Financial innovation and complexity


A protester on Wall Street in the wake of the AIG bonus payments controversy is interviewed by news media.
The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance calledcredit default swaps(CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.
[edit]Credit Ratings
In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.[72]
The CDO in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.[73][74]
For a variety of reasons, market participants did not accurately measure the risk inherent with this innovation or understand its impact on the overall stability of the financial system.[75] For example, the pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. The average recovery rate for "high quality" CDOs has been approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO's has been approximately five cents for every dollar. These massive, practically unthinkable, losses have dramatically impacted the balance sheets of banks across the globe, leaving them with very little capital to continue operations.[76]
Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S. taxpayers provided over $180 billion in government support to AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.[77][78]
The limitations of a widely-used financial model also were not properly understood.[79][80] This formula assumed that the price of CDS was correlated with and could predict the correct price of mortgage backed securities. Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies.[80] According to one wired.com article[80]: "Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril... Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees."
As financial assets became more and more complex, and harder and harder to value, investors were reassured by the fact that both the international bond rating agencies and bank regulators, who came to rely on them, accepted as valid some complex mathematical models which theoretically showed the risks were much smaller than they actually proved to be in practice [81]. George Soros commented that "The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility." [82]
Certain financial innovation may also have the effect of circumventing regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks. For example, Martin Wolf wrote in June 2009: "...an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself – was to find a way round regulation."[83]
[edit]Boom and collapse of the shadow banking system
In a June 2008 speech, U.S. Treasury Secretary Timothy Geithner, then President and CEO of the NY Federal Reserve Bank, placed significant blame for the freezing of credit markets on a "run" on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls. Further, these entities were vulnerable because they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would make them subject to rapid deleveraging, selling their long-term assets at depressed prices. He described the significance of these entities: "In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. Assets financed overnight in triparty repo grew to $2.5 trillion. Assets held in hedge funds grew to roughly $1.8 trillion. The combined balance sheets of the then five major investment banks totaled $4 trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $6 trillion, and total assets of the entire banking system were about $10 trillion." He stated that the "combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles."[12]
Nobel laureate Paul Krugman described the run on the shadow banking system as the "core of what happened" to cause the crisis. "As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible—and they should have responded by extending regulations and the financial safety net to cover these new institutions. Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank." He referred to this lack of controls as "malign neglect."[58]
[edit]Commodity bubble
A commodity price bubble was created following the collapse in the housing bubble. The price of oil nearly tripled from $50 to $140 from early 2007 to 2008, before plunging as the financial crisis began to take hold in late 2008.[84] Experts debate the causes, which include the flow of money from housing and other investments into commodities to speculation and monetary policy [85] or the increasing feeling of raw materials scarcity in a fast growing world economy and thus positions taken on those markets, such as Chinese increasing presence in Africa. An increase in oil prices tends to divert a larger share of consumer spending into gasoline, which creates downward pressure on economic growth in oil importing countries, as wealth flows to oil-producing states.[86]
[edit]Systemic crisis
Another analysis, different from the mainstream explanation, is that the financial crisis is merely a symptom of another, deeper crisis, which is a systemic crisis of capitalism itself. According to Samir Amin, an Egyptian economist, the constant decrease in GDP growth rates in Western countries since the early 1970s created a growing surplus of capital which did not have sufficient profitable investment outlets in the realeconomy. The alternative was to place this surplus into the financial market, which became more profitable than productive capital investment, especially with subsequent deregulation.[87] According to Samir Amin, this phenomenon has led to recurrent financial bubbles (such as theinternet bubble) and is the deep cause of the financial crisis of 2007-2009.[88]
John Bellamy Foster, a political economy analyst and editor of the Monthly Review, believes that the decrease in GDP growth rates since the early 1970s is due to increasing market saturation.[89]
John C. Bogle wrote during 2005 that a series of unresolved challenges face capitalism that have contributed to past financial crises and have not been sufficiently addressed: "Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long...They failed to 'keep an eye on these geniuses' to whom they had entrusted the responsibility of the management of America's great corporations." He cites particular issues, including:[90][91]
 "Manager's capitalism" which he argues has replaced "owner's capitalism," meaning management runs the firm for its benefit rather than for the shareholders, a variation on the principal-agent problem;
 Burgeoning executive compensation;
 Managed earnings, mainly a focus on share price rather than the creation of genuine value; and
 The failure of gatekeepers, including auditors, boards of directors, Wall Street analysts, and career politicians.
[edit]Role of economic forecasting
Dirk Bezemer in his research [92] credits 12 economists with predicting (with supporting argument and estimates of timing) the crisis: Dean Baker (US), Wynne Godley (US), Fred Harrison (UK), Michael Hudson (US), Eric Janszen (US), Stephen Keen (Australia), Jakob Brøchner Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer (US), Nouriel Roubini(US), Peter Schiff (US), Robert Shiller(US).
A cover story in BusinessWeek Magazine claims that economists mostly failed to predict the worst international economic crisis since theGreat Depression of 1930s.[93]. The Wharton School of the University of Pennsylvania online business journal examines why economists failed to predict a major global financial crisis [7]. An article in the New York Times informs that economist Nouriel Roubini warned of such crisis as early as September 2006, and the article goes on to state that the profession of economics is bad at predicting recessions.[94] According toThe Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him "Dr. Doom".[95] However, there are examples of other experts who gave indications of a financial crisis.[96][97][98]
[edit]Financial markets impacts
[edit]Impacts on financial institutions


2007 bank run on Northern Rock, a UK bank
One of the first victims was Northern Rock, a medium-sized British bank.[99] The highly leveraged nature of its business led the bank to request security from the Bank of England. This in turn led to investor panic and a bank run in mid-September 2007. Calls by Liberal Democrat Shadow Chancellor Vince Cable to nationalise the institution were initially ignored; in February 2008, however, the British government (having failed to find a private sector buyer) relented, and the bank was taken into public hands. Northern Rock's problems proved to be an early indication of the troubles that would soon befall other banks and financial institutions.
Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial, as they could no longer obtain financing through the credit markets. Over 100 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its fire-sale to JP Morgan Chase. The crisis hit its peak in September and October 2008. Several major institutions either failed, were acquired under duress, or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and AIG.[100]
See also: Federal takeover of Fannie Mae and Freddie Mac
[edit]Credit markets and the shadow banking system


TED spread and components during 2008
During September 2008, the crisis hits its most critical stage. There was the equivalent of a bank run on the money market mutual funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls. Withdrawal from money markets were $144.5 billion during one week, versus $7.1 billion the week prior. This interrupted the ability of corporations to rollover (replace) their short-term debt. The U.S. government responded by extending insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee[101] and with Federal Reserve programs to purchase commercial paper. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008,[102] reaching a record 4.65% on October 10, 2008.
In a dramatic meeting on September 18, 2008 Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout. Bernanke reportedly tells them: "If we don't do this, we may not have an economy on Monday."[103] The Emergency Economic Stabilization Act also called the Troubled Asset Relief Program (TARP) is signed into law on October 3, 2008.[104]
Economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner explain the credit crisis via the implosion of the shadow banking system, which had grown to nearly equal the importance of the traditional commercial banking sector as described above. Without the ability to obtain investor funds in exchange for most types of mortgage-backed securities or asset-backed commercial paper, investment banks and other entities in the shadow banking system could not provide funds to mortgage firms and other corporations.[12][58]
This meant that nearly one-third of the U.S. lending mechanism was frozen and continued to be frozen into June 2009.[105] According to theBrookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization are "likely to vanish forever, having been an artifact of excessively loose credit conditions." While traditional banks have raised their lending standards, it was the collapse of the shadow banking system that is the primary cause of the reduction in funds available for borrowing.[106]
[edit]Wealth effects
There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth. By early November 2008, a broad U.S. stock index the S&P 500, was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.[107] Since peaking in the second quarter of 2007, household wealth is down $14 trillion.[108]
Further, U.S. homeowners had extracted significant equity in their homes in the years leading up to the crisis, which they could no longer do once housing prices collapsed. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period.[16][17][18] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.[19]
To offset this decline in consumption and lending capacity, the U.S. government and U.S. Federal Reserve have committed $13.9 trillion, of which $6.8 trillion has been invested or spent, as of June 2009.[109] In effect, the Fed has gone from being the "lender of last resort" to the "lender of only resort" for a significant portion of the economy. In some cases the Fed can now be considered the "buyer of last resort."


The New York City headquarters of Lehman Brothers.
Economist Dean Baker explained the reduction in the availability of credit this way:
"Yes, consumers and businesses can't get credit as easily as they could a year ago. There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007 (of course, to clear-eyed analysts, they didn't look too good a year ago either). While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth. Economists, economic policy makers and economic reporters virtually all missed the housing bubble on the way up. If they still can't notice its impact as the collapse of the bubble throws into the worst recession in the post-war era, then they are in the wrong profession."[110]
At the heart of the portfolios of many of these institutions were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against failure, caused the collapse or takeover of several key firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.[111][112][113]
[edit]Global contagion
The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities[114] and commodities.[115] Moreover, the de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the liquidity crisis and caused a decrease in international trade.
World political leaders, national ministers of finance and central bank directors coordinated their efforts[116] to reduce fears, but the crisis continued. At the end of October 2008 a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.[117][118]
[edit]Effects on the global economy


Global impact of the crisis
Main article: Late-2000s recession
[edit]Global effects
A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse.[119] The continuing development of the crisis prompted fears of a global economic collapse.[120] The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown.[121] Investment bank UBSstated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years.[122] Three days later UBS economists announced that the "beginning of the end" of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world's central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms "the worst is still to come".[123] UBS quantified their expected recession durations on October 16: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters.[124] Theeconomic crisis in Iceland involved all three of the country's major banks. Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history.[125]
At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the Reagan recession of 1981 and 1982 with negative 2009 growth for the U.S., Eurozone, UK and Canada; very limited recovery in 2010; but not as bad as the Great Depression.[126]
The Brookings Institution reported in June 2009 that U.S. consumption accounted for more than a third of the growth in global consumption between 2000 and 2007. "The US economy has been spending too much and borrowing too much for years and the rest of the world depended on the U.S. consumer as a source of global demand." With a recession in the U.S. and the increased savings rate of U.S. consumers, declines in growth elsewhere have been dramatic. For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 9.8% in the Euro area and 21.5% for Mexico.[127]
By March 2009, the Arab world had lost $3 trillion due to the crisis.[128]
In April 2009, unemployment in the Arab world is said to be a 'time bomb'.[129]
In May 2009, the United Nations reported a drop in foreign investment in Middle-Eastern economies due to a slower rise in demand for oil.[130]
In June 2009, the World Bank predicted a tough year for Arab states.[131]
In September 2009, Arab banks reported losts nearly to $4 billion since the global financial crisis onset.[132]
[edit]U.S. economic effects
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of approximately 6 percent in the fourth quarter of 2008 and first quarter of 2009, versus activity in the year-ago periods.[133] The U.S. unemployment rate increased to 9.5% by June 2009, the highest rate since 1983 and roughly twice the pre-crisis rate. The average hours per work week declined to 33, the lowest level since the government began collecting the data in 1964.[134][135]
[edit]Official economic projections
On November 3, 2008, the EU-commission at Brussels predicted for 2009 an extremely weak growth of GDP, by 0.1 percent, for the countries of the Euro zone (France, Germany, Italy, etc.) and even negative number for the UK (-1.0 percent), Ireland and Spain. On November 6, the IMF at Washington, D.C., launched numbers predicting a worldwide recession by -0.3 percent for 2009, averaged over the developed economies. On the same day, the Bank of England and the Central Bank for the Euro zone, respectively, reduced their interest rates from 4.5 percent down to three percent, and from 3.75 percent down to 3.25 percent. Economically, mainly the car industry seems to be involved. As a consequence, starting from November 2008, several countries launched large "help packages" for their economies.
The U.S. Federal Reserve Open Market Committee release in June 2009 stated: "...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."[136] Economic projections from the Federal Reserve and Reserve Bank Presidents include a return to typical growth levels (GDP) of 2-3% in 2010; an unemployment plateau in 2009 and 2010 around 10% with moderation in 2011; and inflation that remains at typical levels around 1-2%.[137]
[edit]Responses to financial crisis
[edit]Emergency and short-term responses
Main article: Subprime mortgage crisis#Responses
The U.S. Federal Reserve and central banks around the world have taken steps to expand money supplies to avoid the risk of a deflationary spiral, in which lower wages and higher unemployment lead to a self-reinforcing decline in global consumption. In addition, governments have enacted large fiscal stimulus packages, by borrowing and spending to offset the reduction in private sector demand caused by the crisis. The U.S. executed two stimulus packages, totaling nearly $1 trillion during 2008 and 2009.[138]
This credit freeze brought the global financial system to the brink of collapse. The response of the USA Federal Reserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. This was the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks.[100]
Governments have also bailed-out a variety of firms as discussed above, incurring large financial obligations. To date, various U.S. government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending. For a summary of U.S. government financial commitments and investments related to the crisis, see CNN - Bailout Scorecard.
[edit]Regulatory proposals and long-term responses
Further information: Regulatory responses to the subprime crisis and Subprime mortgage crisis solutions debate
American President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system andderivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions, among others.[139][140][141]
A variety of regulatory changes have been proposed by economists, politicians, journalists, and business leaders to minimize the impact of the current crisis and prevent recurrence. However, as of April 2009, many of the proposed solutions have not yet been implemented. These include:
 Ben Bernanke: Establish resolution procedures for closing troubled financial institutions in the shadow banking system, such as investment banks and hedge funds.[142]
 Joseph Stiglitz: Restrict the leverage that financial institutions can assume. Require executive compensation to be more related to long-term performance.[143] Re-instate the separation of commercial (depository) and investment banking established by the Glass-Steagall Act in 1933 and repealed in 1999 by the Gramm-Leach-Bliley Act.[144]
 Simon Johnson: Break-up institutions that are "too big to fail" to limit systemic risk.[145]
 Paul Krugman: Regulate institutions that "act like banks " similarly to banks.[58]
 Alan Greenspan: Banks should have a stronger capital cushion, with graduated regulatory capital requirements (i.e., capital ratios that increase with bank size), to "discourage them from becoming too big and to offset their competitive advantage."[146]
 Warren Buffett: Require minimum down payments for home mortgages of at least 10% and income verification.[147]
 Eric Dinallo: Ensure any financial institution has the necessary capital to support its financial commitments. Regulate credit derivatives and ensure they are traded on well-capitalized exchanges to limit counterparty risk.[148]
 Raghuram Rajan: Require financial institutions to maintain sufficient "contingent capital" (i.e., pay insurance premiums to the government during boom periods, in exchange for payments during a downturn.)[149]
 A. Michael Spence and Gordon Brown: Establish an early-warning system to help detect systemic risk.[150]
 Niall Ferguson and Jeffrey Sachs: Impose haircuts on bondholders and counterparties prior to using taxpayer money in bailouts. In other words, bondholders with a claim of $100 would have their claim reduced to $80, creating $20 in equity. This is also called a debt for equity swap. This is frequently done in bankruptcies, where the current shareholders are wiped out and the bondholders become the new stockholders, agreeing to reduce the company's debt burden in the process. This is being done with General Motors, for example.[151][152]
 Nouriel Roubini: Nationalize insolvent banks.[153] Reduce mortgage balances to assist homeowners, giving the lender a share in any future home appreciation.[154]
[edit]See also
 Subprime mortgage crisis
 Subprime crisis impact timeline
 Economic Stimulus Act of 2008
 2008 Chinese economic stimulus plan
 John Maynard Keynes - Keynesian resurgence of 2008
 2008–2009 Keynesian resurgence
 List of acquired or bankrupt banks in the late 2000s financial crisis
 List of acquired or bankrupt United States banks in the late 2000s financial crisis
 List of economic crises
 List of entities involved in 2007–2008 financial crises
 2009 G-20 London summit protests
 2008 Greek riots
 2009 Icelandic financial crisis protests
 2009 May Day protests
 2009 Moldova civil unrest
 2009 Riga riot
 Bank failure
 List of largest U.S. bank failures
 2008-2009 bank failures in the United States
 Allen Stanford
 Bernie Madoff
 Deflation
 Dotcom bubble
 FRED (Federal Reserve Economic Data)
 The Great Depression
 Low-Income Countries Under Stress (LICUS) (World Bank program)
 Mark-to-market accounting
 Deposit insurance
 Private equity in the 21st century
 The Second Great Depression (book)
 United States v. Winstar Corp.
 United States housing bubble
 A Failure of Capitalism (book)

[edit]References
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128. ^ Following crisis, Arab world loses $3 trillion
129. ^ Unemployment in Arab world is a 'time bomb'
130. ^ UN reports drop in foreign investment in Mideast-2008
131. ^ World Bank predicts tough year for Arab states
132. ^ Recession costs Arab banks $4B
133. ^ BEA Press Releases
134. ^ BLS-Historical Unemployment Rate Table
135. ^ Business Week-Unemployed lose with hour and wage cuts
136. ^ FOMC Statement June 24 2009
137. ^ Minutes of the FOMC April 2009
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143. ^ "Stigliz Recommendations".
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147. ^ Warren Buffet-2008 Shareholder's Letter Summary
148. ^ Dinallo-We Modernized Ourselves Into This Ice Age
149. ^ The Economist-Rajan-Cycle Proof Regulation
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151. ^ Jeffrey Sachs-Our Wall Street Besotted Public Policy
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153. ^ Roubini-Charlie Rose Interview
154. ^ Risks to Global Growth
The initial articles and some subsequent material were adapted from the Wikinfo article "Financial crisis of 2007-2008"http://www.wikinfo.org/index.php?title=Financial_crisis_of_2007-2008 released under the GNU Free Documentation License Version 1.2