EC250 Chapter Notes - Chapter 1: Put On, Canadian Dollar, Credit Default Swap
Document Summary
1. 1. 1 why was lehman brothers allowed to fail: hey people go to the bank and they are like brotha i need money to. Lehman brother"s filed for bankruptcy fourth largest investment bank. Losing money due to decline in real estate prices. Then bear stearns was failing another investment bank. Moral hazard company doesn"t own up to their responsibilities. Since 2006 house prices falling and borrowers were defaulting. Financial innovations allow firms to sell mortgage to others. Financial markets went into panic and difficult to get credit: markets found that people will not repay loan. Recession: two consecutive quarters of falling output. When credit is difficult to get investment falls. Output fell and unemployment reached: 20 % in canada, 25 % in usa. Great recession unemployment: 9 % canada, 10 % usa. Traditional monetary policy: is to affect short term nominal interest rates. Central bank does this by buying and selling short term government bonds.
