POSC 182 Lecture 25 2010

POSC 182 Lecture 25 2010 - POSC 182 Politics and Economic...

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POSC 182: Politics and Economic Policy Unit 4: The Current Crisis Lecture 25: The Financial Crisis March 5, 2010
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Issues in the Crisis Housing market Housing prices have plummeted Financial markets Credit markets have frozen up Stock markets have fallen Recession High unemployment Preventing future crises How and how much to intervene in markets?
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Pros and Cons of the Bailout Bailout (TARP): government bought shares of failing banks, GM, Chrysler, and insurance companies Cons Moral Hazard: Bailing out banks will encourage risky behavior in the future Unjust: People not responsible for the crisis have to pay the costs Pros There was systemic misinformation / lack of understanding risks Confidence in the financial sector could continue to plummet Credit crunch could lead to a deep recession or even depression A freefall in the value of people’s assets
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Pros and Cons of the Stimulus Cons Increases the budget deficit / national debt May not stimulate the economy Will work too late Distorts the economy / wasteful Pros Deep recession / depression High unemployment Long-term damper on economic growth
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Passing a Bill Bill introduced in House, debated and
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