Chapter 11 The Great Recession: economic black magic II
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Chapter 11 examines the Great Recession of 2007–2009 that brought the US and the rest of the world perilously close to another Great Depression. First it reviews the Gramm-Leach-Bliley Act of 1999 that eliminated an important portion of the 1933 Glass-Steagall Act dealing with bank regulation. This is thought by many to be one of the causes of the Great Recession. Then the chapter turns to subprime mortgages and subprime derivatives that were instrumental in fueling a speculative bubble for housing. It suggests that greed and corruption were more important that stupidly. Next it turns to an explanation as to how fear and panic allowed defaults on subprime derivatives, which were only about 1 percent of total world financial assets, to precipitate a general collapse of the financial sector. Then the chapter gives an account of how the financial collapse generated a steep decrease in GDP and a sharp rise in unemployment. The economy grew very slowly for almost four years after initially recovering from the Great Recession. Many economists believed that this marked the end of rapid (or at least decent) economic growth rates for the US economy. This chapter, however, maintains that the years of slow growth were a result of negative economic hysteresis generated by the Great Recession.

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