POLI 445 Lecture Notes - Lecture 21: Moral Hazard, Financial Transaction, Devaluation
30 Jan 2018
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Document Summary
Low interest rates - pushes people to speculate in the housing market. Low down-payments: time-horizon to pay back mortgages is extended. So, there"s this sense that housing was a no-risk venture. Because they have all gotten engaged in the financial side of economic activity: all these practices had expanded greatly since the 1980s (broader process of financialization, financial activity becomes a bigger and bigger part of the economy. Institutions at risk: us investment banks (lehman bros, goldman sachs, etc. ) In 2008, the 5 biggest financial institutions (plus government agencies in lending) held trillion in debt or guarantees. Liquidity crisis has global effect, and panic spreads: all these different financial actors are weakened and try to pull in money that"s owed to you and increase your solid assets, you call-back the debts you"re owed. Effects: as far as the international dimension, financial crisis in economically developed countries, particularly in the us.
