In: Economics
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.”
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.