The Great Recession

There’s already been much discussion over what fueled the Great Recession of 2008. In this video, Tyler Cowen focuses on a central theme of the crisis: the failure of financial intermediaries.

By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.

In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.

Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.

When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.

What could have been done to prevent all of this? You’ll have to watch the video to find out.

Help us caption & translate this video!

[fling]

It seems like 90% of what I read about the financial crisis are conservatives blaming it entirely on the government or liberals blaming it entirely on the market, so it was quite a pleasant surprise to see how much this video seems to focus on just explaining what happened without an ideological axe to grind.

Great use of animations, too.

[mihirr]

Both the professors are just Brilliant!!

[tarang]

This channel is the one consistently reliable source of study! Thank you Sirs :)

[ahmedbellankas]

Yes, we are interested in learning more about it.

[Being_Aware..]

Yet to see channels with such a mix of intellect, quality and lucid explanations.
Request the makers to also deep dive in the world of economics to cover the intricacies of it and to make the education and science of money even easier to understand.

[nahangoteophilus]

Powerful
I enjoy these lectures they really help me....Thank you proffessors

[danianjan]

Excellently explained, humor-filled video. Kudos to you !

[Buttersausage]

Our financial institutions nearly crumbled I don’t thing people comprehend how serious things got in 2008 because of greedy individuals

[Vellichor]

Great video, I would love more on this topic.

[mickmickymick]

That was a great video, I'd love to see a whole series on the topic.

[thedeegan]

I think that any content that try to explain the 2008 financial crisis that doesnt mention the artificial low interests rates is kinda incomplete... I feel kinda weird disagreeing with economics PHD's >.<... still. awesome video!

[ankitbishnoi]

I want to know why your viewers are so less in short run instead your explaination are awesome. Please explain it with economics!

[fodil]

So far this is the best video explaining the crisis with a clear, short and organized description of what really happened. Even-tough it doesn't question the fundamentals of the economic system in place that produced and will continue to produce such dramatic consequences, it does much better than 100's of interview and debates you watch on TV that adds more confusion than clarity. I hope Marginal revolution Uni will continue producing videos that deconstruct the complexity of economic subjects with a clear explanation and intuitive animations with an elaborate criticism of the fundamentals of the economical system in use.

[AMITSHARMA-qjzf]

plz make a full length video..on recessions (all from the history to modern times)

[ashtypology]

I would love to see a video on the economy of this year after the war of russia, covid lockdowns and everything that has happened in the last 4 years

[vkorchnoifan]

An good explanation of what happened. But why were standard lowered to buy a home ? No down payment to purchase a home ?? Where did that come from ?

[RedBloodedAmerica]

No mention of the purchase of loans to subprime borrowers by GSEs? Odd to leave that out.

[Gaz]

I think you did a very good job of this.

[cabinetavocatalexandrapopa]

Great subject! It would be interesting for me to know more about the impact of the stimulus packages and various toxic assets buying programs. Did they work? And what about the new regulations already in place: who's assessing if they're working or not?

[danielpais]

Great video and such a hard work in animations! Thanks