● 4th largest investment banks in US ● founded in 1850 ● Housing in early 2000s ○ property had increased exponentially ○ Cheap credit ○ lenders gave subprime mortgages ■ risky, but able to reach majority of people ● Mortgage-backed securities (MBS) ○ subprime was bonding in MBS ■ Were often sold as stock exchange ■ leverage were often 30X its capital ■ small losses= large wipes ● Confidence in increasing housing price ○ Believed housing price will never fall ● 2007 ○ Housing price started to decrease ● 2008 ○ MBS started to loose its money ○ Lehman filed bankruptcy ○ US cabinet did not bail it ■ UK did not allow for moving currency ● Global market crash ○ freezing credit ○ AIG,Merrill Lynch needed bail ● TARP ○ $700B to bail out banks ● QE ○ Fed bought in security bonds ○ Expected money influx to banks ● 0% interest rates ○ Borrowing easier to improve in economic growth Aspect Japan (1990s) U.S. (2008) Asset Bubble Real estate & stock prices inflation Housing market bubble Risk in lending Banking Crisis Banks held bad loans Banks held MBS Long Recovery Stagation in recovery. Still is in recovery years, but was faster overall Government Intervention Slow, bailed out banks lowered interest rates Speed of Response Delayed response worsened U.S. acted faster Demographics Aging population reduced recovery potential U.S. had a younger, growing population Inflation vs Deflation Japan fell into deflation U.S. fought recession but avoided deflation Global Role Japan was a large but isolated economy U.S. was the center of the global financial system Culture of Risk Japanese firms became highly risk-averse U.S. firms resumed risk-taking more quickly