EC103-Topic#2: What does the 'downturn' mean to you

We are discussing GDP and its components in class. Given that a vast portion of GDP is consumption, I would like you to really think about what GDP is measuring. The current global economic crisis will almost certainly have an impact on your life. This topic is less structured than usual, but I want everyone who is participating in this blog to bring some general evidence to the discussion. To get a better understanding of how the economic situation potentially affects you or your generation, you can start with the following articles. Please remember that other people are reading your blog, so don’t divulge any information you do not want others to know. Also remember that I want you to put forth your opinion and back it up with facts.

Where did the money go?

What happened in the first place?

What about foreclosures?

29 thoughts on “EC103-Topic#2: What does the 'downturn' mean to you”

  1. Young Americans and the Financial CrisisIt is important to understand the current situation in order to evaluate the challenges facing our generation. The massive bailout plan was passed to restore the normal flow of money between banks and businesses. This continuous circulation of money is essential to a thriving economy; it allows businesses to run smoothly and invest for growth. A disruption in this normal flow of money would have a domino effect on the economy; investments would sharply decrease, affecting businesses in every sector of the economy. Such stagnant economy would result in lower employment opportunities for young Americans graduating from College. Senator Barack Obama recently discussed about this new reality, stating that:‘’ The bottom line is, that if money freezes up, businesses can’t do business, and you get an enormous contraction of an economy. And that, ultimately, will affect that 20-year-old, because that 20-year-old is going to be looking for a better job after he gets out of school. … If our businesses aren’t creating jobs, they’re not creating tax revenues — now it’s harder for government to finance that college education or to build that new university. So it has a ripple effect’’ MTV News, James Montgomery, Sep 29 2008, It is impossible to predict the future and accuralety determine what the consequences of the financial crisis will be for young Americans of my generation. The results of the bailout plan will likely dictate where the economy will shift. If the bailout is successful, the normal flow of money will be restored and businesses will be able function normally. If credit remains difficult, we will likely experience a contraction of the economy, resulting in fewer opportunities and tougher credit for young Americans.

  2. For those think this financial/credit crisis isn’t affecting us or that it only affects Gen X, you are wrong. Let’s see what is important to a college student. Friends, grades, weekend plans, finding a job for the coming summer or even securing a job after graduating. Without the credit flow we use to take for granted, banks can’t lend money to those with poor or nonexistent credit history, particularly college students. Students will find themselves unable to afford college without student loans and with the rising cost of tuition every year. In addition, the American job market will be hard to penetrate for students fresh out of college with no experience. According to the U.S Bureau of Labor Statistics, there was an et loss of 159,000 jobs in September, bringing the year-to-date total to 760,000. And ultimately it is Generation Y who will carry the burden of $700 billion rescue plan. -shi li

  3. Consumption is not only a vast portion of GDP, but also is the basis for much of the American way of life. New and upcoming goods are marketed to the public in extremely intelligent ways, and consumption is a big part of allowing our economy to grow. Unfortunately this consumption has come with negative implications. People have had to borrow more, putting them into even further debt, and the $700 billion bailout isn't coming out of thin air, its being paid for by the wallets of the American tax payers. The financial crisis will make it harder for our generation to get loans for college, as well as get jobs when we graduate. Look at what happened to the couple which bought their first home in the “Foreclosure Alley” video. They bought their house thinking they were getting a good deal with a tax write-off, it turns out they made a bad deal because the house currently holds half the value in which they bought it at. Not only is this financial downturn affecting current and past homeowners, but we feel some of these effects now too, and we will feel them even more so when we graduate.

  4. The unemployment rate rose from 5.1% to 6.1% from March to September of this year. Even with this decrease, it is expected only to get worse. In the past, recessions have generally affected the jobs of unskilled laborers. Even when money is tight, it is generally more lucrative to hold onto a trained worker than to remove and replace that position later on. However, it may now be skilled workers who get hit the hardest from the economic downturn. The jobs of unskilled laborers are currently safer from the economic downturn since companies do not need as much money to maintain employee salaries. To keep up with the ever-changing new technologies in the workplace, most companies require loans to purchase new machines, hire new employees and expand in general. Due to the current credit crisis, these companies will now not be able to get the necessary loans to expand their company. Many jobs will be disposed of in order to afford new equipment. This leaves the college age generation with a much smaller amount of jobs where they can put their new skills and education to use. Less overall skilled job positions will result in a trickling effect, hurting those who lack work experience.-JR

  5. In response to the questions: what happened and where there the money go?, the current credit crisis stemmed from Banks going under because of sub-prime loans that were expected to make money off of the interest rates, which were backed by an actual house. But now that the houses’ value decreased and now that mortgage rates are higher than what the houses are worth, the banks lost money. The banks had no liquidity because the people who took out mortgages were no longer able to make payments. This, as Mr. Nocera perfectly titled in his article, “Alarm Led to Action”; and as a result, the investors panicked because the assets decreased in value and the investors pulled out their money to cut their losses. This made it hard for banks to loan money. However, it is important to note that besides the initial investment, there was no money in the first place. When people say they “lost money” they mean that their, what Eric Carvin calls “potential money” or what they expected to gain as a result of their investments is higher than what they were expecting to make and were “depending on to get by.” The credit crisis and the current downturn in the economy gives first time investors to buy in at a good low point, but it is hurting people who have saved and invested and are not trying to live off of their investments (As Credit Crisis Spiraled, Alarm Led to Action). This affects me because as a result, it might be harder for me to get a job because it will reduce liquidity and businesses will not expanding and thus, not creating new jobs despite the increasing population. This will disproportionately affect me as a college student with no experience making getting a job harder when in competition with the older, more experienced generation. The downturn also increases the cost of borrowing because of the higher risk associated with borrowing, which would make getting a mortgage in the future more costly (Foreclosure Alley). Prices in everything will also increase because the higher cost is going to be put on the consumer. On a larger scale, GDP, which takes into account the unemployment rate and consumption which is made up of investing and consumer purchases, will decrease. This is because people are no longer consuming as much as a result of higher prices, and companies are not investing as much as a result of the lack of banks willing to give loans.

  6. Julie Alintoff says: Recent college graduates, who have yet to establish credit, may encounter great difficulty when they attempt to obtain money in order to start a new business or buy a house. It is not only impractical to rely on banks for loans, but also not a good idea to have faith in other investments right now. According to Eric Carvan, “For people who need cash and need it now… you run into trouble when you think of [invested] potential money as being the same thing as the cash in your purse or your checking account.” If graduates, who don’t have much cash, but who do have new, innovative ideas, are not able to borrow money in order to employ their ideas and start a business, then progress and the evolution of ideas in the US will slow. Also, without borrowed money or a job, graduates are more likely to delay moving into a home and starting a family, which will perpetuate the decline in economic activity. With an active Federal Reserve System, hopefully Ben Bernanke will be correct when he says “ situations where crises have really spiraled out of control are where the central bank has been on the sideline.”

  7. the last comment was my official comment, I’d just like to say this too– please correct me if I am wrong about anything, I am speaking my opinion bluntly to ask for criticism:On foreclosure- that movie made me angry because it seems like people have unhealthy values. People buy nice homes, fill it with nice stuff, and the only way they can afford to pay for it is to borrow money from the banks. The banks ought to have stricter policies on who is able to borrow money based on people’s previous credits and other credentials that I can’t say that I am very knowledgeable about. The banks want to lend out all their money because then the get the interest from the people they lent out money to. But now, the government has to buy up all those mortgages that have yet to be paid off, and now the banks are suffering, and everyone is suffering. This is because the banks are too greedy to care to look into people’s credit credentials, and people are too greedy to deal with what they have, and they go out and buy a huge house and fill it with nice stuff that they can’t afford, and then they are forced to leave all their stuff in their nice house. Banks don’t lend out money so that people can buy a lot of stuff, they lend out money so that people can buy a home and maybe start a business, or get into the work force so that they can make money, and eventually be able to pay back the bank. The values of those who lent out money carelessly and those who borrowed money without the intentions of paying it back have initiated this. On a side note of this aside, wouldn’t it be more efficient to sell back that furniture and all those goods in the houses? isn’t there any economic worth in them anymore? If nothing else, shouldn’t it be donated? The environmental costs of foreclosure are heavy as well. Seeing the method by which houses are foreclosed shows me that the wasteful, consumptive values of Americans appear inherent. Those workers were told that they had to close the house by a certain time, they had no other choice. This rushed, “get the job done, move on to another one” attitude that the workers had to have, is unfortunate; especially because they were (assumedly) performing that work to earn a pay check. This situation should not be so, those who ask to borrow money should be doing so to invest in future money, hard work to yield benefits, not just money to buy goods, because look at them throwing out all those goods, they’re worthless now! The values of bankers and consumers need to be reformed. Please excuse my rant, comments are welcome.JA

  8. Given that a vast portion of GDP is consumption, GDP is really measuring the well being of a nation. When considering the economic crisis and the impact it will have on my generation, I think one of most notable consequences will be the large reduction in consumption. People will be spending a lot less because they are either unemployed and don’t have any money to spend, or they are employed and scared into being more cautious with their money. This notion of caution will have a big influence on the economy. My generation will have to start distinguishing between what they want and what they actually need. Even those consumers who have money to spend will be more likely to shop at lower priced stores such as Target and Wal-Mart because of the fear of financial instability. Already this is happening; Wal-Mart recently reported, “same-store sales in September rose 2.4%, helped by gains in grocery and clothing purchases” (1). BJ’s Wholesale Club sales also rose 10.4%, while wholesale club Costco rose 7% (1). At the same time department stores are seeing a drastic decrease in sales. Nordstrom’s sales fell 9.6% last month (1). Cautious spending will negatively affect the luxury goods market.Another instance of the “what you want vs. what you need” principle presented itself in the Yahoo news article about the stock market. The article described a “huge shrinkage in the financial sector,” where investors realized that they had permanently lost money that they had invested in stocks (2). My generation will most likely be a lot more cautious regarding the kinds of stocks they invest in. Instead of putting money into financial stocks, they will probably invest in companies that produce or deliver necessities, such as Wal-Mart and Costco. My generation will most likely turn to coupons as another way to save money. Already popular, the demand for coupons has led to the creation of websites for online coupons and companies that send text message coupons (3). And as the “foreclosure alley” episode showed the creation of some new jobs related to house foreclosures, caution about spending has also created new job opportunities for the coupon industry. Lastly, two serious consequences of the economic crisis that are affecting many students right now are “tighter loans and fewer opportunities in the job market” (4). There is a large reduction in the amount of student loans available because banks have imposed stricter requirements for lending with higher interest rates. In the job market, businesses from the financial world are no longer recruiting students out of college. Therefore more students may end up going to graduate school or turning to other careers, especially in the sciences and law. -E Kennedy1. 2. 3. 4.

  9. How this crisis effects me, all depends on how the government acts over the coming months and years. On the one hand, the pain can come now, and last for only a short period of time. I may experience difficulty in supporting myself as a college student for the next several months, and may also have difficulty in obtaining credit, since I have never done so before. The job market may be slow as well, even for just a summer job, since businesses will have difficulty expanding when they can not take out a loan. On the other hand, I could go through college relatively unaffected — but then face an even harsher and longer economic downturn when I am out on the job market. The government appears to be choosing this second option. Our economic situation came about from loans being given to people, who should not be receiving loans. When these debts could not be paid, the trouble began to arise. The government’s current approach of bailing out the financial institutions and keeping interest rates low, is encouraging these institutions to continue to give loans out too easily, which many times means to people who can not pay for them. In the short-term, this may help our economy, by encouraging people to spend more, because they can get the credit to support this. In the long-term, there are going to be even more loans that can not be paid off — and the same places that were bailed out, will be back in the same situation.

  10. Under normal market conditions, the long-term benefits of investment include greater output in the future. That is, the production possibilities in the future are greater based on the decisions we make today to invest more than we consume. College is one example of this type of investment. You enroll in college now and earn a degree, investing thousands of dollars in student loans and years of time, basically delaying consumption today to invest in your future of having a better opportunity to get a better paying job because of the skills set you will acquire from a college education.However, the current economic crisis is deteriorating that production possibility in the future for us soon-to-be college graduates. The amount of college graduates who are employed fell by 1.6% from March to August of 2008. At the same time, those with only a high school degree and even high school dropouts enjoyed an increase in employment rates by 0.6% and 0.2%, respectively. The decision for us to invest in a college education is therefore not yielding the same production possibilities as it normally would during a robust economy.Not only are our job opportunities diminishing, but also this holds other implications for us as college students. According to the Bureau of Labor Statistics, there has been a 5% decrease since 2001 in the amount of college students receiving health insurance coverage after graduation. Also, fewer than half of recent college graduates get any form of pension. Other implications for us are that we are most likely going to be underemployed after graduation, that is, doing work for which we are over qualified. Because of the current economic crisis, our investment now in college will most likely not yield better consumption in our post-graduate future. Alan B. Kreuger, The New York Times, Trejos, The Washington Post, Tacconi

  11. Have you thought that colleges around the U.S. can be potentially affected by the recent economic “downturn”? “Big institutional investors-like pension funds and college endowments-had been pulling money out of money funds.” Mary Lou Bates, dean of Admissions and Financial Aid at Skidmore College brings forward this issue, “Given the economic downturn nationally, we’ll have to make a lot of choices as to what we can do.” The overall funds that enhance students’ academic lives on campus as well as financial aid services to minority students might shrink within the next year. College students who come from poorer families will be the most affected since parents are less able to pay for college tuition. As a result, students will be forced to work more hours, save and/or borrow more money and consume less. Additionally, college graduates will face less job opportunities in the market. Despite its negative impact, there is an upside to the economic crisis for some. According to Nicholas D. Kristof, “Falling housing prices harm landlords and speculators but benefit renters and first-time buyers who tend to be low-income families. Likewise, a recession lowers prices of gas, oil and food, which disproportionately affect the poor.” However, a predicted decrease in health insurance mainly offered to poorer families, will also harm the lives of students who come from this economic background. “And for those who lose health insurance, a medical or dental problem is enormously stressful, even life-threatening.” Consequently, there are really more negative outcomes than positive ones from such a critical economic time. “All that money you’ve lost-where did it go?” By Eric Carvin from The New York Times. Oct. 11, 2008. “From checkbook to classroom: How Skidmore gets its money, and where it goes” Skidmore News. Oct. 17, 2008 “The Downturn’s Upside” by Nicholas D. Kristof from The New York Times. Oct. 18, 2008

  12. The current credit crisis is not only affecting our generation, but our parent’s generation. It stems from three major issues: an enormous growth in wealth that needed to be transferred into investments, the greater readiness of both individuals and financial institutions to take on risk, and weak governance and oversight. This crisis is not only present in the United States, but all over the world. As my generation enters the workforce, it will be harder to find jobs than in the past because so many businesses are losing a great deal of money in the current situation. The current financial crisis will not only affect jobs in the banking, finance, construction, and residential real estate sector, but the unemployment trend will trickle down to other industries, that rely heavily on customers who use credit to buy their goods. The hope is that the bailout plan can restore the money flow and give money back to the banks. However, according to Economist Alan B. Krueger, past trends show that “the unemployment rate is likely to rise further — and remain high for a considerable period after the financial crisis subsides and economic growth resumes.” Kruegger also notes, “initial signs indicate that the employment shock has been felt more by college graduates than by those with a high school degree or less.” My generation has to deal with this recession, which will have a lasting effect on the job market when we graduate from college.

  13. This financial crisis will be particularly hard on college students and people in our generation. There are economists that are saying our generation may be the first generation that is economically worse off than our parents. A big part of the reason for this is that our society is made up of jobs that do not create anything; people work in business and on computers, but do not assemble or produce anything tangible. The United States is running a trade deficit because we are importing more than we are exporting. In our society, it is more profitable to have a job on a computer where the mind is used rather than producing something. Intelligence is more profitable than hard labor. College students tend to get jobs where nothing is produced. In the future, our country may take a turn away from this to solve the trade deficit, which would decrease the number of jobs which a college student strives for. It is already much harder for students graduating business schools to get a job. Our generation will be hard hit by this crisis, which is affecting us now and will affect us in the future.-Laura Phillips

  14. Over the past few months this economic crisis has had a major impact on our, the college students, lives. One would think I was talking about the loss of capital or not being able to pay for college, which is also a harsh reality we are facing. But I am talking about the stress that is piling up on our shoulders about what the future holds in store for generation y. Day after day, every one of our professors makes some crack along the lines of “good luck finding a job.” And they are right! In two years I will be slapping on a suit and going to job interviews competing with Bear Stearns leftovers. The Labor Department reported that the U.S. economy lost 159,000 jobs in September, the ninth straight month of losses in a year that has seen 760,000 jobs disappear so far.(1) I struggle to find the right word, but ‘disheartening,’ does a good job of encompassing the way we should feel right now with facts such as those. Also, Social Security benefits for 50 million people will be go up 5.8% next year, the largest increase in more than a quarter century.(2) This increase in social security means generation y will need to give more of our money to the seemingly “depressed” senior citizens. Not only will this have an impact on our future as working class Americans, but or immediate future looks grim as well, especially for the privileged upper to middle class materialistic teens looking forward to the winter holidays. That Nintendo Wii probably won’t be under the Christmas tree this December, nor will you get that iPod touch for your birthday coming up at the end of the month (cough cough, October 25th). The strain that our parents are going through is trickling onto us, and it is very disconcerting to be aware of your parents fear and insecurities. Being a college student at a time like this means all those 2am trips to Wal-Mart, really do need to stop. More so now than ever, I feel like a burden to my parents.I am not quite sure what my future will look like, but this crisis has opened all of our eyes to the drastic changes that can happen in the blink of an eye and change the next 10 years of our lives. With luck our $700 billion bailout plan will make for an easier future, and hopefully AIG won’t plan anymore $440,000 spa parties.(3) (1) (2) (3)

  15. The current economic crisis already is taken affect on our lives today, more and more parents are dealing with financial institutions that can no longer afford to lend out money to those with bad or nonexistent credit. This means that fewer students will be able to attend college at a time when jobs are requiring more qualification from individuals searching for employment in the business field. In fact, about 160,000 jobs were lost this past September alone, when the Wall Street crisis was just beginning. But it gets worse for students; with investment banks filing for bankruptcy Wall Street firms may not even consider hiring recent graduate students at all. According to a New York Times article, “Wall Street recruiters have canceled or postponed visits to elite universities like Harvard, Princeton and Stanford, citing the turmoil in the market.” Competition among the students has grown fierce. Students now start their job searches early and with a broader search, many of which have considered smaller firms. As for those looking to become entrepreneurs are overwhelmed by the fact that investors are scared to invest.Despite this fear of becoming an entrepreneur in an unstable market, in a survey done by the Kauffmann Foundation the results stated that the “health of the American economy depend on the success of entrepreneurs.” This has to do with the fact that entrepreneurs create more jobs, which will in return helps increase GDP because people are now working which results in a greater consumption.Arturo

  16. Gross Domestic Product is a measure of consumption, investment, government purchases and net exports. While GDP is not meant to be used as an accurate measurement of how well an economy is doing, a significant change in GDP can provide information about the health of business. The CIA World Fact Book contains detailed information about how the economic difficulties of the last few years, have impacted the country’s GDP, inflation rate, and the value of the dollar abroad (CIA). According to the Bureau of Economic Analysis, the estimated GDP for this year shows very little growth (BEA). The BEA, records the decrease in consumer confidence and purchasing this year, writing “Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — decreased 0.1 percent in the second quarter, in contrast to an increase of 0.1 percent in the first.” The information presented on the two government websites illuminate the current financial hardships.Marc mentioned how the financial crisis affects young people. To add on, since businesses are not doing well, employers can not afford more employees. When hiring, they will also have to be more selective. Businesses may have to resort to downsizing and usually that means the newly hired college students with no experiences are the first to go (Kelman). To add to the financial burden, wages are likely to remain stagnant, and the cost of living will continue to rise. It is also very likely that College tuition and debt may go up. Recently, the social security benefits for retirees have gone up by a 5.8 percent increase and yet many say it not enough to cover basic needs such as health care costs. It is a scary thought but perhaps it is possible social security benefits may not be as readily available for us when we need it (Hennigan).-Annie WuSources CitedCIA; Consulted

  17. The current financial crisis may profoundly impact American Public education. The majority of students in America attend public high schools (facing tremendous problems, already largely driven by paltry funding). With the onset of the financial crisis, though, education will most likely fall on the next administrations list of priorities. During the primaries and the election, only 3% of debate questions have addressed education, and while the Obama campaign says it will push forward with its proposed education spending, there’s a diminishing amount of money for the government to throw around. 1 Looking at Virigina’s public education sector, the effects are setting in: Fairfax County “ is considering reductions in campus police officers, school health aides and preschool classes for needy students;” similarly, Prince George’s County has stopped hiring’s while “drafting plans for a possible 10 percent budget cut,” while Montgomery County’s superintendent has warned that their schools may not be able to honor the expected teacher raises. 2 Fairfax County boasts highly regarded public schools, which take up half of the county’s $3.3 billion budget. As tax revenues decline (and fuel costs rise), the county faces a $430 million shortfall for the next fiscal year. 3 Across the board in major Virginian counties, spending cuts threaten such vital services as police officers and health officials, as well as major cuts in administrative spending, adult education programs, building leases – typical (and often vital) programs and initiatives. And this all in county’s which spend a significant amount of money funding public education. Without this financial crisis, our nation faces a host of issues regarding education. For instance, only 57% of black and 60% of Hispanic students graduate high school in the U.S.; our nation is falling behind other countries in math and science assessments. 4 American public education is already seriously underfunded; the financial crisis truly threatens public schools ability to not only improve, but merely to maintain, current spending. Many private schools are well equipped (at least immediately) to maintain financial aid programs by cutting spending in other areas (such as new construction, etc.), but their infrastructure is already (or often) much stronger. Unlike private schools (collegiate, secondary, etc.), public schools will be directly and immediately affected by serious budget cuts. Our public schools are already falling behind and apart, and it will be incredibly difficult to improve the system going forward. There’s simply a diminishing amount of money the government may use, and politicians have other priorities, however unfortunate, which push education to the back-burner. So while private college students may feel stressed or worried about the impact of the financial crisis, the situation could be worse. The vast majority of American students attend public schools which are straining to simply maintain themselves. 1,8599,1847336,00.html?xid=rss-politics2 ibid.4,8599,1847336,00.html?xid=rss-politics CB

  18. The financial situation in the US right now is affecting all of us. Because of the current scare of losing investment value, many people are pulling their money out of the stock market and out of other investment opportunities. As Carvin explains, investments are a mere speculation on the worth of something. Buying stock is not equivalent to having cash. Many Americans rely on their investments to pay for things like college or their retirement. Lifelong careful planning and investing pays for many collegiate endeavors. Because the flow of money has slowed so much, the value of investments has plummeted. Along with that, businesses are required to cut down on cost. Unemployment rates in the US are rising and people who had 401k retirement funds are hurting. If parents have to pay for college, and lose a lot of their retirement, then students will have to take out more loans. Getting loans will get harder if the credit crisis continues. Last year, 17$billion in private student loans were taken out. These loans do not have regulations on their interest rates, so students are graduating with more debt then ever. What if what happened with the mortgage crisis happens with student loans? ‘”Should private student loans suffer the same sort of failure as (subprime) mortgages, as students graduate or drop out and find themselves unable to pay, we will do serious damage not only to the lives of many students but also to the economic and social fabric of our country that depends on college graduates for its strength” Luke Swarthout at the U.S. Public Interest Research Group.’ Unemployment jumped from 5.7% in July to 6.1% in August of this year making it harder yet to pay back loans post graduation. Problems thought to belong to our parents will begin to haunt us on graduation day.,0,3121791.story

  19. The effects of the current financial crisis will be particularly acute to those graduating soon. While a recession and economic downturn are already worrying enough, the disturbances to the credit market will have lasting effects. Without available credit the number of new businesses looking for untrained, yet technologically adept (e.g. recent college graduates) workers will significantly decrease, leaving several classes worth of students without job prospects. However, each generation has faced and overcome its difficulties, and ours will be no different.In Roosevelts “New Deal” era, massive amounts of government money was pumped into the economy, both directly, by creating new governments jobs, and indirectly, through monetary and fiscal policies. While I do not believe the government will act exactly as it did before, I do believe that the credit crisis will cause recent college graduates to look for “safer” jobs, such as in government where turnover is relatively low, compared with those who previously would be looking at more “risky” jobs in the financial sector. For those that still continue pursuing work in the financial market, the landscape has dramatically changed. As large institutions such as Lehman Brothers and Merrill Lynch fall, smaller, more efficient banks will fill their void. In the new, interconnected world, this credit crisis could mean the rise of the small bank that is able to act quickly and efficiently, compared with large giants such as Morgan or Sachs. It is these smaller and more agile firms that will take in the new college and graduate school alumni causing a dramatic shift in the patterns of banking.

  20. Our generation is going to be strongly affected by the credit crisis in many ways even if we are not fully aware of it right now. One major aspect of this effect is college loans. Paying for college is going to be much more difficult for many students because many banks are pulling out of the federal loan system built for college students. These loans are appealing because they are fixed below market rates and guaranteed by the government. As more and more banks exit this market finding deals through the governmental system is more difficult and private lenders are getting more and more expensive. All students are going to be higher rates on their loans, and many will be denied the loan entirely. Many college’s loan programs operated through a private bank, depending on this banks stability, students looking for loans at that college may not find what they are looking for. Some colleges like Georgetown have become the direct lender as an emergency plan to solve this worsening problem. But this solution only can work for a select amount of schools and students all around the country (especially lower ranked schools) are either facing extreme rates or no loan at all.

  21. The current economic downturn and volatility obviously will affect this generation. We are somewhat used to dealing with political volatility on a regular basis, growing up in the age of 9/11 and the wars in Afghanistan and Iraq, as well as a domestic policy gone mad. Throughout this political and social shakeup, however, we have grown used to a strong economic system, a system we could have faith and confidence in. One of the biggest impacts of the current economic downturn for our generation is going to be a lack of confidence in the system that persists long after this shakeup is over. Growing up during a strong economy means that, until about a month ago, I trusted the economy. Now, instead of the completely free market I never thought about and never questioned, it seems impossible that the system could ever go back to normal without government regulation. Instead of trusting the market to function correctly, our views are shifting to hoping the government will run the economy well, and given our generation’s general lack of trust in the government, that may not go over so well. Bailing out AIG, and then the rest of the economy is just the beginning. “”Unfortunately, the government has failed to address the underlying problem,” said Sean Egan, manager of the credit rating desk at Egan-Jones Rating Co. “Until that is addressed, this is going to be a waste of time, effort and money.”” (CNN). Our generation is going to have to get quite used to the government intervening in the economy, especially since it seems it will happen far more often in the future.

  22. We are currently in an economic crisis that is being compared to the Great Depression, or close to it. The credit crisis, the current economic predicament, is much more terrifying than a stock market crisis, The New York Times points out. Banks are too scared to lend money to other banks and to people wanting loans. Without loans, our economy will suffer and since banks lack sufficient capital to make said loans, we are definitely paying the price. The start of this crisis can be traced back to 2000 when the Federal Reserve lowered interest rates to control the damage done by the tech bubble. The lowering of the interest rates made mortgages much cheaper thus increasing the demand for houses. This in turn caused the quality of mortgages to decrease “and turn sour they did, when home buyers had to leverage themselves to the hilt to make a purchase.” Now roughly 700 families lose their homes every day says Foreclosure Alley. But the housing market is just one of the areas being affected. My generation now has to pay the price of the mistakes of the current generation and the 700 billion dollar deficit we are in. Not being able to get loans makes paying for college even harder than it naturally is. Now the debts we will suffer as college graduates will just continue to grow, and instead of having prospective jobs and an income to pay them off, we will have neither. The unemployment rate is rising, making it difficult for college graduates to find jobs when it had been easier in earlier years. Students are being forced to pursue careers in the sciences and law, rather than careers they may be more passionate about but lack a current economic sturdiness. My parents have lost a savings that they had planned to use for my college and their retirement funds. I have to now worry about this, whereas before it never even crossed my mind. Now, there is significantly more pressure in saving what little savings families now have. Christmas this year will greatly differ from previous years since consumption must drastically decrease. This will definitely negatively affect malls, for instance, potentially causing stores to shut down from lack of business. The current economic crisis is going to continue to backfire, unleashing significant debt on college graduates and our society as a whole. Kolins

  23. The current financial crisis is a result of greedy banks, wanting to make an easy profit and therefore giving sub-prime mortgages to individuals who could not necessarily afford to pay them back. As a result, when these individuals failed to pay their mortgages, they walked away, leaving the banks with thousands of houses depreciating in value. Eventually, leaving banks unwilling to lend out money anymore affecting the entire country and causing a slowdown in consumption. This economic crisis will definitely have an effect on my generation. Already families have lost a significant portion of their college funds and therefore forcing kids into student loans in order to stay in school. In addition, college’s assets have decreased as well so while they might want to increase financial aid to help these students, they are worried about their own financial future. As a result, more and more students are going to be left with large loans to pay off when they graduate from college. Making the situation worse, jobs are going to become increasingly harder to find as companies tighten their spending. While in the past companies hired and trained a bunch of college graduates, now if they can save that money and get by with the employees they have they will do so. This leaves college graduates jobless and with debt that will only get greater with time. Hopefully, the steps the government has taken to bail out the banks will prevent further economic downfall and eventually restore the US economy to its former prosperity. With consumption flowing again, my generation will have a better chance at a successful life. Even though it was necessary for the government to aid the American banks to save our economy, I hope that all American have learned about the risks of being greedy from this situation. More importantly, I hope the banks realize they should be wary of the consequence of the risks they take because there is no guarantee the government would bail them out again. LC

  24. This financial/credit crisis is currently, and will remain to affect perspective, present, or recently graduated college students. These recent economic troubles have made banks very resistant for people with little or no credit to receive a loan for school, a new business, or a home. In particular, Ron Stolle, a professor of finance, has stated in regards to student loans “Some of the largest extenders of credits have pulled in, which makes it difficult for students to secure loans” (1). Companies such as Finansure, a business that made about $600 million dollars of educational loans in 2006, has stopped giving out student loans entirely (2). This might raise enrollment in America’s community college’s, but is unfortunate for those who cannot afford to attend the university that best suits his or her academic qualities. Some advice to give to a student such as this is not to rely on investment banks to hand you out a loan. There is viewer of them now and the banks just have higher rates and fees. It might be best to get a job, attend a community college and hope that you can become eligible for scholarships or other financial aids. I understand that this advice can be disappointing for some, but this could possibly be a blessing. The experience that one could learn joining the work force early is experience that one could use for the rest of one’s life. 1.

  25. In terms of understanding the current credit situation and the impact it will have on people of my generation, I think that one of the most important distinctions that it will create was one that should have been learned a long time ago regarding “real money” versus “hypothetical money”. Before the stock market crash of 1929, many Americans were purchasing stocks without a fundamental understanding of how the market worked, and were thus buying stocks on margin, or putting themselves into debt with their purchases. As a result, the crash of the market on Black Tuesday led to a longer depression than would necessarily have happened if this was not the case. In today’s world, a lot of this type of behavior is seen not in buying stocks on margin, but instead in the idea of looking at “hypothetical money” as “real”. As Robert Shiller writes, “”It’s in people’s minds…we’re just extrapolating that and thinking, well, maybe that’s what everyone thinks it’s worth.” ( believe that this idea of hypothetical money, which not only has manifested itself here but in other situations as well, such as the 2007-2008 WGA Strike, in which the writers ceased working for, among other reasons, a desire to receive a portion of the “hypothetical money” being made over the internet as the internet became more prevalent in reruns of television shows, etc. This concept of valuing the hypothetical dollar just as much as the real one is a concept that I do not believe many people of my generation understand, and thus the credit crisis will unfortunately force individuals of my time to learn to distinguish between the two. While I am not saying there is no value for the hypothetical dollar, and I am not saying that rather than investing one should simply keep one’s money under a mattress, I believe that there needs to be a greater understanding of the function of the economy and the differences between these two types of money.Finally, I believe that for all of the economic hardships that it will cause both for those of my generation and people before me, one of the largest unforeseen consequences of entire bailout will be the lack of trust it will create in people of my generation in not only the government itself, but in the Federal Reserve as well. While reading the articles provided as well as looking at other links, I eventually found an article regarding the exact nature of the bailout, as well another significant and “quieter” bailout. The official rescue plan was announced at $700 billion of taxpayer money that would bail out these banks and insurance companies. While this was a heavy toll on the tax-payer, no doubt, I believe that there was a certain amount of understanding that it was necessary and begrudging acceptance towards this policy. However, I found today an article that states that “In other words, even as academics and Congress agonized over TARP, Bernanke and Paulson had already pumped out roughly that amount of money — without so much as asking for a by-your-leave.” ( I cannot say that I have a full understanding of what the effects of this are, but I believe that actions like these “quiet loans” will ultimately be detrimental to the faith that people of my generation place in the Fed as a whole.

  26. The credit crisis began when banks overly distributed sub-prime loans to people who were not likely to pay the banks back. This over distribution contributed to the decrease of value of many homes while increasing mortgage rates. With the increase of mortgage rates people were unable to pay the banks back for their loan, therefore the banks lost a lot of money and many have gone bankrupt ever since. I’m not planning on buying a home soon so how will the affect me? Unfortunately, it will affect me as a college student and others from my generation because due to the economic credit crisis tuition costs will increase since the country now needs to be cautious of their money, therefore people will not be as inclined to donate money to private institutions. College students will now see higher costs for loans while others will be turned away from banks completely. For instance the Pennsylvania Higher Education Agency is temporarily not giving out federally guaranteed loans and The College Loan Corp. (the eighth largest student loan organization) is leaving the federal loan program. Therefore students may end up going to schools that are cheaper and not as good or leave students graduating with very high debt that they must pay off. The debt levels of college graduates more than doubled to $19,200 over the past decade, according to the Institute for College Access and Success. Now that we are in a slow economy due to the economic crisis many graduates will have difficulty finding a job because companies do not have as much money to spend on internal growth. This leaves thousands of newly graduated college students jobless with a degree and in debt from loans that will only get bigger when students are unable to pay the banks back. This has even caused many graduating seniors to contemplate higher education to delay entering the struggles of the workforce. -DO’K

  27. Mr. Bernanke was not trying to intimidate all the senators when he “made his remake about the possibility that there might not be an economy on Monday without this plan”. Mr. Bernanke’s plan will become a reality if United States government refuses to bailout A.I.G and loan billions of dollars to the banks, prevent them from declaring bankruptcy and creating cash flows. The majority of United States economy is consists of consumption while government spending, gross investment, and net export takes the remaining portion of country’s economy. If United States government declines to aid A.I.G and the banks, banks will be gone shortly because they are lack of cash flows due to the fact that majority of their cash went to the worthless sub-prime mortgage. After the banks are gone, people out of panic will try to withdraw their savings from banks with FDIC insured as unemployment increases dramatically. Such dramatic increase in unemployment is caused by the vast fallen businesses that are not able to loan from banks. As unemployment increases, people will tighten their spending, which will largely affect the consumption of our economy. As consumption stops, businesses falls, and government income halts from the lack of tax payers, who are now mostly unemployed, our economy will simply stops, collapses, and finally vanishes.

  28. The current economic crisis that the United States is going through began with a huge failing of house mortgage loans, where people just could not afford to pay, the banks lost money, and then all lending and borrowing slowed and the flow and circulation of money altogether stopped since the banks are too afraid to lend money out. The 700 billion dollar bailout plan was formed so that banks would have more cash flow and have no reason to hold on to it and be more inclined to lend it out. But since the banks are hoarding the money because they do not want to make bad investments, there are millions of failed mortgages and people are not going out and consuming. Businesses are contracting and laying off many people, unemployment is drastically rising and no money is being put into new and more modern investments because really no investments are happening. Tuition is going to much higher and it will be hard to afford grad school and even harder to find a job especially in the banking and business investing world. It will be very difficult for the younger generation to get loans since credit is being so tightly monitored and no banks are taking very high risks. It is our generation who will have to deal with a much bigger aging population that we will have to support and pay taxes for, and we can not afford to have very high unemployment and small amounts of money circulation. Unemployment is the highest it has been in 16 years, and if something is not done soon to alter this high percentage it is going to cause our generation and the United States some problems.-Katie Swartwood

  29. To let the “big three” U.S. Automakers fail would not only be disastrous to the already weak economy, but it would be morally wrong considering that congress has already spent $150 billion to save the insurance company, AIG. However, simply rescuing these automakers by giving them money to stay afloat is not the answer because these companies have proved that they are incapable of properly managing themselves. By giving money to save these companies, but allowing them to maintain the same structure and executives that are in power now is just dumb. Last year the automakers were given $25 billion dollars to “retool” themselves and produce more fuel-efficient cars. Yet still they need more money only a year later to stay out of bankruptcy. GM, Ford, and Chrysler have proven that they can’t compete in the auto industry under their current structure therefore there should be a clause that in order to receive government help the top executives of these companies have to resign. Further energy grants could also be used as extra incentive for automakers. After they restructure themselves and prove that they are headed in the right direction in terms of fuel-efficiency there could be more money provided for extended research. It is a step that will allow the companies to truly change their business plans and compete in a different auto industry. The auto unions must also be revamped as the benefits and work rules that the current contracts have are too much. In order to get government help a change in the auto union system should be required as well. GM says that if they don’t receive help by the end of the year they will fail, which will cost millions of jobs in the U.S. economy and it could have many more far reaching as well as longer lasting effects. It could be a chance for Bush to have a bright spot on his dismal record. -Ryan Paradis -

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