1. Great Depression II (averted) June 2, 2010

2. CLUE Final Review Tuesday June 8 th 6:30-8:00 PM Mary Gates Hall room 242

3. The Financial Crisis, Put Simply Overborrowing and overlending Private debts (of banks and people) assumed by governments

4. Background Housing bubble – Low interest rates – “Chimerica” – Rising home prices – Credit flowed into “sub-prime” mortgages. Why? Banks: up-front fee, low risk with rising home prices Buyers: greedy, ignorant, or calculating Complex financial instruments to share (hide) risk Deregulation and rise of “shadow banking”  Ticking time bomb: unsustainable system

5. House Prices

6. Short-term Precipitates House prices slow  Irresponsible investment banks collapse  Banks stop lending to each other  Economy freezes, stock market falls 7% 9/29/08

8. http://www.youtube.com/watch?v=h4Ns4ltUvfw&feature=related

9. US Response Low interest rates TARP (Troubled Asset Relief Program) for injecting credit and buying “toxic assets” Stimulus bill ($790 billion) Nationalize US auto companies Incentives to buy cars, houses

10. International Repercussions China, India, Brazil: not too bad Booming economies with debt (Russia, Dubai, Las Vegas): steep fall Low-income countries: poverty, protectionism European Union: uncompetitive economies, states had to cut spending (PIIGS)

11. Implications Victory for “state capitalism”; death of neoliberalism? IMF is back Let’s all be Canadian (i.e. boring) Political backlash milder than 1930s (so far) Rise of the Rest Is the US a future Greece (national debt: $13 trillion; 84% of GDP)? Future of economics? Is it really over?