How does the economic success or failure of America change the lives of American systems and individuals?
CAUSES FROM THE GREAT DEPRESSION:
Source A: Video from the Gilder Lehrman Institute of American History
http://www.gilderlehrman.org/multimedia#3463
1. According to David Kennedy, how have historians viewed the causes of the Great Depression?
2. In evaluating arguments on the causes of the Great Depression, what should we be suspicious of?
3. What does Kennedy offer as causes of the Great Depression in the United States?
Source B: Entry from Digital History
http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtID=2&psid=3432
1. List and briefly describe the contributing factors to the Great Depression that are addressed in this article.
2. Compare and contrast Source A and B.
http://www.dummies.com/how-to/content/causes-and-consequences-of-the-great-depression.html
1. What does this article suggest was different about the Great Depression from previous economic downturns?
2. List and briefly describe the contributing factors to the Great Depression addressed in this source.
3. Compare and contrast Source B and C.
Source D: Entry from the Encyclopedia Britannica
http://www.britannica.com/EBchecked/topic/243118/Great-Depression/234441/Causes-of-the-decline
1. List and briefly describe the causes of the Great Depression addressed in this source.
2. How do these causes compare to what you read in the previous sources?
CAUSES FROM THE GREAT RECESSION:
Source A: Video on the “Crisis of Credit”
http://vimeo.com/3261363
1. How did the 1% interest rate influence bankers?
It made bankers want more and more. Thus making them want to gamble other people’s money for more money.
2. How did investment bankers seek to make profit off of mortgages?
They would split the mortgage into multiple pieces and sell them off to investors which became into a system of easy money until there was no more money.
3. What lending practices make mortgages riskier (more likely that homeowners will not pay back their loan)?
There aren’t any background checks, down payments, proof of income, and document. Sub prime mortgages aren’t trust worthy but the banks, mortgagers, and investors still gamble and bet for more money to come into their pockets.
4. What happened once people started defaulting on their mortgages?
The banks, mortgagers, and investors started looking money and what used to be the ever-flowing money, stopped and became foreclosed or bankrupted houses. This made the houses turn into ticking time bombs that no body wanted.
Source B: “Causes of Economic Recession” from About.com
http://useconomy.about.com/od/grossdomesticproduct/a/cause_recession.htm
1. What is “irrational exuberance” and how did it contribute to the Great Recession?
“Irrational exuberance in the housing market led many people to buy houses they couldn't afford, because everyone thought housing prices could only go up. In 2006, the bubble burst as housing prices started to decline. This caught many homeowners off guard, who had taken loans with little money down. As they realized they would lose money by selling the house for less than their mortgage, they foreclosed. An escalating foreclosure rate panicked many banks and hedge funds, who had bought mortgage-backed securities on the secondary market and now realized they were facing huge losses.”
2. Compare and contrast the causes of the 2001 and 2008 recessions.
http://teacher.scholastic.com/scholasticnews/indepth/upfront/features/index.asp?article=f102008_Economy
1. According to this article, what are the roots of the Great Recession?
“The roots of the crisis lie, ironically, in the housing boom of the late 1990s and the early years of this decade. A strong economy and low interest rates meant that it was much easier for people to get mortgages to buy homes.”
2. What are mortgage-backed securities and how did they contribute to the Great Recession?
Mortgaged backed securities are bundled up mortgages that are sold for profit. This was a big impact on the Great Recession because of the fact that everyone was losing so much money and no one knew where the money was going to next, if it was even going anywhere.
3. What was the government response to the meltdown? Why were some opposed to this response?
“The government plans to buy all these "toxic" mortgage-backed securities so that the banks and financial institutions won't have to deal with them. The hope is that will let them get back to their business of making loans to companies, home buyers, and individuals—and get the wheels of the entire economy moving again… But opposition to the bailout has been intense, with lawmakers and their constituents angry about using taxpayer money to help big financial institutions that were making huge profits for so many years. Advocates of the rescue don't like it much either, but say that the alternative is a potentially catastrophic meltdown of the entire economy, with Main Street suffering as much or more than Wall Street.”
4. How does the legacy of the Great Depression and New Deal relate to this most recent economic crisis?
“They generally agree that the Depression was caused by a series of bad decisions, or lack of decisions—including the failure of Congress and the Federal Reserve to take action following the stock market crash in October 1929. And many New Deal measures—like deposit insurance on bank accounts and unemployment insurance—are designed to keep recessions from turning into depressions.”
Source D: “What caused the economic crisis?” from Slate Magazine
http://www.slate.com/articles/news_and_politics/the_big_idea/2010/01/what_caused_the_economic_crisis.html
1. Summarize what economists/analysts/historians seem to agree and disagree on regarding the causes of the Great Recession.
Agree: risky deals, stock market investors, home mortgage risks.
Disagree: what is the benefit of having the government take charge, is this another Great Depression?
Source E: “The Great Recession of 2008 & 2009” from Britannica.com
http://www.britannica.com/EBchecked/topic/1661642/The-Great-Recession-of-2008-09-Year-In-Review-2009
1. List and briefly describe the factors that lead to Recession in the US and around the world.
Source A: Video from the Gilder Lehrman Institute of American History
http://www.gilderlehrman.org/multimedia#3463
1. According to David Kennedy, how have historians viewed the causes of the Great Depression?
- Its is very controversial.
- It is a singularity.
- The banking structure was week.
- Banking made the depression very severe.
- Other banks of different countries were stronger.
- We looked to imports and exports to make money.
2. In evaluating arguments on the causes of the Great Depression, what should we be suspicious of?
- How people do not know much about the Great Depression?
- How come this has not happened to smaller countries in the world?
- Why “controversial from 1929 forward”?
3. What does Kennedy offer as causes of the Great Depression in the United States?
- Brittle institutions in America...that is one of the main causes.
- Kennedy offers technological innovation.
Source B: Entry from Digital History
http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtID=2&psid=3432
1. List and briefly describe the contributing factors to the Great Depression that are addressed in this article.
- Before the Depression: “Economists have been hard pressed to explain why "prosperity's decade" ended in financial disaster. In 1929, the American economy appeared to be extraordinarily healthy. Employment was high and inflation was virtually non-existent. Industrial production had risen 30 percent between 1919 and 1929, and per capita income had climbed from $520 to $681. The United States accounted for nearly half of the world's industrial output. Still, the seeds of the Depression were already present in the "boom" years of the 1920s.”
- Leading to the depression, we see that the low wages lead to very few if any purchases from U.S consumers. “Even during the most prosperous years of the Roaring Twenties, most families lived below what contemporaries defined as the poverty line. In 1929, economists considered $2,500 the income necessary to support a family. In that year, more than 60 percent of the nation's families earned less than $2,000 a year--the income necessary for basic necessities--and over 40 percent earned less than $1,500 annually. Although labor productivity soared during the 1920s because of electrification and more efficient management, wages stagnated or fell in mining, transportation, and manufacturing. Hourly wages in coal mines sagged from 84.5 cents in 1923 to just 62.5 cents in 1929.”
- Minorities weren’t treated fairly and weren’t given any money. They were also given very little say to what was going on around them: “A 1928 report on the condition of Native Americans found that half owned less than $500 and that 71 percent lived on less than $200 a year. Mexican Americans, too, had failed to share in the prosperity. During the 1920s, each year 25,000 Mexicans migrated to the United States. Most lived in conditions of extreme poverty.”
- Crops rarely ever sold for what they were worth: “Farm prices had been depressed ever since the end of World War I, when European agriculture revived, and grain from Argentina and Australia entered the world market. Strapped with long-term debts, high taxes, and a sharp drop in crop prices, farmers lost ground throughout the 1920s. In 1910, a farmer's income was 40 percent of a city worker's. By 1930, it had sagged to just 30 percent.”
- No purchases were made...that did not support the economy: “Rural consumers stopped buying farm implements, tractors, automobiles, furniture, and appliances. Millions of farmers defaulted on their debts, placing tremendous pressure on the banking system. Between 1920 and 1929, more than 5,000 of the country's 30,000 banks failed.”
- Banks were all around failing the the country: “Because of the banking crisis, thousands of small businesspeople failed because they could not secure loans. Thousands more went bankrupt because they had lost their working capital in the stock market crash. A heavy burden of consumer debt also weakened the economy. Consumers built up an unmanageable amount of consumer installment and mortgage debt, taking out loans to buy cars, appliances, and homes in the suburbs. To repay these loans, consumers cut back sharply on discretionary spending. Drops in consumer spending led inevitably to reductions in production and worker layoffs. Unemployed workers then spent less and the cycle repeated itself.
- A poor distribution of income compounded the country's economic problems. During the 1920s, there was a pronounced shift in wealth and income toward the very rich. Between 1919 and 1929, the share of income received by the wealthiest one percent of Americans rose from 12 percent to 19 percent, while the share received by the richest five percent jumped from 24 percent to 34 percent. Over the same period, the poorest 93 percent of the non-farm population actually saw its disposable income fall. Because the rich tend to spend a high proportion of their income on luxuries, such as large cars, entertainment, and tourism, and save a disproportionately large share of their income, there was insufficient demand to keep employment and investment at a high level.”
- What big points were shown: “All these factors left the economy ripe for disaster. Yet the depression did not strike instantly; it infected the country gradually, like a slow-growing cancer. Measured in human terms, the Great Depression was the worst economic catastrophe in American history. It hit urban and rural areas, blue-and white-collar families alike. In the nation's cities, unemployed men took to the streets to sell apples or to shine shoes. Thousands of others hopped freight trains and wandered from town to town looking for jobs or handouts.
- Unlike most of Western Europe, the United States had no federal system of unemployment insurance. The relief burden fell on state and municipal governments working in cooperation with private charities, such as the Red Cross and the Community Chest. Created to handle temporary emergencies, these groups lacked the resources to alleviate the massive suffering created by the Great Depression. Poor Southerners, whose states had virtually no relief funds, were particularly hard hit.
- Urban centers in the North fared little better. Most city charters did not permit public funds to be spent on work relief. Adding insult to injury, several states disqualified relief clients from voting, while other cities forced them to surrender their automobile license plates. "Prosperity's decade" had ended in economic disaster.”
2. Compare and contrast Source A and B.
- Compare:
- They are both secondary sources that show their points of view on why the Great Depression started.
- Contrast:
- The present their information differently.
- They use different sources:
- A = banking
- B = U.S citizens, immigrants, and natives
http://www.dummies.com/how-to/content/causes-and-consequences-of-the-great-depression.html
1. What does this article suggest was different about the Great Depression from previous economic downturns?
- “The stock market crash.
- Bank failures.
- Too many poor people.
- Farm failures.
- Environmental disasters.
- Government inaction.
2. List and briefly describe the contributing factors to the Great Depression addressed in this source.
- “The stock market crash. The stock market soared throughout most of the 1920s, and the more it grew, the more people were eager to pour money into it. Many people bought on margin, which meant they paid only part of a stock’s worth when they bought it and the rest when they sold it. That worked fine as long as stock prices kept going up.
- But when the market crashed in late October 1929, they were forced to pay up on stocks that were worth far less than what they had paid for them. Many had borrowed to buy stock, and when the stock market went belly-up, they couldn’t repay their loans and the lenders were left holding the empty bag.
- Bank failures. Many small banks, particularly in rural areas, had overextended credit to farmers who, for the most part, had not shared in the prosperity of the 1920s and often could not repay the loans. Big banks, meanwhile, had foolishly made huge loans to foreign countries. Why? So the foreign countries could repay their earlier debts from World War I.
- When times got tough and U.S. banks stopped lending, European nations simply defaulted on their outstanding loans. As a result, many banks went bankrupt. Others were forced out of business when depositors panicked and withdrew their money. The closings and panics almost completely shut down the country’s banking system.
- Too many poor people. That may sound sort of goofy, but it’s a real reason. While the overall economy had soared in the 1920s, most of the wealth was enjoyed by relatively few Americans. In 1929, 40 percent of the families in the country were still living at or below the poverty level.
- That made them too poor to buy goods and services and too poor to pay their debts. With no markets for their goods, manufacturers had to lay off tens of thousands of workers, which, of course, just created more poor people.
- Farm failures. Many American farmers were already having a hard time before the Depression, mostly because they were producing too much and farm product prices were too low. The situation was so bad in some areas that farmers burned corn for fuel rather than sell it.
- Environmental disasters. The production of vast crops during World War I and the decade that followed resulted in over-plowing of much of America’s farmland. The prairie grasses that held topsoil in place were stripped.
- Coupled with one of the worst droughts in recorded history, the unprotected soil turned the Great Plains into what would become known as the “Dust Bowl.” Dry winds picked up tons of topsoil and blew it across the prairies, creating huge, suffocating clouds of dirt that buried towns and turned farms into deserts.
- Government inaction. Rather than try to jumpstart the economy by pushing the Federal Reserve System to lend money to banks at low interest rates and pumping money into the economy through federal public works projects, the Hoover Administration did nothing at first, then took small and tentative actions that weren’t enough to head things off.”
3. Compare and contrast Source B and C.
- I think that source B and C are very similar but presented in two different ways. Source C shows a more student friendly view to it because the site is easy to read and understand. The source is also organized, clear, and concise. As for Source B, it is more of a text book format which is not always easy to read. I also feel that since the information was presented in a different way for source C, I could retain more information.
Source D: Entry from the Encyclopedia Britannica
http://www.britannica.com/EBchecked/topic/243118/Great-Depression/234441/Causes-of-the-decline
1. List and briefly describe the causes of the Great Depression addressed in this source.
- This source basically summaries all of the sources above but in greater detail by using both primary and secondary sources.
- It compares the U.S. to different countries.
- Talks about the timing and why it occurred at that time.
- How the recovery was hard.
- Banks and the stock market crashing.
- Impacts of the losses.
- Sources of recovery.
2. How do these causes compare to what you read in the previous sources?
- This compares because of the similarity of how the events occurred. I think that through this source, it showed me a more detailed view of how the Great Depression first started, doing it, and at its very fight to the end.
CAUSES FROM THE GREAT RECESSION:
Source A: Video on the “Crisis of Credit”
http://vimeo.com/3261363
1. How did the 1% interest rate influence bankers?
It made bankers want more and more. Thus making them want to gamble other people’s money for more money.
2. How did investment bankers seek to make profit off of mortgages?
They would split the mortgage into multiple pieces and sell them off to investors which became into a system of easy money until there was no more money.
3. What lending practices make mortgages riskier (more likely that homeowners will not pay back their loan)?
There aren’t any background checks, down payments, proof of income, and document. Sub prime mortgages aren’t trust worthy but the banks, mortgagers, and investors still gamble and bet for more money to come into their pockets.
4. What happened once people started defaulting on their mortgages?
The banks, mortgagers, and investors started looking money and what used to be the ever-flowing money, stopped and became foreclosed or bankrupted houses. This made the houses turn into ticking time bombs that no body wanted.
Source B: “Causes of Economic Recession” from About.com
http://useconomy.about.com/od/grossdomesticproduct/a/cause_recession.htm
1. What is “irrational exuberance” and how did it contribute to the Great Recession?
“Irrational exuberance in the housing market led many people to buy houses they couldn't afford, because everyone thought housing prices could only go up. In 2006, the bubble burst as housing prices started to decline. This caught many homeowners off guard, who had taken loans with little money down. As they realized they would lose money by selling the house for less than their mortgage, they foreclosed. An escalating foreclosure rate panicked many banks and hedge funds, who had bought mortgage-backed securities on the secondary market and now realized they were facing huge losses.”
2. Compare and contrast the causes of the 2001 and 2008 recessions.
- In 2001: “The recession of 2001 was caused by irrational exuberance in high tech. Many companies and individuals bought new computer systems to make sure their software was Y2K compliant. As a result, the stock price of many high tech companies started to increase. This led to a lot of investors' money going to any kind of high tech company, whether they were showing profits or not. The exuberance for dot.com companies became irrational.”
- In 2008: “Irrational exuberance in the housing market led many people to buy houses they couldn't afford, because everyone thought housing prices could only go up. In 2006, the bubble burst as housing prices started to decline. This caught many homeowners off guard, who had taken loans with little money down. As they realized they would lose money by selling the house for less than their mortgage, they foreclosed.”
http://teacher.scholastic.com/scholasticnews/indepth/upfront/features/index.asp?article=f102008_Economy
1. According to this article, what are the roots of the Great Recession?
“The roots of the crisis lie, ironically, in the housing boom of the late 1990s and the early years of this decade. A strong economy and low interest rates meant that it was much easier for people to get mortgages to buy homes.”
2. What are mortgage-backed securities and how did they contribute to the Great Recession?
Mortgaged backed securities are bundled up mortgages that are sold for profit. This was a big impact on the Great Recession because of the fact that everyone was losing so much money and no one knew where the money was going to next, if it was even going anywhere.
3. What was the government response to the meltdown? Why were some opposed to this response?
“The government plans to buy all these "toxic" mortgage-backed securities so that the banks and financial institutions won't have to deal with them. The hope is that will let them get back to their business of making loans to companies, home buyers, and individuals—and get the wheels of the entire economy moving again… But opposition to the bailout has been intense, with lawmakers and their constituents angry about using taxpayer money to help big financial institutions that were making huge profits for so many years. Advocates of the rescue don't like it much either, but say that the alternative is a potentially catastrophic meltdown of the entire economy, with Main Street suffering as much or more than Wall Street.”
4. How does the legacy of the Great Depression and New Deal relate to this most recent economic crisis?
“They generally agree that the Depression was caused by a series of bad decisions, or lack of decisions—including the failure of Congress and the Federal Reserve to take action following the stock market crash in October 1929. And many New Deal measures—like deposit insurance on bank accounts and unemployment insurance—are designed to keep recessions from turning into depressions.”
Source D: “What caused the economic crisis?” from Slate Magazine
http://www.slate.com/articles/news_and_politics/the_big_idea/2010/01/what_caused_the_economic_crisis.html
1. Summarize what economists/analysts/historians seem to agree and disagree on regarding the causes of the Great Recession.
Agree: risky deals, stock market investors, home mortgage risks.
Disagree: what is the benefit of having the government take charge, is this another Great Depression?
Source E: “The Great Recession of 2008 & 2009” from Britannica.com
http://www.britannica.com/EBchecked/topic/1661642/The-Great-Recession-of-2008-09-Year-In-Review-2009
1. List and briefly describe the factors that lead to Recession in the US and around the world.
- “The U.S. housing market was the domino that, when it fell, toppled many of the world’s major economies and led the world into recession.”
- “For the first half of the decade, aggressive investment by homebuyers, mortgage lenders, Wall Street investment houses, and insurers had driven up the median price of a single-family home by almost 10% a year, with housing in some parts of the country escalating even faster.
- “The banking industry was especially hard hit. Altogether, 176 banks in the U.S. failed in 2009, many of them small and local. Even financially secure banks, not trusting potential borrowers to pay them back, stopped lending. Businesses—especially small and new businesses—could not find the credit that they needed to pay creditors or buy inventory or to pay their own workers, much less to hire new ones. Even short-term interest rates close to zero did not fully thaw credit markets. Businesses that relied on their customers’ ability to secure loans had a rough time.”
- EXAMPLE: “Automakers General Motors (GM) and Chrysler, both of which reorganized after brief trips through bankruptcy in 2009, qualified for bailout money. The overall economic slowdown sent stock prices reeling, with the benchmark Dow Jones Industrial Average (DJIA) sinking by about 54% in the 17 months from the market high in October 2007 to the trough in March 2009.”