Financial Crisis And Financial Panics - 896 Words

Chase Vargas Mr. Bare Economics April 28, 2016 Banking Crisis and Financial Panics terms Banking crises- occurs when a large part of the depository banking sector fails or threatens to fail Asset bubble- the price of an asset is pushed to an unreasonably high level due to expectations of further price gains. Financial contagion- a vicious downward spiral among depository banks or shadow banks: each bank s failure worsens fears and increases the likelihood that another bank will failure. Financial panics- a sudden and widespread disruption of the financial markets that occurs when people suddenly lose faith in the liquidity of financial institutions and markets. leverage- borrowing of money to amplify the outcome of a deal. causes and effects of 2008 crisis: crisis of credit Years before the crisis occurred, investors were looking for some place to put their loads of money to make more money. In the past these investors would go to the federal reserve to buy treasury bills which are the safest of investments. However at the time the federal reserve was only offering a 1% interest rate. It was so low because the federal reserve chairman had to make a change in response to the â€Å".com bust† and helping the economy stabilize. 1% interest rate meant that theses investors would not get much back on their investment. On the flip side this also meant that banks could get barrow from the reserve for only 1%. This gives the bank and abundance of cheap credit, with the,Show MoreRelatedThe 1907 Financial Panic and the 2008 Financial Crisis1931 Words   |  8 Pagesunderstanding with respect to the Panic of 1907. Almost exactly 100 years after the financial crisis of 1907, the poem known as The United States economy, holds a stanza rhyming it with the 2008 financial crisis. 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