Comparing the Panic of 1907 to the Great Recession of 2008.

Sample Solution

    The Panic of 1907 and the Great Recession of 2008 were both economic downturns that had wide ranging impacts across the US economy. Both events demonstrated the fragility of a capitalist system, though their underlying causes differ slightly.

The Panic of 1907 was sparked by a financial crisis in New York City caused by stock speculation, banking failures, and over-leveraged business investments. It began in October when bankers became concerned about overextended investments and sought to call in loans from other banks. This led to an initial liquidity crisis as banks could not access enough money to cover demands for withdrawals or pay back outstanding debts. The panic spread throughout the country, causing companies to fail due to inability to meet payments on credit; some even closed their doors permanently due to bankruptcy. This led to high unemployment rates and decreased consumer spending which further exacerbated the already fragile economy. Additionally, there were rumors that two large trusts were manipulating shipping stocks at this time adding fuel to the fire. Conversely, The Great Recession of 2008 was created by a housing bubble fueled by lax lending standards coupled with investors’ appetite for mortgages backed securities (MBS) with little regard for risk assessment or underwriting rules resulting in excessive subprime home mortgage loans being approved without proper scrutiny or adjusted interest rates leading borrowers into debt they couldn’t afford nor sustain once market conditions changed drastically in 2007-2008 period as housing prices plummeted along with values associated with MBS investments significantly impacting major institutions such as investment banks Lehman Brothers & Bear Stearns who literally collapsed overnight inducing contagion effect leading other entities such as commercial banks & insurance companies into similar straits exacerbating existing turmoil while creating new ones simultaneously – thus triggering chain reaction ultimately culminating into what would be known later as ‘Great Recession’ -- characterized by plummeting stock markets worldwide & drastic decline in GDP growth rate — eventually affecting practically every participant within financial services industry thereby imperiling welfare of general public including loss/reduction wages/jobs/coverages etc making it much worse than prior situations like dot com bust or 1987 crash combined together -- severely threatening stability of entire global order! To address these crises government intervention played a critical role during both moments but differed slightly between each event. In response to The Panic Of 1907 Congress passed several laws which laid out regulations governing national bank operations such as requiring minimum reserve capital requirements for loan issuing entities along with increased oversight authority through new federal agency called Comptroller Currency Office (CCO). Additionally President Roosevelt issued executive orders imposing strict penalties on individuals caught engaging insider trading activities - hoping put damper speculation fever running rampant Wall Street then while establishing Federal Reserve System same year granted central bank powers act lender last resort ensuring availability liquidity during times need most.. On other hand after onset Great Recession Obama administration implemented various measures prevent recurrence however instead focusing solely upon corrective actions via stimulus packages , Dodd Frank law passed 2010 aimed mainly at strengthening regulatory frameworks around banking sector ensuring compliance requirements part overall strategy reduce exposure risk certain types transactions deemed too risky almost providing guarantee against future occurrences any sort related missteps taken place past decade so forth like giving incentives lenders abide ethical codes practices i e no predatory lending loans etc avoiding repeat performance root cause original meltdown... In conclusion both events showed how vulnerable modern economies are fluctuations beyond anyone's control yet provided lessons governments world way prepare themselves adapting changes using corrective instruments available them taking steps ensure same do reoccur depriving citizens hard earned savings potential futures