Question

In: Economics

The market crash of 2008 is a prime example of a system’s emergent behavior. Informed by...

The market crash of 2008 is a prime example of a system’s emergent behavior. Informed by this week’s concepts, analyze and justify how the market crash represents an emergent phenomenon. A key question that you may want to address in your response includes: “How did the economic system’s macro-level behavior of market crash arise from interactions among micro-level/individuals parts?” In addition, identify a number of micro-level components/behaviors that did not really signal the emergence of the market crash prior to this calamity (e.g., related to the element of surprise). An example of a micro-level behavior or component that was not a strong indicator of the market crash would be “people investing in real estate.”    

Solutions

Expert Solution

1. This crash started in 1999 at first which took 9 years to unfold the resulted turmoil in 2008. This happened due to various factors linked to Credit crisis, Bank collapse, Mortgage crisis, etc.,

2. Loans are offered to people with lower credit and savings as home loans with positive point of view or say rational thinking of home ownership of every individuals but this turned upside down. In order to compound potential risk of mortgage, consumer debt increased tremendously which hit $2 trillion in the history for the first time.

3. On September 7, 2008 with the markers down nearly by 20%, the government took Fannie Mae and Freddie Mac due to losses from subprime mortgage market. It's a lesson where it concluded that rational thinking leads to irrationality. This is because with higher prices of lent home loans, the creative lenders hoped to increase even more lending which obviously led to these turmoil resulting in all of these consequences.


Related Solutions

After the crash of the housing market in 2008, the government created regulations to ensure that...
After the crash of the housing market in 2008, the government created regulations to ensure that purchasers were not abused with predatory lending in buying a home. What is the issue?
In 2008, one of the largest financial crises since the stock market crash -- along with...
In 2008, one of the largest financial crises since the stock market crash -- along with resulting failures of several large banks -- was met with a massive intervention in the financial markets by the Federal Reserve and the federal government. The problem was associated with a financial "innovation" in which large numbers of mortgages were “bundled” into a security and sold in the financial markets to banks, investors, foreigners, and investment banks. The problem of excessive risk and moral...
Discuss the housing market crash in 2008 in a macroeconomic setting. Include models and information that...
Discuss the housing market crash in 2008 in a macroeconomic setting. Include models and information that would have indicated some event like the crash was coming. Also discuss the impact of this crash on the US market. Include some well known macroeconomic models with diagrams and detailed explanation
After the severe 2008 stock market crash, an increasing number of publicly traded firms announced stock...
After the severe 2008 stock market crash, an increasing number of publicly traded firms announced stock buyback (repurchase) programs. Most analysts are also predicting that many firms will use the money saved due to the 2018 tax law which lowered highest corporate tax rate from 35% to 21% to repurchase their stock or pay dividends. Please explain what benefits or rationale, if any, firms see in stock repurchases and how would investors react to these repurchase programs. You would want...
Tragedy of Commons and the Housing Bubble crash in 2008. Using the Tragedy of Commons as...
Tragedy of Commons and the Housing Bubble crash in 2008. Using the Tragedy of Commons as your reference, provide a brief and simplified 400-500 word description of what happened with the housing market and the Subprime mortgage fiasco.
Describe the crash of 1929 versus the financial crisis of 2008. What are the similarities and...
Describe the crash of 1929 versus the financial crisis of 2008. What are the similarities and what are the differences
How did government respond to the crash of 1929 and the financial crisis of 2008
How did government respond to the crash of 1929 and the financial crisis of 2008
What would happen if emergent behavior in supply chains allowed them to recognize and counteract the...
What would happen if emergent behavior in supply chains allowed them to recognize and counteract the effect of boom-to-bust cycles? Hint - The ability to recognize and smooth out excessive swings in demand, prices, and productive capacity
In the wake of the financial crash of 2008 and ensuing “Great Recession”, Robert Skidelsky, Keynes’s...
In the wake of the financial crash of 2008 and ensuing “Great Recession”, Robert Skidelsky, Keynes’s biographer published Return of the Master—strongly suggesting that the economics of JM Keynes is still relevant. Would you, or would you not, agree it is still relevant? Why?
What are the four emergent properties of water? Give an example of how each supports life....
What are the four emergent properties of water? Give an example of how each supports life. 1. 2. 3. 4.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT