From Financial Crisis to Global Recovery

From Financial Crisis to Global Recovery

Padma Desai

Language: English

Pages: 272

ISBN: 023115786X

Format: PDF / Kindle (mobi) / ePub

In this book, Padma Desai makes the complexities of economic policy and financial reform accessible to a wide audience. Merging a compelling narrative with scholarly research, she begins with a systematic breakdown of the factors leading to America's recent recession, describing the monetary policy, tax practices, subprime mortgage scandals, and lax regulation that contributed to the crisis. She also discusses the Treasury-Fed rescue deals that saved several financial institutions and the involvement of Congress in passing restorative policies.

Desai follows with an analysis of stress tests and other economic measures, and she frankly assesses whether the U.S. economy is truly on the mend. Expanding her view, she considers the prospects for recovery in North America as a whole, as well as in Europe, Asia, and South America, and the extent and value of U.S. and E.U. regulatory proposals. Refocusing on American financial practices, Desai evaluates hedge funds and derivatives, credit default swaps, and rating agencies, pondering whether the dollar can remain a reserve currency. She concludes with a historical comparison of the Great Depression and the Great Recession, weighing the effect of the economic collapse on the future of American capitalism.

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which traded at $60 p er share in September 2007, had co llapsed by 99 p ercent, to ab out 55 cents. Freddie’s exchanged for 74 cents per share, down 98 percent from $60 i n September 2007. The New York Stock E xchange, which requires m inimum t rading g uidelines for shares to trade above $1 a share, delisted both from its trading platform on June 16. Their banishment from the New York Stock Exchange notwithstanding, Fannie and Freddie continued acquiring foreclosed homes, removing owners w ho

pportunities f or wa ste a nd co rruption? W hen Vi ce President Joe Biden raised this question in a memo to President Obama, the president promptly shot back a return memo, saying “do it.” Joe Biden knew his way around a rotten pork barrel project. The states must scrub and clean their wish list of anything that appeared unnecessary or wasteful. A plan for straightening headstones in a military cemetery was scrapped, as was a request for a $10,000 r efrigerator to house fish sperm in South

precondition for t he ability of t he ba nking IS THE U.S. ECONOMY ON THE MEND? 75 sector to initiate the recovery. It was the necessary first step, but not a sufficient one. Banks could borrow at low rates, but businesses were not ready to borrow from them. Instead, the big bank recovery was marked by banks reaping profits from commodities and securities trading. Americans also had to st raighten o ut t heir b udgets a nd pa y off t heir deb ts b efore co nsumption demand, which constituted

perspective of the stress test of the too-big-to-fail banks and of the stimulus aimed at lifting job losses. Both policy decisions were undertaken in early 2009. At that time, the severity and persistence of high unemployment interacting with home foreclosures, lagging consumption, and weak bank lending to businesses required the injection of government pump priming. Without the stimulus, the unemployment, in my view, would have turned out to be higher and the growth recovery weaker. However, by

Freddie to d irectly extend loans to p eople. The t wo a gencies had a p olitical a nd legal ma ndate, prescribed by t he U.S. Department of Housing a nd U rban De velopment, to su pport l ow-income h ousing b y acquiring loans “with lower credit standards.” From 2005, the two agencies increased t heir sha re o f m ortgages f or a ffordable h ousing f or m oderateincome borrowers living in “underserved areas.” The lower credit standards, 10 F R O M F I N A N C I A L C R I S I S TO G LO B A L R

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