Session 1: Causes of the Economic Meltdown

Posted March 22, 2011 in Curriculum, Learning. Tagged:

Pass-Around Read-Aloud

Part 1: How Did We Get Here?

In the fall of 2008, the economy came close to a total collapse.   Economic stability was brought about through massive bailouts, a stimulus bill to create jobs and government guarantees.  But while the economy was temporarily rescued from free fall, it hasn’t been fundamentally fixed.

This Economic Meltdown was not some sort of “natural disaster” like a hurricane or an earthquake.  It was a human-created disaster – one designed to benefit a few at the expense of the rest of us.  Human beings could have intervened to prevent it.

Here are some of the reasons that people give for the economic crisis.  Which ones make sense to you?

  • Home prices were allowed to soar for a decade, outstripping their real value, despite warning signs of collapse.  When the debt bubble eventually burst, $8 trillion of artificially inflated value vanished overnight.

 

  • For decades, government failed to provide effective oversight to Wall Street investment bank. A large “shadow banking” system emerged –including complex financial investment schemes such as hedge funds, derivatives, credit default swaps, etc.  These were complicated investment schemes for the very wealthy, who used their lobbying power to keep government from watching out for the public interest.

 

  • A shady sub-prime mortgage scandal was fueled by unethical and illegal practices on the part of companies that issue mortgages, many of which were not banks (like Countrywide Financial).  They sold their loans to the “shadow finance” sector – which then sold them to all kinds of investors, including retirement investment funds, school boards, religious organizations and individual investors.  No one was responsible for ensuring they were reasonable loans.

 

  • A lot of us got in over our heads – by borrowing too much and living beyond our means.  Individuals are responsible for this.

 

  • Credit card vendors and mortgage brokers pushed easy credit and encouraged people to buy more things than they could afford.  Our whole culture encouraged excessive borrowing and spending rather than saving.

 

  • Over the last 20 years, huge amounts of wealth have become concentrated in the hands of a small number of people.  These wealthy investors wanted to make lots of money fast, so moved large sums into unregulated and unethical investment schemes.  When the bottom fell out on these, it triggered the economy meltdown.