Introduction to Market Event: The Great Depression in the US

This report discusses the market event of the Great Depression in the US, its causes, macroeconomic environment before, during and after the event, global impact, prevention measures, and ways in which a person or organization has profited from it.

Identification of a Market
Event

EXECUTIVE SUMMARY
The report of “Introduction to Market Event” is prepared on a market event of US that is
“The Great Depression”. Causes of the market event comprises of combination of vulnerabilities
which developed financial system and series of triggering events which initiates with bursting of
housing bubble in the country in 2007 to 2009.
The report covers overview of the market event, key macro environment factors and their
role in the market event. It also highlights domestic and international perspectives about impacts
of the event. It analyses whether the event is one off or will happen again. At last, ways in which
a person or company has profited from the event are discussed.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
Contents...........................................................................................................................................3
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Selection of appropriate market event. Details about macroeconomic environment before,
during and after the event. Identification of key macroeconomic factors along with explanation
of role in the event.......................................................................................................................1
Discussion of global impact of the event.....................................................................................3
Is the event ‘one off’ or will happen again. If not one off, what changes been made to prevent
it. If no changes have been, what would be recommended.........................................................4
How would a person or organisation had profited from the market event..................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Market event refers to any occurrence, development, condition or effect which results from
changes in banking, capital markets, commodities, economic, pertaining market conditions,
financial services and prevailing interest rates. Market events impacts adversely on business
operations and economic situation (Cortes, Taylor and Weidenmier, 2021). For the assignment,
selected market event is “The Great Recession” which was an economic downturn from 2007 to
2009. It made the longest recession since World War II.
The assignment includes discussion of the market event, global impact that the event had,
changes made to prevent it and ways in which an individual or company had profited from the
market event.
MAIN BODY
Selection of appropriate market event. Details about macroeconomic environment before, during
and after the event. Identification of key macroeconomic factors along with explanation of
role in the event
The Great Recession is one of market event that was a financial crisis combined with deep
recession. It lasted from December 2007 to June 2009. The collapse of major investment bank
Lehman Brothers in September 2008, build into a full-fledged market event. Collapse of US
housing bubble that peaked in financial year 2006-2007 was immediate and key cause of the
market event. The phase was known as subprime mortgage crises. In this, combination of
banking institutions failed to provide funds to businesses as well as homeowners were unable to
pay down debt despite of spending and borrowing that resulted in the event. It was an avoidable
disaster caused due to widespread failures comprising regulation of government and risky
behaviours by Wall Street. The economic slump began when housing market of United States
went from boom to bust as well as large amounts of mortgage backed securities addition to
derivates lost important values (Field, 2021). In response to the market event, there was
unleashed of fiscal, monetary along with regulatory policy.
Macroeconomic environment before, during and after the event
Prior the market event, macroeconomic environment was stable. The period from mod
1980s to 2007 was Great Moderation that is said to contemporary belief that traditional boom
along with bust business cycle has been overcome to favour middling but keeping economic
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growth stable. The stock market was actually reaching at market heights in 2007. The federal
government made spending accounted for less than 3 per cent of gross domestic product. Many
of population of United States received same level of employment or financial assistance as an
outcome of New Deal Programs. Before occurrence of the event, most of population has negative
views or perspective about government welfare programme as well as refused to go on welfare
(Reinhart and Reinhart, 2020).
During the event, macroeconomic environment changed to great extent. The net worth of
households of United States declined, erasing around $19.2 trillion in wealth. Real gross
domestic product fell by 4.3% from high in fourth-quarter 2007 to low in second quarter 2009.
To boot, rate of unemployment skyrocketed from 5% to 10% in 2007 2009 respectively. Brought
on by issuing risky housing mortgages, it causes housing rates plummet 30% which brought
stock market down with it. In 2007, during the event, stock market which was exceeding by
14000, by next year, it lost its more than half values that cost thousands of Americans amount
that were invested in stock market (Klein and Otsu, 2021).
After the event, macroeconomic environment situation became worst. As unemployment
rate in the country reached 10% in October 2009. The Great Recession resulted in declining
overall economic activity and steepened sharply that stressed in the manner resulting financial
markets reaching at climax. Economic growth was moderate, averaging nearby to 2 per cent and
long term unemployment remained at historically elevated levels (Papageorgiou and Tsiaras,
2021). To mitigate great damages, President George W. Bush introduced Economic Stimulus Act
that resulted in doled out rebates in taxation, provided businesses with incentives to make capital
investment, reduction of various taxation and increased loan limits that encouraged taking of
loans together with bolster economy.
Key macroeconomic factors and explanation of their role in the event
Macroeconomic factors are influential variables that are part of regional or national
economy. In aspect to The Great Recession, some of macroeconomic factors and their role are as
follows:
Interest rate: It is one of macroeconomic factor which influence the ways people are
likely to borrow money. In the market event that is The Great Depression in US, interest rate
played role of beyond control of central banks as housing bubble was fundamentally endangered
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by decline on long term interest rate. It resulted in collapse of housing market that was fueled
through low interest rate resulted in the crisis (Robbins and Weidenbaum, 2017).
Credit rating: It is measurement of person or organisational potential to repay financial
obligation on the basis of income addition to past repayment histories. In the market event of The
Great Depression, huge of worthless mortgage based securities were provided AAA ratings.
Credit rating agencies did this for increasing profits as well as marker share through inaccurately
strong rating to underperforming assets. The conduct played role of fuelling meltdown which
resulted in tens of thousands of foreclosures.
Discussion of global impact of the event
The Great Depression impacted almost all nation in the world. At domestic level, the market
event impacted in great manner. With occurrence of the market event, it became clear that inter
banking was fully shut down that owe to widespread fear of unknown among financial
institutions within United States and other nations. United States have experienced broader social
consequences of the event (Sherman and Sherman, 2021). It lowered fertility rates, diminished
job prospects among adults and historically high student debt level. Businesses in the country
were forced to decline their investments as well as expenses that leaded to widespread job losses
that predictably deducted product demands. It is because of former customers that were
unemployed or underemployed. In all of this, consumer confidence in economy was reduced that
leaded to various of population curtailing spending in anticipation harder durations ahead which
is a trend to dealth blow to health of businesses. As millions of people in United States lost
homes, savings and employment, it impacted on increasing poverty rates at domestic level.
Moreover, the market event impacted negatively on the country by worsening inequality of
wealth.
At international level, all the countries are affected by the Great Recession as recovery
was uneven addition to slow. Because of occurrence of the event, most of nations experienced
economic slowdowns of changing severity. In most of nations, such as Iceland, Latvia and many
more, recession had serious repercussions of political system. In context to Iceland, it was hard-
hit by financial crisis as well as suffered recession, collapse of government and three largest
banks went nationalised. Meanwhile, other countries such as Spain, Portugal, Ireland, Greece
and Italy faced sovereign debt crises. Furthermore, increase in suicide deaths was impact of the
market event at international level. There were around 5000 additional deaths from suicide in
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2009 alone (Adame, Lo and Cheng, 2021). In England, effects of the Great Depression were
related to financial hardship. The impacts of the market event also felt on international financial
stocks. When bubble burst, various of financial institutions were only left with holding trillions
of dollars that was worth of near worthless investments in subprime mortgage.
Is the event ‘one off’ or will happen again. If not one off, what changes been made to prevent it.
If no changes have been, what would be recommended
The Great depression, one of market event in which economists have learned huge
significance about monetary addition to banking forces in contraction as well recovery phases of
the event. The market event was not failure of markets or capitalism, despite, outcome of
misguided government policies or legislations, for example, Federal Reserve permitting money
stock to collapse as panics engulfed banking system. In case, if Fed has stepped up to plate as
well as ensured that financial institutions had ample reserves for meeting withdrawals demands
of customers, money stock would not decline and economy might have not contracted sharply.
Although, Fed could not by regulations and legislations directly lend to banks which did
not belong to Federal Reserve System, the Fed must have buyed securities in open market
together with flooded banking system with reserves (Mazur, Dang and Vega, 2021). As it is the
evet which will happen again when Federal Reserve carry out practices in similar manner. Since,
Great Depression, Federal Reserve responded quickly to shock which that threatened entire
banking together with payment systems. Changes in sound economic policies have implemented
to prevent chances of happening of the event again. Aggressive monetary policies of Federal
Reserve or other central banking system to respond the market event widely credited prevention
on wider damage to the economy. In future if there are chances of occurrence of the market
event, the instrument will assist in recovering along with laying ground work for upcoming
recessions. Not only political system introduced stimulus packages into financial system, new
regulations were also put in place, Dodd Frank Act was introduced to have certain control on
banks which might deemed on cusp of failing addition to put consumer protection against
lending of predatory.
How would a person or organisation had profited from the market event
Mentioned below are some of ways in which a company or households has profited from The
Great Depression:
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 It is analysed by the reports that most of the people of united states does not aware the
weak financial position of the country before the recession take place in the country.
There is huge amount of borrowing are taken by the country. Depression 2008 aware the
business organisation of country about the actual position of their economy and it enables
the organisation to make future provisions.
 The great depression 2008 enables all the organisation of the country to develop those
frameworks in the organisation which analyses the future trends and develops
considerable measures to protect the organisation from the hazardous situations like
depression of 2008 (Benefits of The Great Depression, 2021).
 It is seen in many examples that those companies which survives in those recession
become the largest organisation of world because it enables the organisations to deal with
multiple issues in their business.
 After the great depression take place in the country, the focus of government becomes
increases towards the business of the country and the government provides different
relaxations and subsidies to business organisations for their survival in the industry.\
 One of the most important reforms are taken place in this recession is Dodd frank wall
street reform and consumer protection act. These reforms help the company to deal with
various economic and financial issues.
CONCLUSION
From the assignment, it is concluded that market event impact adversely on a country. The
Great Depression is one of market event that precipitated in US through financial crisis of 2007-
2008. It is severe contraction of liquidity in international market that began in 2007 as outcome
of bursting of United States housing bubble. The market event impacted domestically and
internationally. Through measuring currency devaluation, equity market decline, rise of
sovereign bond spreads and many more, an image of financial devastation emerges. In response
to the market event, various instruments in form of monetary and fiscal policies were
implemented so to mitigate its impacts and achieve subsequent recovery.
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REFERENCES
Books and Journals:
Adame, J. L., Lo, C.C. and Cheng, T.C., 2021. Ethnicity and self-reported depression among
Hispanic immigrants in the US. Community mental health journal, pp.1-15.
Cortes, G. S., Taylor, B. and Weidenmier, M. D., 2021. Financial factors and the propagation of
the Great Depression. Journal of Financial Economics.
Klein, A. and Otsu, K., 2021. Accounting for the International Great Depression: Efficiency,
Distortions and Factor Utilization during the Interwar Period. The BE Journal of
Macroeconomics.
Mazur, M., Dang, M. and Vega, M., 2021. COVID-19 and the march 2020 stock market crash.
Evidence from S&P1500. Finance Research Letters, 38, p.101690.
Papageorgiou, D. and Tsiaras, S., 2021. The Greek Great Depression from a neoclassical
perspective (No. 286). Bank of Greece.
Reinhart, C. and Reinhart, V., 2020. The pandemic depression: The global economy will never
be the same. Foreign Aff., 99, p.84.
Robbins, L. and Weidenbaum, M., 2017. The great depression. Routledge.
Sherman, H. J. and Sherman, P. D., 2021. The Trump Depression. Challenge, 64(1), pp.22-35.
Online:
Benefits of The Great Depression. 2021. [Online]. Available through:
<https://www.bloomberg.com/opinion/articles/2012-07-13/the-surprising-benefits-of-
the-great-depression>
Field. A. 2021. The main causes of the Great Depression, and how the road to recovery
transformed the US economy. [Online]. Available through: <
https://www.businessinsider.in/international/news/the-main-causes-of-the-great-
depression-and-how-the-road-to-recovery-transformed-the-us-economy/articleshow/
78302856.cms>
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