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The Problem With Banks And The Global Financial Crisis 2008

1128 words - 5 pages

In the course of time, banks have become more and more important in the economy. Not
only are banks places to store money, but also to make basic investments like term deposits, sign
up for a credit card or get a loan. This enables families and businesses to invest for the future.
Bank loans and credit means families don't have to save up before going to college or buying a
house and companies can hire more workers and expand themselves for the future. The system of
banks, promotes the consumption and therefore improves the economy of the country. However,
banks also hold a great risk. The Global Financial Crisis in 2008 was caused by the decline of the
bank the “Lehman ...view middle of the document...

The most noticeable and devastating financial crisis of the 20th century was
caused by the Wall Street crash in New York. After nearly a decade of optimism and prosperity,
the United States was thrown into despair on the “Black Thursday” in 1929, the day the stock
market crashed. As the stock prices plummeted, banks which invested their client’s money in the
stock market were forced to close. Afraid to lose their own savings, people rushed to the banks
that were still open to withdraw their money. This massive withdrawal resulted in the closing of
several other banks. Businesses, who also invested in the stock market, started to lower the
wages of their worker. This in turn, lowered the consumption of goods, causing businesses
to lower the wages of their worker even more. But not only America was affected by this
financial crisis, but also countries like France, Italy and Germany(at that time called Weimar
republic) were devastated. The crisis caused America to withdraw the money they lend to these
countries. Because these countries strongly depended on the money borrowed by America, the
crisis caused businesses and banks to shut down. In the United States, as well as in Western
Europe, misery, unemployment and hunger was commonplace.
The solution to the crisis were very different from country to country. In the United States
president Roosevelt created government work programs. Roosevelt’s New Deal created more
jobs, by investing money in the building of new schools and streets. This not only improved the
standards of living, but also offered unemployed people new jobs. Furthermore, the employees
were assured to get at least a minimum amount of wage. With more people being employed,
people started to invest more money in products and therefore increasing the consumption. This
helped America to overcome the crisis. On the contrary, the German government was not
investing money to create new jobs, but was saving it. Wages were drastically lowered and
financial aid programs were cancelled. However, instead of a recovery of the economy, more and
more people became unemployed due to the lack of money of their employers, resulting in six
million unemployed people by the year 1932. The crisis has gotten worse. Only in the year 1933
with the rise of the Nazis, the crisis could be overcome, when Germany also started to invest
money in the creation of new jobs.
As seen in the example of the Great Depression, Germany and the...

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