Economics Report

Thursday, March 10, 2016

The Economics reportThe Great recession

Rahul Guggali, Jodh Toor, Namit Ambali, Dinith SaramCIA4U0-R

Mr. Scorcia

TABLE OF CONTENTS

1

I. INTRODUCTION AND SUMMARY 1

II. BACKGROUND - HISTORICAL CONTEXT 2

III. POLITICAL - ECONOMIC ENVIRONMENT 4

IV. HISTORICAL AND CONTEMPORARY PERSPECTIVES 6

V. THE CANADIAN MODEL 9

VI. DEVELOPING A MICROECONOMIC UNDERSTANDING OF THE MARKET 11

VII. CONCLUSION 13

VIII. NOTES 14

IX. WORKS CITED 20

X. APPENDIX 24

[I.] I. Introduction and SummaryThe United States is home to the world’s largest economy, accounting for 16.14% of

the global GDP, establishing itself as an economic superpower. Due to its immense

economic power, a catastrophic economic event in the United States has the ability

to send shockwaves throughout the rest of world. In recent times, this chain

reaction can be exemplified by the 2008 Financial Crisis. This report seeks to

identify the political and economic environments, economic theories of historical

and contemporary thinkers, the Canadian model, and microeconomic concepts that

will enhance the understanding of the Great Recession. The political and economic

environments will examine the global impacts of the event. An analysis of historical

and contemporary economic thinkers will investigate various ideologies in context

to the crisis. The Canadian model will explore how Canada was impacted by the

crisis and the actions taken by different levels of government to minimize the

impact. Finally, developing a microeconomic understanding of the market will

highlight the cause and effect relationship played by subprime mortgages. After

analysis, it has been determined that the Great Recession of 2008, the most

catastrophic economic event since the Great Depression, was a direct result of a

lack of government regulation.

II. Background - Historical Context

Recession of the Early 2000s

Before the Great Recession of 2008, a minor recession in the early 2000s occurred

that affected various world markets and economies. i The bust of the Dot-com

Bubble was one of root causes of this recession.ii This speculative bubble originated

1

in 1995 and burst in 2000.iii The inflated value of the ddot-com businesses was an

aftermath of a fad based investing and irrational venture capital investments in

startups. Furthermore, the failure of e-commerce businesses to reciprocate profits

was a result of the mentality to focus on growth over profits. iv This led to the burst

of the Dot-com Bubble due toas various several initial public offerings for ddot-com

business faileding after short lived success. Additionally, Tthe effects of the

recession were amplified when the September 11th terrorist attacks caused declines

of 7.1% in the New York Stock Exchange , 14% in the Dow Jones Industrial Average

(Refer to Figure 1A) and 11% in the Standard and Poor’s Index .v International stock

exchanges also felt the shockwaves of the American market losses as the declines

of 8.5% were recorded in Germany, 4.6% in Spain and 9.2% in Brazil.vi The

combined effect of the Dot-com Bubble and theand the September 11th terrorist

attacks triggered poor global stock exchange performances. By the recession’s end,

a total of 1.75 million jobs were lost in the United States.vii

Housing Market

The housing market played a crucial role in fuellingfueling the Great Recession of

2008. Between the years 1997 and 2006, the value of an American home had

grown by 124% .viii International housing markets were also greatly augmented as

the values of homes had risen by 180% in Spain, 194% in Britain and 256% in

Ireland during the same span of time.ix Central banks around the world intentionally

set lowset interest rates low intentionally, with the intent to stimulate economic

activity after the Recession of the Early 2000s.x Instead, consumers took advantage

of the prospect of low interest rates to refinance their homes or to obtain a second

mortgage. Eventually, home prices began to decrease and by September 2008 they

had dropped by 20%.xi Simultaneously, interest rates were gradually increasing and,

2

as a result when homeowners could not afford the increased amortization costs.

Thus, they had to default on their mortgages. Brokers of mortgage backed

securities or collateralized debt obligations filed for bankruptcy as the rising interest

rate made their business model unsustainable.xii

Regulatory Failures

The Financial Crisis Inquiry Commission blameds the gradual deregulation of

monetary policy as the sole cause of the Great Recession.xiii The Federal Reserve

could have prevented this economic catastrophe had it not complied towith the self-

serving demands of the financial industry. The modification or abolishment

ofabolishment of various different policies resulted in the removal of financial

safeguards that were previously instituted to avoid such a disaster.xiv Furthermore,

in 2004, the Securities and Exchange Commission eased the net capital rule.xv This

allowed investment banks to increase the level of debt they took in.

Consequentially, mortgage backed securities were composed of increasingly higher

amount of subprime mortgages.xvi As a result, regulatory failure played a principal

role in the creation of the recessionary conditions.

III. Political-Economic EnvironmentThe 21st century has been a time marked by economic and political

globalization. In this connected environment, no economy is sovereign,

meaning the performance of one country’s economic system will affect the

others. Accordingly, the Great Recession of 2008 originated in America, yet it

was felt across the world. This worldwide impactworldwide impact can be

illustrated through certain countries’ percentile changes in gGross dDomestic

3

pProduct (GDP). As of the first quarter in 2009, the decrease in GDP was

2.3% in Canada, 6.1% in U.S.A, 7.4% in the U.K, 9.8% in the Euro area,

14.4% in Germany, 15.2% in Japan, 18% in Latvia, and 21.5% in Mexico.xvii

The statistics presented prove support that the Great Recession had far

reaching impacts. In particular, the loss of GDP could be attributed to the

direct trade links these countries had with the United States. In perspective,

exports to the United States represent approximately a quarter of each

countriescountry’s GDP.xviii With a decreased demand due to a recession, the

manufacturing sectors of these countries would be negatively affected;,

especially those with elastic demand . demand.

Countries affected by the Great Recession were democratic and had

apracticed free market economeconomiesy. This could be characterized by

political systems where the power is within the people, and economic

systems driven by self-interest and little government regulation. With an

average annual worldwide GDP growth of 4.7% in 2006 and 5.2% in 2007,

this environment helped economies prosper.xix Additionally, the economic

concept, the law of increasing returns to scale, manifests itself in the Great

Recession of 2008. This law states that as all productive resources are

increased simultaneously, the outputs or yields will follow. Prior to the

housing bubble bursthousing bust, which triggered the recession, the

economy was quickly growing due to low-interest mortgages. The inputs were

the amount of sub-prime mortgages and centralized debt obligations, also

known as CDO’s being issued. From the years 2004 to 2007, $1.4 trillion

dollars worth of CDO’s and 1.3 trillion dollars worth of sub-prime mortgages

4

were issued.xx As both inputs were simultaneously increasing, so was the

economy. The United States reaped the benefits through a 2.7% increase of

GDP in 2006, and a 1.8% increase of GDP in 2007.xxi As long as both inputs

continued to increase, the economy would grow, but the addition of inputs

slowed down with time. By 2008, the amount of unsold new homes was 9.8

times higher than the home sales volume in 2007.xxii This ratio meant that

less people were acquiring subprime mortgages and therefore, fewer CDO’s

were being invested in. As these inputs were not increasing simultaneously,

the output of economic growth decreased. In 2008, the United States

experienced a 0.3% decrease in GDP.xxiii This event was a clear

representation of the law of increasing returns to scale, and the importance

of long term economic growth through increasing all inputs simultaneously.

IV. Historical and Contemporary PerspectivesAlthough the financial crisis of 2008 occurred decades after the works of many

historical economists, their theories played a significant role in its outcome. Their

ideas also influenced modern economists, such as, Gary Becker, Thomas Sowell,

and Janet Yellen, who provided their expertise as the recession unfolded.

Historical Perspectives The theories of Adam Smith, and Milton Friedman and their support of laissez-faire

capitalism would have proved to be inefficient, as lack of government intervention

led to the economic downfall.xxiv It is evident that these supporters of laissez-faire

markets, would have criticized the Federal Reserve’s $1 trillion re-investment in the

market. To solve the recession, the laissez-faire economists would have preferred a

5

method that naturally allowed the economy to recover. In particular, Milton

Friedman, would have supported his monetarist school of thought, in which he

believed that governments needed to regulate the supply of money in circulation.xxv

Furthermore, he would have opted for an annual raise in money supply each year,

according to economic growth rate, as means to recover the economy.xxvi If able to

provide further insight while the recession occurred, it is evident that Adam Smith,

and Milton Friedman would have preferred a laissez-faire capitalist approach to

solving the Great Recession.

. On the other hand, historical economist John Maynard Keynes developed his

economic thought through his specialization in combatting the Great Depression.xxvii

In 1936, Keynes published The General Theory of Employment, Interest and Money,

in which he first described the general theory.xxviii The theory states that

governments need to control interest rates, and consumer spending to raise

demand for consumer goods, and increase employment.xxix During his time, Keynes

believed that the Great Depression was caused by minimal government investment

and that it could be solved only through government intervention.xxx Keynes argued

that governments should not waste time waiting for market forces to fix itself in the

long run, as he said, “In the long run, we are all dead.”xxxi Through this, it is evident

that Keynesian thought contradicts those of the laissez-faire economists. Although it

is difficult to compare the Great Depression and the Great Recession, both events

share similar economic impacts. Therefore, when the financial crisis of 2008 arose,

Keynesian thought experienced a resurgence.xxxii Keynes methodology significantly

influenced many modern economists and the response of the US government. Many

government stimulus, such as the lowered interest rates in 2008 and the Troubled

6

Asset Relief Program, comply with Keynes belief of government intervention.

Fortunately for the global economy, these responses ultimately resolved the

financial crisis of 2008, and proved the reliability of Keynesian thought over theories

held by laissez-faire economists.

Contemporary Perspective Modern economist, Gary Becker, was born in Pennsylvania, USA in 1930, and in

1992, went on to win a Nobel Prize in Economics in 1992.xxxiii He is known to apply

aspects of human behaviour, sociology, criminology, and anthropology in his

economic theories.xxxiv Similar to Adam Smith, and Milton Freidman, Gary Becker

believed in competitive markets, without government intervention. When assessing

the cause of the 2008 recession, he believed that government involvement not only

caused the crisis, but extended it.xxxv Becker criticized the Federal Reserve’s

decision to lower interest rates in late 2007, and believed that Fannie Mae and

Freddie Mac manipulated Congress members to encourage subprime mortgages.xxxvi

Like Milton Friedman, Gary Becker believed that the economy would fix itself over

time, and strongly opposed the Federal Reverse’s decision to invest $1 trillion back

into the economy.xxxvii Although he knew this would temporally restore the economy,

he believed that government stimulus only added to rising deficits and growing

public debt.xxxviii

On the other side of the spectrum, Janet Yellen, the first female head of the Federal

Reserve, argued that the Federal Reserve, did not contribute to the financial

crisis.xxxix,xl Although her statements may be bias towards the Fed, as she previously

worked for them and served on the White House Council of Economic Advisors for

President Bill Clinton, her excellence in economics must be credited.xli She argued

that the Federal Revere’s low-interest rates did not cause the recession but helped

7

reduce unemployment during the pre-crisis era.xlii She believed that the financial

crisis occurred due to a lack of short-term funding and mortgage regulation by

major banks.xliii In contrast to Gary Becker and the laissez-faire capitalists, Yellen

believed that Fed’s stimulus was the only way for the economy to recover. It can be

concluded that her theory was based on Keynesian thought, as he too, believed in

such intervention.

Thomas Sowell is an African American economist who is considered an expert on

the 2008 financial crisis.xliv His economic theories are largely based on African

American leaders.xlv He follows a “pull yourself up by the bootstrap” philosophy, in

which he encourages people to improve themselves by personal ambition and hard

work instead of government intervention.xlvi Based on his standpoint, it is evident

that he was a strong supporter of laissez-faire markets, similar to Gary Becker. He

blamed the recession on the US government for forcing lending institutions to

approve subprime loans.xlvii In an interview in 2009, he said that the US

government’s control over banking would be ineffective because banks would now

be run by government officials who are not as educated in banking, and

economics.xlviii When asked about the Obama Administration’s involvement, and the

$1 trillion investment, he said that it was the biggest mistake made by the

government, and went on to say, “How did we get out of the recession in the early

80s? Regan did nothing. The economy adjusted and we’ve had 20 years of

growth.”xlix Since then, Sowell believes that the economy no longer has the capacity

for sustained growth.

As the Great Recession eventually played itself out, it is evident that the theories of

Adam Smith, Milton Friedman, and John Maynard Keynes, played a significant role in

influencing modern economist. Gary Becker, Janet Yellen, and Thomas Sowell (the

8

modern economists), then went on to provide their insight on the Great Recession

as it unfolded.

V. The Canadian ModelThe central focus of the Great Recession remained in the United States; yet,

external economies, such as Canada's, felt the repercussions of this dire event.

Exports to the United States account for three quarters of Canadian exports so

Canada’s economy was affected greatly.l The collapse of the United States market

led to fewer exports out of Canada. This drastic drop in exports reduced the

production levels required, thus creating a surplus of workers who were no longer

needed in the workforce. This led to a loss of 400,000 jobs for Canadian citizens. li

Additionally, due to the collapse in the United States market and also the crash of

many European markets, investments in Canada plummeted. As a result of these

factors, the governments (federal and provincial) had to step in and take action. In

January 2009, the federal government (led by Stephen Harper) released its budget

for the 2009-2010 fiscal year. The focus of the budget was not only immediate

damage control, but also a plan for long-term economic prosperity. lii The Ontario

provincial government soon followed taking actions along the same lines as the

federal government.

The fundamental focus of the 2009 federal budget was a robust stimulus package,

which involved personal income tax reductions, targeted tax credits, and new

spending initiative to encourage demand in the Canadian economy. liii Highlights of

the package included:

• $8.3 billion for the Canadian Skills and Transition Strategy - to provide support for workers who have lost their jobs and are seeking skills and training developmentliv

9

• $7.8 billion in the form of tax credits and spending initiatives - to stimulate housing constructionlv

• $12 billion in new infrastructure stimulus funding over two yearslvi

• $7.5 billion in additional support for sectors and communities especially affected by the recession - included targeted support for the auto, forestry, and manufacturing sectorslvii

The action taken by the government proved to be effective as investment and

exports did not go up immediately but GDP saw a rise due to household and

government spending.lviii

The provincial government led by Dalton McGuinty also took implemented a course

of action which perfectly complemented the federal plan. Highlights of the plan

included:

• Corporate tax reductions and sales tax reformlix

• Ontario’s Jobs and Prosperity Fund (JPF) partnered with businesses to attract new investments to the province that enhanced innovation, increased productivity and grew Ontario’s exportslx

• The Going Global Trade Strategy helped firms export - In 2012, over 18,000 Ontario firms exported, an increase of more than 600 firms since the global recessionlxi

Post recession results show the Ontario plan was successful. Over 500,000 net new

jobs have been created since the lowest point in the recession, primarily in the

private sector.lxii In addition to recovering and creating more jobs; the majority of

Ontario workers have jobs that are full time and in industries paying above-average

wages.lxiii

VI. Developing a Microeconomic Understanding of the MarketIn a complex economy, there are many causes of an economic event. In the Great

Recession of 2008, the root cause was unsustainable lending practices. Historically,

10

banks required strong credit to approve mortgages and loans. However, this

approach changed with the introduction of subprime mortgages. This meant it

would now be possible for nearly any individual or family to obtain a house,

regardless of their credit history. This can be illustrated through the unsustainable

lending practice of N.I.N.J.A mortgages. This was a type of subprime mortgage that

offered financing to persons with “No-Income-No-Job-or-Assets". This meant that

both supply and demand for homes were elastic, as one could now purchase a

home as they wished, with abundant supply. The prospect to own a home, despite

poor credit history, was an enticing offer to many Americans who struggled to build

positive credit. As a result, the demand for homes grew exponentially. In a span of

just four years, the percentage of subprime mortgages, grew by approximately 14%

(Refer to Appendix 2A).lxiv This was matched by an increase in supply, as an

additional 537,000 new single-family homes were created for sale in 2006, the

highest production in the last 50 years. lxv This overall growth in the housing industry

was stable at first, until the subprime mortgages started to default. During 2008,

the International Monetary Fund (IMF) forecasted a loss of $565 billion USD because

of defaulting residential mortgages.lxvi This was due to borrowers being unable to

make their mortgage payments, resulting in losing their homes as collateral. When

borrowers defaulted, a change in the supply and demand relation resulted. The

supply of houses was now much greater than the demand for them, creating a

surplus. (Refer to Appendix 3A). The price of housing was also plummeting, putting

many borrowers who were able to pay their mortgages in a dilemma. Borrowers

would find themselves paying off mortgages that were worth more than their

homes, so they often left their homes forsaken, further increasing the amount

defaults. As a result, banks found themselves in debt as they had borrowed money

11

to issue these subprime mortgages, and were not receiving payments due to the

mortgage defaults. Investors were also no longer willing to invest in these

mortgages through collateralized debt obligations, and the brokers were unable to

sell the mortgages to the banks. This resulted in a frozen financial system, where

many institutions were going bankrupt. During this period of time, the economy

suffered unemployment rates of 9.3% in 2008, and 9.6% in 2009. lxvii Furthermore,

most economies of nations with a large number of exports to America suffered. For

example, the European Union, one of America’s largest trading partner, experienced

a -4.4% GDP growth rate in 2009.lxviii Since this economic event, the government has

been playing a larger role in regulating the economy. In 2009, the government

issued the American Recovery and Reinvestment Act of 2009. This was a stimulus

package of $787 billion dollars to be invested by the government into the

economy.lxix The main purpose of the policy was to save and create jobs almost

immediately. The policy brought with it a better balance of trade for the US, and

helped strengthen the American stock market.lxx As the economy began to quickly

rebuild, the population's confidence greatened, and people were now willing to

purchase houses at an equilibrium price that suppliers would agree to. In 2013,

housing sales began to start an increasing shift as new homes for sale increased by

50,000 for the first time in four years.lxxi With the help of government regulation, the

United States economy has been growing steadily since the recession, reaping the

benefits of an on average 2% growth in GDP every year.lxxii

VII. ConclusionThrough the comprehensive analysis of various different aspects of economics, it

can be concluded that The Great Recession of 2008 had widespread repercussions

12

on the global economy as a whole. This catastrophic, but preventable economic

event was a direct result of a lack of government regulation and serves as a lesson

as for the importance of responsible economic regulation.

VIII. Notes

13

IX. Works Cited“#7 Janet Yellen." Forbes. Accessed March 10, 2016.

http://www.forbes.com/profile/janet-39 yellen/.2015 Ontario Budget Chapter I: Implementing the Plan." Chapter I, Section D.

Accessed 62 March 10, 2016. http://www.fin.gov.on.ca/en/budget/ontariobudgets/2015/ch1d.html.

Bank, World. "GDP Growth." World Bank. Accessed March 9, 2016. http://18 data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?order=wbapi_data_value_2005 wbapi_data_value wbapi_data_value-last&sort=asc&page=



Bianco, Katalina. "The Subprime Lending Crisis: Causes and Effects of the Mortgage 66 Meltdown." Business.chh. Accessed March 10, 2016. https://business.cch.com/images/ banner/subprime.pdf.

Boivin, Jean. "The “Great” Recession in Canada: Perception vs. Reality." Bank of Canada. 50 March 28, 2011. Accessed March 9, 2016. http://www.bankofcanada.ca/wp-content/uploads/ 2011/03/sp280311.pdf#chart2.

Bolotta, Angelo. Economics Now: Analyzing Current Issues. Don Mills, Ont.: Oxford 27 University Press, 2002.

Cite Business and Finance Economy Labor and Employment United States Unemployment 67 Rate." Infoplease. Accessed March 10, 2016. http://www.infoplease.com/ipa/A0104719.html.

CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION. PDF. Washington D.C: 14 FINANCIAL CRISIS INQUIRY COMMISSION, 2013.

“CSI: Credit Crunch." The Economist. October 17, 2007. Accessed March 09, 2016. http://9 www.economist.com/node/9972489.

Davis, Marc. "How September 11 Affected The U.S. Stock Market." Investopedia. September 6 11, 02. Accessed March 09, 2016. http://www.investopedia.com/financial-edge/0911/howseptember-11-affected-the-u.s.-stock-market.aspx.

14

Edu. "Subprime Mortgage Crisis." Stat.unc.edu. Accessed March 10, 2016. http://64 www.stat.unc.edu/faculty/cji/fys/2012/Subprime mortgage crisis.pdf.

Flaherty, James M. "Canada's Economic Action Plan." Government of Canada Budget. 52 January 27, 2009. Accessed March 9, 2016. http://www.budget.gc.ca/2009/pdf/budgetplanbugetaire-eng.pdf.

Gary Becker: The Great Recession and Government Failure - Emily Skarbek." MyGovCost 34 Government Cost Calculator. Accessed March 10, 2016. http://www.mygovcost.org/ 2011/09/02/gary-becker-the-great-recession-and-government-failure/.

GDP as Share of World GDP at PPP By Country." Quandl. October 15, 2015. Accessed 1 March 9, 2016. https://www.quandl.com/collections/economics/gdp-as-share-of-world-gdpat-ppp-by-country.

Havemann, Joel. "The Financial Crisis of 2008: Year In Review 2008." Encyclopedia 25 Britannica Online. Accessed March 10, 2016. http://www.britannica.com/topic/FinancialCrisis-of-2008-The-1484264.

“HUD USER." USHMC-Housing-Supply-newsf. Accessed March 10, 2016. https://65 www.huduser.gov/portal/ushmc/hs_newsf.html.

“In Great Recession, Other Nations Have Suffered More." The New York 71 Times. 2010. Accessed March 10, 2016. http://www.nytimes.com/2010/09/18/business/ 18charts.html?partner=rss.

“John Maynard Keynes." : The Concise Encyclopedia of Economics. Accessed March 10, 28 2016. http://www.econlib.org/library/Enc/bios/Keynes.html.

Labaton, Stephen. "Agency’s ’04 Rule Let Banks Pile Up New Debt." The New York Times. 16 2008. Accessed March 09, 2016. http://www.nytimes.com/2008/10/03/business/03sec.html? em.

LaRochelle-Côté, Sébastien. "Common Menu Bar Links." Canada's Employment Downturn. 51 March 03, 2010. Accessed March 10, 2016. http://www.statcan.gc.ca/pub/75-001-x/2009112/ article/11048-eng.htm#a1.

“List of 16 Major Leading & Lagging Economic Indicators." Money Crashers. Accessed 70 March 10, 2016. http://www.moneycrashers.com/leading-lagging-economic-indicators/. Norris, Floyd.

Mackenzie, Hugh. "Steering Ontario Out of Recession." Policy Alternatives. March 2010. 59 Accessed March 9, 2016. https://www.policyalternatives.ca/sites/default/files/uploads/ publications/reports/docs/OAB2010_Steering Ontario Out of Recession.pdf.

Makinen, Gail. The Economic Effects of 9/11: A Retrospective Assessment. PDF. Washington 7 D.C: Congressional Research Service, September 27, 2002.

15

Morgenson, Gretchen, and Joshua Rosner. Reckless Endangerment. Times Books, 2011.21 Bank, World. "GDP Growth." World Bank. Accessed March 9, 2016. http://22 data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?order=wbapi_data_value_2005 wbapi_data_value wbapi_data_value-last&sort=asc&page=

Nations, United. The Global Financial Crisis and the Developing World: Transmission 23 Channels and Fall-outs for Industrial Development. United Nations, 2009.

“Nobel Laureate Paul Krugman: Too Little Stimulus in Stimulus Plan - 69 Knowledge@Wharton." KnowledgeWharton Nobel Laureate Paul Krugman Too Little Stimulus in Stimulus Plan Comments. Accessed March 10, 2016. http:// knowledge.wharton.upenn.edu/article/nobel-laureate-paul-krugman-too-little-stimulus-instimulus-plan/.

Overcoming the Recession: An Interview with Thomas Sowell." PJ Media. Accessed March 49 10, 2016. https://pjmedia.com/blog/overcoming-the-recession-an-interview-with-thomassowell/?singlepage=true).

Randall, Kate. "World Socialist Web Site." US Job Losses Highest since '91 Recession -. July 8 13, 2001. Accessed March 09, 2016. https://www.wsws.org/en/articles/2001/07/jobs-j13.html.

Scheiber, Noam. "What Kind of Recession Was 2001?" The Economist. 2009. Accessed 2 March 09, 2016. http://www.economist.com/blogs/freeexchange/2009/08/ what_kind_of_recession_was_200.

Schwartz, Howard I. "Capitalism and Freedom – A Short Critique of Milton Friedman. - 26 Howard I. Schwartz Ph.D." Howard I Schwartz PhD Capitalism and Freedom A Short Critique of Milton Friedman Comments. March 14, 2015. Accessed March 10, 2016. http:// www.howardischwartz.com/capitalism-and-freedom-a-short-critique-of-milton-friedman/.

Singh, Manjot. "The 2007-08 Financial Crisis In Review | Investopedia." Investopedia. 2016. 11 Accessed March 09, 2016. http://www.investopedia.com/articles/economics/09/financialcrisis-review.asp.

Sowell, Thomas. "A "Sound" Economy?" Creators.com. Accessed March 10, 2016. https://47 www.creators.com/read/thomas-sowell/11/08/a-sound-economy.

The Editors of Encyclopædia Britannica. "Gary S. Becker." Encyclopedia Britannica Online. 33 Accessed March 10, 2016. http://www.britannica.com/biography/Gary-Becker.

Thomas Sowell Facts.” Thomas Sowell Facts. Accessed March 10, 2016. http://biography.yourdictionary./thomas-sowell.

“Vacancy Rate for Owned Homes Rises to Record High 2.9%." MarketWatch. Accessed 19 March 10, 2016. http://www.marketwatch.com/story/vacancy-

16

rate-owned-homes-rises-record. "World - Population - Historical Data Graphs per Year.

What Is Keynesian Economics? - Back to Basics - Finance & Development, September 31 2014." What Is Keynesian Economics? - Back to Basics - Finance & Development, September 2014. Accessed March 10, 2016. http://www.imf.org/external/pubs/ft/fandd/2014/09/ basics.htm

“Why John Maynard Keynes's Theories Can Fix the World Economy." Bloomberg.com. 32 Accessed March 10, 2016. http://www.bloomberg.com/bw/articles/2014-10-30/why-johnmaynard-keyness-theories-can-fix-the-world-economy.

World - Population - Historical Data 20 Graphs per Year. Accessed March 10, 2016. http://www.indexmundi.com/g/g.aspx?c=xx.

“World Development Indicators| World DataBank." World Development Indicators| World 68 DataBank. Accessed March 10, 2016. http://databank.worldbank.org/data/reports.aspx? source=2.

“World Development Indicators| World DataBank." World Development Indicators| World 72 DataBank. Accessed March 10, 2016. http://databank.worldbank.org/data/reports.aspx? source=2.

“Yellen: Don't Blame the Financial Crisis on Low Rates." Fortune Yellen Dont Blame the 40 Financial Crisis on Low Rates Comments. 2014. Accessed March 10, 2016. http://fortune.com/ 2014/07/02/janet-yellen-federal-reserve-interest-rates/.

17

http://www.indexmundi.com/g/g.aspx?c=xx

X. AppendixFigure 1A:

Figure 2A:The increase in demand for quantity of houses as a result of subprime mortgages.

18

Figure 3A:The decrease in demand of quantity of houses because of defaults on subprime

mortgages.

19

i Scheiber, Noam. "What Kind of Recession Was 2001?" The Economist. 2009. Accessed March 09, 2016. http://www.economist.com/blogs/freeexchange/2009/08/what_kind_of_recession_was_200. ii "Dotcom Bubble Definition | Investopedia." Investopedia. 2010. Accessed March 09, 2016. http://www.investopedia.com/terms/d/dotcom-bubble.asp. iii Ibidiv Ibidv Davis, Marc. "How September 11 Affected The U.S. Stock Market." Investopedia. September 11, 02. Accessed March 09, 2016. http://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx. vi Makinen, Gail. The Economic Effects of 9/11: A Retrospective Assessment. PDF. Washington D.C: Congressional Research Service, September 27, 2002.vii Randall, Kate. "World Socialist Web Site." US Job Losses Highest since '91 Recession -. July 13, 2001. Accessed March 09, 2016. https://www.wsws.org/en/articles/2001/07/jobs-j13.html. viii "CSI: Credit Crunch." The Economist. October 17, 2007. Accessed March 09, 2016. http://www.economist.com/node/9972489. ix Ibidx Singh, Manjot. "The 2007-08 Financial Crisis In Review | Investopedia." Investopedia. 2016. Accessed March 09, 2016. http://www.investopedia.com/articles/economics/09/financial-crisis-review.asp. xi Ibidxii Ibidxiii CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION. PDF. Washington D.C: FINANCIAL CRISIS INQUIRY COMMISSION, 2013. xiv Ibidxv Labaton, Stephen. "Agency’s ’04 Rule Let Banks Pile Up New Debt." The New York Times. 2008. Accessed March 09, 2016. http://www.nytimes.com/2008/10/03/business/03sec.html?em. xvi Ibidxvii Bank, World. "GDP Growth." World Bank. Accessed March 9, 2016. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?order=wbapi_data_value_2005 wbapi_data_value wbapi_data_value-last&sort=asc&page=2.xviii "Vacancy Rate for Owned Homes Rises to Record High 2.9%." MarketWatch. Accessed March 10, 2016. http://www.marketwatch.com/story/vacancy-rate-owned-homes-rises-record.xix "World - Population - Historical Data Graphs per Year." World - Population - Historical Data Graphs per Year. Accessed March 10, 2016. http://www.indexmundi.com/g/g.aspx?c=xx.xx Morgenson, Gretchen, and Joshua Rosner. Reckless Endangerment. Times Books, 2011.xxi Bank, World. "GDP Growth." World Bank. Accessed March 9, 2016. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?order=wbapi_data_value_2005 wbapi_data_value wbapi_data_value-last&sort=asc&page=2.xxii Nations, United. The Global Financial Crisis and the Developing World: Transmission Channels and Fall-outs for Industrial Development. United Nations, 2009.xxiii Bank, World. "GDP Growth." World Bank. Accessed March 9, 2016. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?order=wbapi_data_value_2005 wbapi_data_value wbapi_data_value-last&sort=asc&page=2.xxiv Havemann, Joel. "The Financial Crisis of 2008: Year In Review 2008." Encyclopedia Britannica Online. Accessed March 10, 2016. http://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264.

xxv Ibidxxvi Ibidxxvii Bolotta, Angelo. Economics Now: Analyzing Current Issues. Don Mills, Ont.: Oxford University Press, 2002. xxviii "John Maynard Keynes." : The Concise Encyclopedia of Economics. Accessed March 10, 2016. http://www.econlib.org/library/Enc/bios/Keynes.html. xxix Bolotta, Angelo. Economics Now: Analyzing Current Issues. Don Mills, Ont.: Oxford University Press, 2002. xxx Ibidxxxi "What Is Keynesian Economics? - Back to Basics - Finance & Development, September 2014." What Is Keynesian Economics? - Back to Basics - Finance & Development, September 2014. Accessed March 10, 2016. http://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm. xxxii "Why John Maynard Keynes's Theories Can Fix the World Economy." Bloomberg.com. Accessed March 10, 2016. http://www.bloomberg.com/bw/articles/2014-10-30/why-john-maynard-keyness-theories-can-fix-the-world-economy. xxxiii The Editors of Encyclopædia Britannica. "Gary S. Becker." Encyclopedia Britannica Online. Accessed March 10, 2016. http://www.britannica.com/biography/Gary-Becker. xxxiv "Gary Becker: The Great Recession and Government Failure - Emily Skarbek." MyGovCost Government Cost Calculator. Accessed March 10, 2016. http://www.mygovcost.org/2011/09/02/gary-becker-the-great-recession-and-government-failure/. xxxv Ibidxxxvi Ibid xxxvii Ibid xxxviii Ibidxxxix "#7 Janet Yellen." Forbes. Accessed March 10, 2016. http://www.forbes.com/profile/janet-yellen/. xl "Yellen: Don't Blame the Financial Crisis on Low Rates." Fortune Yellen Dont Blame the Financial Crisis on Low Rates Comments. 2014. Accessed March 10, 2016. http://fortune.com/2014/07/02/janet-yellen-federal-reserve-interest-rates/.xli Ibidxlii "#7 Janet Yellen." Forbes. Accessed March 10, 2016. http://www.forbes.com/profile/janet-yellen/.xliii Ibid xliv "Thomas Sowell Facts." Thomas Sowell Facts. Accessed March 10, 2016. http://biography.yourdictionary.com/thomas-sowell. xlv Ibidxlvi Ibidxlvii Sowell, Thomas. "A "Sound" Economy?" Creators.com. Accessed March 10, 2016. https://www.creators.com/read/thomas-sowell/11/08/a-sound-economy. xlviii Ibid xlix "Overcoming the Recession: An Interview with Thomas Sowell." PJ Media. Accessed March 10, 2016. https://pjmedia.com/blog/overcoming-the-recession-an-interview-with-thomas-sowell/?singlepage=true). l Boivin, Jean. "The “Great” Recession in Canada: Perception vs. Reality." Bank of Canada. March 28, 2011. Accessed March 9, 2016. http://www.bankofcanada.ca/wp-content/uploads/2011/03/sp280311.pdf#chart2.li LaRochelle-Côté, Sébastien. "Common Menu Bar Links." Canada's Employment Downturn. March 03, 2010. Accessed March 10, 2016. http://www.statcan.gc.ca/pub/75-001-x/2009112/article/11048-eng.htm#a1.

lii Flaherty, James M. "Canada's Economic Action Plan." Government of Canada Budget. January 27, 2009. Accessed March 9, 2016. http://www.budget.gc.ca/2009/pdf/budget-planbugetaire-eng.pdf.liii Ibidliv Ibidlv Ibidlvi Ibid lvii Ibidlviii Boivin, Jean. "The “Great” Recession in Canada: Perception vs. Reality." Bank of Canada. March 28, 2011. Accessed March 9, 2016. http://www.bankofcanada.ca/wp-content/uploads/2011/03/sp280311.pdf#chart2.lix Mackenzie, Hugh. "Steering Ontario Out of Recession." Policy Alternatives. March 2010. Accessed March 9, 2016. https://www.policyalternatives.ca/sites/default/files/uploads/publications/reports/docs/OAB2010_Steering Ontario Out of Recession.pdf.lx Ibid lxi Ibidlxii "2015 Ontario Budget Chapter I: Implementing the Plan." Chapter I, Section D. Accessed March 10, 2016. http://www.fin.gov.on.ca/en/budget/ontariobudgets/2015/ch1d.html.lxiii Ibidlxiv Edu. "Subprime Mortgage Crisis." Stat.unc.edu. Accessed March 10, 2016. http://www.stat.unc.edu/faculty/cji/fys/2012/Subprime mortgage crisis.pdf.lxv "HUD USER." USHMC-Housing-Supply-newsf. Accessed March 10, 2016. https://www.huduser.gov/portal/ushmc/hs_newsf.html.lxvi Bianco, Katalina. "The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown." Business.chh. Accessed March 10, 2016. https://business.cch.com/images/banner/subprime.pdf.lxvii "Cite Business and Finance Economy Labor and Employment United States Unemployment Rate." Infoplease. Accessed March 10, 2016. http://www.infoplease.com/ipa/A0104719.html.lxviii "World Development Indicators| World DataBank." World Development Indicators| World DataBank. Accessed March 10, 2016. http://databank.worldbank.org/data/reports.aspx?source=2.lxix "Nobel Laureate Paul Krugman: Too Little Stimulus in Stimulus Plan - Knowledge@Wharton." KnowledgeWharton Nobel Laureate Paul Krugman Too Little Stimulus in Stimulus Plan Comments. Accessed March 10, 2016. http://knowledge.wharton.upenn.edu/article/nobel-laureate-paul-krugman-too-little-stimulus-in-stimulus-plan/.lxx "List of 16 Major Leading & Lagging Economic Indicators." Money Crashers. Accessed March 10, 2016. http://www.moneycrashers.com/leading-lagging-economic-indicators/.lxxi Norris, Floyd. "In Great Recession, Other Nations Have Suffered More." The New York Times. 2010. Accessed March 10, 2016. http://www.nytimes.com/2010/09/18/business/18charts.html?partner=rss.lxxii "World Development Indicators| World DataBank." World Development Indicators| World DataBank. Accessed March 10, 2016. http://databank.worldbank.org/data/reports.aspx?source=2.

Documents

Economics Report