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Using the Internet, compare and contrast the Panic of 1907 to the Great Recession of 2008. What were some of the underlying causes? What preventative measures did the government take to help correct the dilemmas?
The Panic of 1907 and the Great Recession of 2008 had some similar underlying causes. Both economic downturns were caused by a combination of banking instability, overleveraged markets, speculative investments in financial instruments and real estate, and an overall decline in consumer confidence.
However, there are also some key differences between the two events. The Panic of 1907 was triggered by a single event – the failure of Knickerbocker Trust Company – while the Great Recession was caused by several factors including rising unemployment rates, declining home values, and risky lending practices that resulted in foreclosure across multiple countries. Furthermore, while both depressions had devastating effects on global economies, the Panic of 1907 was limited to North America with the majority impact being felt in New York City where stock prices dropped about 50% before eventually recovering; whereas the Great Recession’s impacts resonated globally resulting in large-scale losses for investors worldwide and requiring significant government intervention efforts from numerous countries to restore stability to their economies.
In response to these respective economic downturns, governments took different measures towards restoring confidence within their respective financial systems. For example during the Panic of 1907 emergency legislation was passed that allowed for more flexible banking regulations which allowed banks time to recover from loan defaults without having to close permanently or suspend operations as well as increased public scrutiny into personal wealth among citizens who had invested heavily at Knickerbocker Trust Company. In comparison following 2008’s recession governments employed quantitative easing programs designed to inject liquidity into markets which allowed central banks buy up troubled assets such as mortgage backed securities so they could be sold off later at a profit when conditions improved; providing much needed capital injections into various markets helping shore up weak points within individual country’s financial institutions allowing them time to recover without suspending services or shuttering entirely due too insolvency like they would have done prior to this measure being implemented back in 2007/2008.