The Nasdaq bubble and crash were followed by the real estate bubble then subprime crash, which led to the unprecedented printing of trillions of dollars in an attempt to prevent a global depression.
Sentiment: NEGATIVE
What the mortgage bubble was all about was big banks like Goldman Sachs taking big bundles of subprime mortgages that were lent out largely to low-income, highly risky borrowers, and applying this kind of magic-pixie-dust math to these bundles of securities and slapping AAA ratings on them.
Concentrating wealth in the hands of the few and deregulating financial institutions and practices lead to speculative bubbles that eventually burst - and that brings the whole country down.
The stock market crash in October 1929 didn't destroy a particularly large amount of wealth or make people highly pessimistic. Rather, it made companies and consumers very unsure about future income, and so led them to stop spending as they waited for more information.
The subprime disaster was a result of financial bombs - derivatives - exploding in financial institutions such as AIG and Lehman Brothers, as well as banks and financial institutions throughout the world.
Viewed from a distance, or through the eye of the All-Knowing CEO of the Universe, the crash of 2008 followed the usual pattern. A long-lived boom driven by cheap credit, going back as far as 1982 (though subject to interruptions in the mid-1980s and 1990s, and in 2001), came to grief because of a rise in the cost of borrowing money.
What we need to understand is, one, that there are market failures; and two, that there are things like asset bubbles and irrational exuberance. There are periods of booms, bubbles, and manias. These things, if left to themselves, can lead to crashes, to busts, to panics.
Virtually every real breakthrough in technology had a bubble which burst, left a lot of people broke who'd invested in it, but also left the infrastructure for this next golden age, effectively.
I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.
After 1929, so many people had been traumatized by the stock market crash that there was a lost generation.
We escaped the last big bursting of a bubble - the dotcom bubble - with a relatively light U.S. recession. On that occasion, the world economy found its way back on track fairly quickly.
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