Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 40

The Panic of 2008: Cause and Consequences

Abstract

This chapter outlines what were some of the major contributors to the financial crisis. The chapter argues that the government encouraged home ownership and that monetary policy, rising asset prices, and developments in finance encouraged the levering of the private sector and the economy in general. This chapter also describes some of the actions taken by the relevant authorities in response to the crisis. The discussion suggests that the government and the lending institutions were not prepared for a downdraft in housing prices. With that in mind, the chapter begins to lay the groundwork to analyze in the effects of a decline in the credit worthiness of the private sector, the capital ...