- The Great Recession, which ran from December 2007 to June 2009, was one of the worst economic downturns in US history.
- The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages.
- New financial laws and an aggressive Federal Reserve are two of the Great Recession’s legacies.
Who is to blame for the economic downturn of 2009?
The Lenders are the main perpetrators. The mortgage originators and lenders bear the brunt of the blame. That’s because they’re the ones that started the difficulties in the first place. After all, it was the lenders who made loans to persons with bad credit and a high chance of default. 7 This is why it happened.
Who was to blame for the financial crisis of 2008?
Richard Fuld, CEO of Lehman Brothers Richard “Dick” Fuld’s name was synonymous with the financial crisis as the last CEO of Lehman Brothers. He guided Lehman into subprime mortgages, establishing the investment bank as a leader in the packaging of debt into bonds that could be sold to investors.
What triggered the Great Recession of 2008?
The Federal Reserve hiked the fed funds rate in 2004 at the same time that the interest rates on these new mortgages were adjusted. As supply outpaced demand, housing prices began to decrease in 2007. Homeowners who couldn’t afford the payments but couldn’t sell their home were imprisoned. When derivatives’ values plummeted, banks stopped lending to one another. As a result, the financial crisis erupted, resulting in the Great Recession.
In 2009, what went wrong with the economy?
In 2009, the Great Recession’s financial crisis deepened. The stock market fell even further in March, causing panic among investors who assumed the worst was over. Despite government programs that did not go far enough, foreclosures increased. For the first time since 1982, the jobless rate reached 10% in October.
The Obama administration promoted a $787 billion job-creation plan. By the middle of the year, economic growth had finally turned positive. The Great Recession was technically over.
In truth, the damage was so extensive that it took years for things to appear to be improving. Things only grew worse for those who remained unemployed, lost their houses and credit ratings, or were forced to take positions that paid significantly less. The timelines of the financial crises of 2007 and 2008 show how these events unfolded and how the government failed to recognize early warning signs.
Defaults on mortgages for homes were a major driver of the US recession that began in 2008.
Human greed and a lack of judgment are the root causes of the subprime mortgage crisis. Banks, hedge funds, investment houses, ratings agencies, homeowners, investors, and insurance companies were the main actors.
Even individuals who couldn’t afford loans were lent to the banks. People took out loans to buy properties they couldn’t truly afford. Investors raised demand for subprime mortgages by creating a market for low-cost MBS. These were packaged into derivatives and marketed to financial traders and institutions as insured investments.
People defaulted on their loans that were packaged in derivatives when the housing market grew saturated and interest rates began to climb. This is how the housing market crisis pushed the financial industry to its knees and triggered the Great Recession of 2008.
Was the financial crisis caused by Freddie Mac and Fannie Mae?
Fannie Mae and Freddie Mac took on more risk than they should have as government-sponsored companies. They failed to protect taxpayers, who were ultimately forced to bear the brunt of the losses. They did not, however, create the housing downturn. They didn’t saturate the market with high-risk loans.
How did the United States emerge from the Great Recession of 2008?
Congress passed the Struggling Asset Relief Scheme (TARP) to empower the US Treasury to implement a major rescue program for troubled banks. The goal was to avoid a national and global economic meltdown. To end the recession, ARRA and the Economic Stimulus Plan were passed in 2009.
How did Morgan Stanley manage to stay afloat throughout the financial crisis?
One of the company’s most profitable segments is institutional securities. Investment banking, sales and trading, as well as real estate and corporate finance, are all services provided by the company. Corporations, financial institutions, high-net-worth individuals, and governments are all served by the international securities unit. Capital raising through initial public offerings (IPOs), financial counseling on restructuring, mergers and acquisitions, debt underwriting, and project financing are all examples of investment banking. Market-making activities in stock, fixed income products, and foreign exchange are all part of sales and trading. Commercial and residential mortgage lending, loans to municipalities and government entities, and funding offered to equities consumers are all examples of corporate lending.
History of Morgan Stanley
The Glass-Steagall Act, which mandated US banks to divide their investment banking and commercial banking operations, led to the formation of Morgan Stanley. It came after a series of bank runs during the Great Depression, when commercial banks were accused of taking too many risks with depositors’ money. When J.P. Morgan decided to stay in the commercial banking business, some of its workers, including Henry S. Morgan and Harold Stanley, left to create their own investment banking firm.
Formation of Morgan Stanley
On September 16, 1935, Morgan Stanley opened its doors to the public at 2 Wall Street in New York City. The company has a 24 percent market share ($1.1 billion) among public offerings and private placements in its first year. In 1938, it was named the primary underwriter in the United States Corporation’s debenture distribution. The corporation underwent a restructure in 1941 to allow it to enter the securities business. Morgan Stanley became a member of the New York Stock Exchange in 1942.
Morgan Stanley and Pioneering IPOs
Morgan Stanley was involved in a number of governmental financings between 1951 and 1961. Co-managing the World Bank’s $50 million AAA-rated bonds, GM’s $300 million debt offering, IBM’s $231 million stock offering, and AT&T’s $250 million debt offering were among them. In following years, Netscape, Cisco, Broadcom, VeriSign, Groupon, Salesforce, Priceline, Compaq, and Google were among the major tech IPOs underwritten by the firm.
Morgan Stanley and the Financial Crisis
Morgan Stanley reportedly lost 80% of its market value between 2007 and 2008 due to the financial crisis. The company received money injections from multiple sources to help it withstand the crisis. The China Investment Corporation invested $5 billion in the company in December 2007 in exchange for securities that would be converted into a 9.9% ownership stake in 2010. Morgan Stanley received $9 billion from Mitsubishi UFJ Financial Group, Japan’s largest bank, in September 2008. As part of the $700 billion government bailout for struggling financial companies, the US Treasury invested $10 billion in Morgan Stanley. To assist support its cash-strapped operations, the business borrowed $107.3 billion from the Federal Reserve.
James P. Gorman (Chairman and Chief Executive Officer)
Morgan Stanley’s Chairman and Chief Executive Officer is James P. Gorman. As President and Chief Operating Officer of the Wealth Management Group, he joined the firm in 2006. Gorman was also the company’s co-president and co-head of strategic planning. He graduated from the University of Melbourne with a bachelor’s degree in law. Gorman also possesses a master’s degree in business administration from Columbia University’s School of Business. In 2016, he earned $22.5 million in compensation.
Colm Kelleher (President)
The President is Colm Kelleher. He formerly held the positions of Executive Vice President (2007-2016), President of Institutional Securities (2013-2016), Co-President of Institutional Securities (2010-2012), and Chief Financial Officer and Co-Head of Strategic Planning at the firm (2007-2009).
Henry Sturgis Morgan (Co-Founder)
After the Glass Steagall Act required J.P. Morgan & Co to divide its investment banking and commercial banking operations, Henry Sturgis Morgan Sr. co-founded Morgan Stanley. After graduating from Harvard University in 1923, he joined J.P. Morgan. J.P. Morgan & Co. was founded by his grandpa, J.P. Morgan. At the age of 82, Henry S. Morgan Sr. died on February 8, 1982.
Harold Stanley (Co-Founder)
Harold Stanley was a businessman from the United States who co-founded Morgan Stanley in 1935. In 1941, he oversaw the company’s conversion from a corporation to a partnership. While at J.P. Morgan, Stanley became well-known in the investing business for his expertise in securities trading. At the age of 77, he died on May 14, 1963.
What led to the global financial crisis of 2008 and 2009?
The Great Recession, which ran from December 2007 to June 2009, was one of the worst economic downturns in US history. The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages.
What caused the global recessions of 2008 and 2009?
- The Great Recession refers to the global financial crisis that occurred in 2008-2009.
- It all started with the housing market bubble, which was fueled by an overabundance of mortgage-backed securities (MBS) that packaged high-risk loans together.
- Reckless lending resulted in an unprecedented number of defaulted loans; when the losses were added up, several financial institutions failed, necessitating a government rescue.
- The American Recovering and Reinvestment Act of 2009 was enacted to help the economy recover.