FINANCIAL CRISIS: 1929-2008

Financial Crisis: 1929-2008

Financial crisis: beyond the 1929-2008 comparison

Introduction

Financial crisis that began in August 2008 reached a climax in autumn 2008 with a wave of nationalization of the bank throughout North America and Europe. While the banking crisis are not uncommon, it is the largest in 1929-33. This paper

Compares the differences between the 2008 and 1929 crisis and their impact. Moreover, looking at the role of low real interest rates to stimulate the bubble in asset prices. This bubble is stored financial innovation and increased lending. New financial products have not been tested and stress have failed to decline. After discussion, the bubbles we look at the disintegration of the complex structure of assets, and then put the crisis in the context of the literature. The document concludes with discussion of the political consequences of the crisis, and calls for a significant improvement in the regulatory structure.

Background In 1929, only about 2 percent of American households purchased stocks, compared with nearly 50 percent of American households that have a direct or indirect investment in the market today. One reason for the difference is that buying and selling are much greater in the 20-ies than in the modern era, when electronic commerce enables billion shares hands around the world every day, according to Michael Goldstein, professor of finance at Babson College in Wellesley, Massachusetts.

The ease of trade means more people from around the world investors in U.S. stocks. In 1929, there was no Securities and Exchange Commission, nor the independent self-regulatory organizations such as FINRA (Financial Industry Regulatory Authority). New York Stock Exchange commanded the majority of trade, but not circuit breakers to halt panic selling, "said Goldstein. Today, there are rules that stop traffic in cases of extreme drops. Broad adoption of mutual funds have helped investors to diversify, in sharp contrast to the 20-ies, when a person can own shares only one or two companies.

In 2008, the fall of the market, one of four stocks declined by more than 75 percent, but only one of 15000 equity mutual funds suffered losses, are large, according to Don Phillips, managing director of Morningstar Inc., the Chicago investment research firm that specializes in analyzing the mutual Fund. "This is a very positive step that investors place more money for the funds, whether actively managed or index fund," said Phillips. "Diversification does not protect you from everything, but it reduces the possibility of catastrophic events. It is much better than in individual stocks, which went to zero."

Nevertheless, the experience of passing the crisis of the market - Dow Jones Industrial Average index has fallen 33 percent in 2008 - has left many investors feeling burned and does not want to invest in stocks, even if there are deals available, so while some things have changed, and some of They have remained the same, what lessons can be learned from 1929? The most important of them clearly registered by the Federal Reserve, Ben Bernanke, an expert on ...