Professional Documents
Culture Documents
Great Recession I
the worst recession since the Great
Depression of the 1930s.
The causes of the financial crisis that began
in the summer of 2007 and where the
economy currently stands.
How the current financial crisis compares to
previous recessions and to previous financial
crises in the United States and around the
world.
Housing Prices
Housing prices tripled between 1996
and 2006.
Housing bubble
Liquidity crisis
The volume of transactions in some financial
markets falls sharply.
Makes it difficult to value certain financial
assets.
raises questions about the overall value of the
firms holding those assets.
Oil Prices
To make matters worse, oil prices were
extremely volatile in this period.
2002: $20 per barrel.
Summer of 2008: $140 per barrel.
December 2008: $40 per barrel.
2009Present: $80 to $100 per barrel.
February 2010:
8.5 million jobs lost
Inflation
Volatile oil prices caused sharp swings
in inflation for all items in 2008.
In the recession, core inflation (all items
excluding food and fuel) declined
slightly.
Balance Sheets
Balance sheet
Accounting tool with assets on the left side and
liabilities and net worth on the right side.
The two sides sum to the same value when net
worth is included.
Assets
Items of value that an institution owns: loans,
investments, cash and reserves.
Liability
An amount that is owed to someone else:
deposits, short-term and long-term debts.
Equity = capital
The difference between total assets and total
liabilities on a balance sheet.
Represents the value of an institution to its
shareholders or owners.
Also known as net worth or capital.
Leverage
Leverage
The ratio of total liabilities to net worth.
This ratio magnifies any changes in the
value of assets and liabilities in terms of
the return to shareholders.
This principle also applies to homeowners.
Insolvency
Situation in which the liabilities of a bank or
other company exceed its assets.