Macro Economics Presentation

Group 4: Kenny Sessa, Emily Dipaterio, Estaban Martinez, Justin Griman, Laura Marti,
Joe Carrero
The Stock Market crash
In 2008 the stock market crashed for the first time since 1987. It was mainly
caused by too many loans and little interest on homes. It caused massive job loss across
America. Multiple well-known and established banks closed their doors due to the crash
of 08. Unemployment rates reached numbers that it had not reached in decades, and
there was not much the government could do about it.
What caused the stock market crash? The crash was due to people excitement on
purchasing houses. People bought houses they could not afford with the help of loans
because most people thought that the housing prices would rise. On top of that there was
a low interest rate. A low interest rate encourages people to buy houses with the plan to
resell it later for a higher price. What actually happen around 2006 the house market
prices fell. Many homeowners were surprised, with no plan to repay the mortgage they
would decide to sell their homes. The homeowners soon realized selling their homes
would lose money since it would sell less than the mortgage on house so they decided to
foreclose. Many banks and hedge funds now realized they were facing huge money
losses. After the huge money loss banks were facing they were afraid and careful in
lending money. They wanted to make sure whoever they lend money to would definitely
pay them back including the people who already have debts to pay off. As people are
paying off their loans and the bank is lending less loans out meaning the bank is making
less money and the affected the economy.

How were people affected? The 2008 crash of the stock market lost over 15,000
jobs at the end of the fourth quarter. That is when the Lehmans brothers declared
bankruptcy. In October the labor department reported over 159,000 jobs were lost after
September, then by the end of October it was over 200,000 jobs lost. Gas prices, in 2008
after the stock market crashed was at 3.64$. Now because of the stock market it is harder
to get a mortgage. When you borrow money for a loan its a high risk, so it is harder to
obtain the loan because companies dont want to give those loans out. The 401kpercentage rate has also dropped 9 percent from 2008. Reason why is because when the
stock market crashed employers cut their employees 401k.
What companies were affected by this event? It was a disaster and a lot of
companies went to bankrupt. One of the most important one was a Lehmans brother. On
September 15, 2008, Lehman Brothers filed for bankruptcy with $639 billion in assets
and $619 billion in debt. It was one of the largest in history. Lehman was the fourthlargest U.S. investment bank at the time, with 25,000 employees worldwide. Also, the
American International Group known as AIG went down the hill. AIG is an American
multinational insurance company with more than 88 million customers. But the investors
realized they could no longer honor the insurance policies and they lost $13 billion in the
first half and they shares fell 95% in value. AIG was "too big" to be allowed to fail, so
they government decided to give them an $85 billion loan and in return the government
received 80% of its stock.
Not only Lehmans brothers and AIG had to face difficulties. A lot of companies
had issues like: Allco Finance Group, Bennigan's, Bill Heard Enterprises, Bombay
Company, Borders, Inc, Bradford & Bingley, Central Park Media, Charter

Communication, Chrysler, Circuit City, Countrywide Financial, Dawahares, , Goody's

Family Clothing, Gottschalks, Harold's, Joe's, KB Toys, Linens 'n Things, Mervyns,
Midway Games, Peanut Corporation of America, SETA Corporation, Shoe Pavilion,
Silicon Graphics, Silver State Helicopters, Steve & Barry's, The Sharper Image, Tweeter
(store), Value City, Washington Mutual, WiQuest Communications, Wilsons Leather,
Woolworths Group, Young Broadcasting.
The loss of jobs was way above the norm during this time, but how bad really was
it? The hemorrhaging of American jobs accelerated at a record pace at the end of 2008,
bringing the year's total job losses to 2.6 million or the highest level in more than six
decades. A sobering U.S. Labor Department jobs report Friday showed the economy lost
524,000 jobs in December and 1.9 million in the year's final four months, after the credit
crisis began in September. The unemployment rate rose to 7.2% last month from 6.7% in
November - its highest rate since January 1993. The steep annual drop in jobs marked the
highest yearly job-loss total since 1945, the year in which World War II ended. "We're
seeing a complete unraveling of the labor market and are on track for getting beyond 10%
unemployment," said Lawrence Mishel, president of the Economic Policy Institute. The
total number of unemployed Americans rose by 632,000 to 11.1 million. November, in
which 584,000 jobs were lost, and December marked the first time in the 70-year history
of the report in which the economy lost more than 500,000 jobs in consecutive months.
Job losses were spread across a wide variety of industries. Manufacturing lost 149,000
jobs, the leisure and hospitality industries cut 22,000 jobs, and the mining industry shed
1,000 positions. Even in the midst of the holiday shopping season, retailers still slashed
payrolls by 66,600 workers last month. Professional and business services jobs, a

category seen by some economists as a proxy for overall economic activity, dropped by
113,000. And financial services jobs fell by 14,000. Only two of ten industry categories
were hiring last month. Government hiring, which has stayed relatively strong throughout
the downturn, added another 7,000 jobs in December. Education and health services also
grew payrolls by 45,000 employees. Construction employment shrank further by 101,000
jobs, and the rate of construction unemployment soared to 15.3% - by far the highest of
any group.
How did the government respond to such an event? The U.S. Federal Reserve and
Central Banks around the world have taken steps to expand money supplies to avoid the
risk of deflationary spiral in which lower wages and higher unemployment leads to a
decline in global consumption. Also, governments borrowed and spent money to offset
the reduction in private sector demand caused by the crash. The credit freeze brought the
global financial system to the collapse. The Federal Reserve, the European Central Bank,
and other Central Banks responded immediately.
In late 2008, these Central Banks purchased $2.5 trillion of government debt and
private assets from banks this was the largest liquidly injection into the credit market
and also the largest monetary policy action in world history.
The governments of European nations and the US raised the Capital of their
banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their
major banks.
Governments also bailed out many firms. Many US government agencies have
spent trillions of dollars in loans, asset purchases, and direct spending. In conclusion,

much controversy lead to the development of a variety of decision making frameworks

to help balance competing policy interests during times of financial crisis.
The crash affected millions of people across the country, and still leave many in a
pickle financially today. The government didnt believe the housing slowdown would
affect the economy at the time but ultimately it was the cause of the crash of 2008.
Leaving many people without jobs and unemployment rates skyrocketing. Since then
those numbers have receded but lets hope we never get back into a hole like that again.

Intro: Today we are going to be talking about the stock market crash of 2008. Estaban
will be talking about what caused the crash. Joe will be talking about how it affected
people on a whole. Laura will be talking about the companies and corporations that were
affected. Justin will be talking about unemployment. And Emily will be talking about the
governments response to the crash.
Conclusion: In conclusion, the crash of 2008 affected millions across the country. Some
still affected by it today and still trying to climb out of the hole they dug themselves into.
Caused by a rise in home loans with little interested that people could not afford. The
government didnt think it would affect the economy on a whole and ultimately it did.
Leaving millions jobless and unemployment rates at numbers they havent reached in
years.