumer Financial Protection Bureau and gave the Fed new powers over banks

When did the Great Recession begin?

December 2007

What banking powerhouse went bankrupt during the Great Depression?

Lehman Brothers

Barry Eichengreen is a professor at ______ University

Berkely

What two financial crisis does Eichengreen study together?

The Great Depression and Great Recession

True or False: The Great Recession was concentrated in the USA

False

What does Eichengreen argue was the MAIN cause of the Great Recession?

Policy failures

In the US, the decline in stock prices and output during the Recession was (lower/higher) than the Depression

Lower

How were other countries impacted by the Recession?

Some experienced a great decline, while others did not (lots of variation)

During the 1920s, what federal policies boosted homeownership?

No federal policies were made to do this

What administration aimed to increase home ownership?

George W. Bush Administration

How did the government reach their goal of increasing home ownership?

By loosening regulations and allowing banks to make very risky loans

In the 2000s, there was a price bubble in the _____ market

Housing

What tow markets were most effected by the Recession?

Housing and banking

Why did many people purchase mortgage assets in the 2000s?

They incorrectly believed they were low-risk

What two corporations owned many of the subprime housing loans in the 2000s?

Fannie Mae and Freddie Mac

What are mortgage-backed securities?

Asset backed by mortgages

Who created the Fannie Mae and Freddie Mac corporations?

The federal government

What was the purpose of the Fannie Mae and Freddie Mac corporations?

To fund and underwrite mortgages

When did the government bail out Fannie Mae and Freddie Mac?

2008

What were the two main concerns during the Great Recession?

Losing your house or owning a house with negative equity

What does it mean for a house to have negative equity?

The mortgage on the house exceeds the value of the house

How were the banking sectors different in the 1920s and 2000s?

Banking in the 1920s was more conservative, while banks in the 2000s made riskier loans

What monetary policy did the Fed undertake during the 2000s?

Reducing the federal funds rate

How long did it take for the discount rate to halve during the Recession?

10 months

How long did it take for the discount rate to halve during the Depression?

Over 2 years

How did the US government respond to the Recession?

Reducing taxes and increasing federal spending

How much money did the federal government spend on helping troubled banks during the Recession?

$700 billion

How much money did the Obama Administration spend on a stimulus package in 2009?

$800 billion

What did the 2009 Obama stimulus package invest in?

Temporary relief programs, infrastructure, education, health, and energy

What does the phrase “too big to fail” mean?

That if some banks failed, the impact would be too great on the economy

What is the “moral hazard” problem?

That some banks will take on a great amount of risk because they known the government will bail them out, since they are “too big to fail”

What are rating agencies?

Agencies that rate the riskiness of assets

Why did people lose confidence in rating agencies during the Recession?

Rating agencies gave incorrect ratings for many assets

What is the “flight to quality”?

When investors only purchase low-risk or government assets due to doubt in the financial state or safety of investment

How has the Recession contributed to the housing shortage?

By harming the construction industry

T or F: The Recession was long lived

True

What were the 6 MAIN factors that caused the Great Depression?

A weak agricultural sector, an under-developed banking sector, increased household debt, asset price bubbles, inexperienced monetary policy, and poor fiscal policy

Why was the Great Depression worse than the Great Recession?

The monetary and fiscal policies in response to the Recession were much better than in the Depression