The recession that began in 2007 has forced Kerry and her sister to rethink the way they spend and k erry always felt lucky. But then her mom got laid off and Kerry stopped getting an allowance. When her dad's work hours got cut back, too, the family had to move to a smaller home. Kerry now shares a bedroom with her sister. Her family won't be going on vacation this summer. And Kerry worries about how she will afford college, too. While Kerry is a fictional character, many real teens face similar dilemmas. A downturn in the u.s. economy has left more than 1 in 10 Americans unemployed. Calculations by the National Academy of Sciences suggest that nearly 1 in 6 Americans live in poverty. For example, a family whose yearly income is less than $20,000 would be in this category. The recent crisis came into the national spotlight starting in 2007. But its roots reach back over decades. Average Americans as well as financial experts wonder why things went wrong and what will make them better. •
Transcript
The recession that began in 2007 has forced Kerry and
her sister to rethink the way they spend and
kerry always felt lucky But then her mom got laid off and Kerry stopped getting an allowance When her dads work hours got cut back too the family had to move to a smaller home Kerry now
shares a bedroom with her sister Her family wont be going on vacation this summer And Kerry worries about how she will afford college too
While Kerry is a fictional character many real teens face similar dilemmas A downturn in the us economy has left more than 1 in 10 Americans unemployed Calculations by the National Academy of
Sciences suggest that nearly 1 in 6 Americans live in poverty For example a family whose yearly income is less than $20000 would be in this category The recent crisis came into the national spotlight starting in 2007 But its roots reach back over decades Average Americans as well as financial experts wonder why things went wrong and what will make them better
bull
Meanwhile it became easier to get and use credit cards Use of debt-buying now and paying later-became more and more acceptable says Steve Fazzari an economics professor at Washington University in St Louis Missouri But if credit cards are not paid off fully each month they accrue interest on the unpaid balance This can add up to huge amounts in personal debt over time
PISf(y B1JSINESS Bad business decisions by many lenders made matters worse Starting in the 1970s the government cut back banking regulations The move freed banks to take more risks in loans and investments
When Kerrys mother lost her job the family also lost the ability to support its lifestyle
roo M1JCH DEBT In this particular case the financial crisis was caused by too many people having too much debt says Raj Aggarwal a finan~e and business professor at the University of Akron in Ohio Money was easily available and was cheap So it was easy for people to get loans And interest rates were falling Many people spent more money than they earned and built up debts
Starting in the mid-1980s home mortgage interest rates dropped significantly With lower interest rates and relaxed lending policies people could get mortshygages more easily As more potential buyers entered the market for homes sellers raised their prices
Equity lines of credit also encouraged mounting debt A family could borrow against their homes equity which is the value of a house that results from a familys initial down payment and the monthly mortgage payments minus whatever is owed on existing mortgages The equity line of credit could be used to remodel pay for college or even take vacations The home became collateral If a person couldnt repay the borrowed money lenders could seize and sell the home to pay the debt But as long as interest rates kept falling and housing prices stayed high borrowers could usually refinance or sell their homes and still make a profit People felt wealthier than they actually were
Sooner or later the bubble had to pop And it did Once interest rates stopped falling people couldnt get better debt deals With fewer buyers in the marketplace sellers lowered their prices Some people had borrowed more on their home than it was now worth Many were forced to try to sell their now-overpriced homes The resultshying glut in the real estate market further pushed down home prices
j Interest is the cost for borrow-ingmoney Suppose
a home costs $400000 If your parents make a 20 percent down payment and take out a 30-yea fixed-rate mortgage at 7 percent for $320000 ~
they will pay $212897 per month Fixed rates V~ ~ ~~~ -
remain the same over time Now suppose your rc l
~ parents get a 30-year variable-rate mortgage for r i $320000 Variable rates change over time The
interest rate might go from 7 percent the first year to 8 percent the second and 10 percent the third That means that monthly payments would rise to about $2787 by the third year
A 1ortgltlge is a temporary pledge of propert) to a creditor as security for repayment of a debt
A ~owr] payment is a partial payment at the time of purchase with the balance to be paid over t ime
Pefmance means TO make a new mortgage agreement that replaces an earlier one
deprive a homeowner of ownership because mortgage payments have not been made
DefalJI means to fail to pay back a loan in
a timely way
Revenues are income
or ot her money comong in to a business
Mu ual funds are investment companies that combine money from many people and invest those funds in securities (stocks and bonds) of other companies
National debt is money owed by t he federal government
The sharp decrease in her parents combined income forced Kerrys family to give up its dream house and move to a smaller more affordable home
4
Investment firms insurance companies and other busishynesses faced even less regulation but they started acting like banks too Some programs they offered sounded like 30-year investments that paid good interest rates The invested funds werent technically bank deposits but they worked that way except that they werent insured
Another type of deal bought up lots of home mortgages and resold the repayment income to groups of investors Interest earnings varied based on whether investors got paid back from earlier or later mortgage payoffs But these investments were risky Too many people began to default on their mortgages Consumers-borrowers-also were irresponsible Some signed contracts they did not understand or even read They ignored the fine print that might have warned them that certain deals were too good to be true
Additionally banks didnt operate in just one state anymore They did business nationwide and traded in international markets A single large banks failure could potentially cause chaos in the system Everybody had started borrowing too much money not just in the United States says Aggarwal The resulting crisis became global in nature
A CPISIS or CONFIDENCE In 2007 an economic recession or a downturn in the economy began Lower revenues led to cuts in production and services Job losses folshylowed As people had less income they spent less Confidence in the economy declined
Businesses and everyday people had trouble paying debts so financial institutions had less money coming in Foreclosures became more comshymon Yet as more property came on the market when people couldnt pay mortgages or other debts the value of those assets fell Eventually big firms couldnt pay their own debts and they began to fail
When the investment firm Bear Stearns amp Co had problems in early 2008 the federal government helped arrange for
Like other Americans in the 1990s and 2000s Kerrys family had spent more money than it could pay back Getting a handle on its bills and tightening its use of credit are helping to get the family out of debt
another company to buy it Then Lehman Brothers filed for bankruptcy in September 2008 Other collapses followed including the huge AIG insurance company and Citicorp which survived only because of huge government loans When the banks started to fail they didnt want to lend to each other says Aggarwal They didnt know who was going to go down next
The lack of confidence made it hard for anyone to get loans Companies couldnt get ready cash so there were more job layoffs and production cuts The financial crisis quickly became an economic crisis says Aggarwal In other words problems with getting loans and having enough cash on hand caused lower economic production which meant less work and less income for millions of people Like a vicious circle the banks problems lowered confidence throughout the financial system
Stock values plunged too Nervous investors expectations aggravated problems If many shareholders sell because they fear falling prices stock prices fall faster Stocks fell by more than 50 percent and people lost lots of value in retirement funds and other investments
Most retirement and college savings funds include stocks or This arrangement spreads investors risks and lets them benefit from interests in securities they might otherwise not be able to buy on their own By investing in the stock market people hope that their initial deposit will greatly increase over time But falling stock values in 2009 and 2010 shrank the value of those funds
SfEPPING IN Its now clear that some financial firms had become too big to let fail Since a lot of other financial institutions are holding their assets its like a stack of dominoes explains Lewis Mandell a finance and business professor at the University of Washington If they fail they have the ability to bring down the rest of the economy
The federal government tried to restore confidence in the finanshycial system by buying large shares in some troubled firms It also guaranteed some firms debts In other words the government promised to pay the companies debts if the companies couldnt
The cost of bailing out banks and other institutions and corposhyrations that were too big to fail is in the trillions of dollars notes Mandell That is going to be added to the money that Americans owe as part of the national deb t
business
~
Itrlrfit11
IJ middot~Or8t ~eelilll
8111C~ laquo9-t eClra
to he d dfearl1 Sajd rg1JT7lr-J
160000
~ middot b I O S
~t1Jp~ a sin 0 ~ gle ~bols ~~O] tt]cts I
~s oIVOIt e~ ~ IIIIlJq](~ose tb
$
As consumers have less income businesses such as this Blockbuster Video store feel the pinch created by fewer customers and in particularly bad economic times can go out of
Other government actions tried to prop up the economy with stimulus
fund grants Basically the government gave money to states for public projshy
ects In theory putting underused resources back to work could create jobs or
at least prevent wider layoffs But this strategy also adds to the national debt ~ Stimulus money is helping states with much-needed repairs and the
rebuilding of roads bridges sewers and other projects It also lessened
the bite of big budget cuts required by lower tax revenues in the states
Otherwise says Fazzari they were going to be forced to cut back on basic
public services Critics on both sides debate the wisdom of government
actions But says Fazzari they dont know what would have happened
without the stimulusI~I LOOkING AHEAD
Many experts have called for stricter regulation of the financial sector They want rules to promote prudent lending and investment actions in the
future especially among large firms Consumer debt and investshyment programs will probably change too Instead of complicatedmiddot borrowing programs and elaborate investment deals financial comshyost In panies may offer something simple that nonexperts can understand
1 Taxes are likely to go up and stay high for a very long time to d ay help payoff the cost of the stimulus says Mandell He urges teens to be cautious in their financial affairs Ask yourself if you really need
Abundant pink Ips ~n ~r the latest cell phone ConSider choosmg an affordable college And
dIJ-bulln~ 0 someday when it is your turn to buy a home choose or build one
III ~I~ ~ ler~obslit CO that you can comfortably afford II~ ~111t4~I~ lIlfolJ llJOI e~ Live within your means and borrow only the money that you can
tA bull II ~ lillo 001]1 bull ~ 1 JA pay back agrees Aggarwal Overborrowing could lead to disaster on
a personal basis-and on a national basis
Kathiann M Kowalski has written 21 books and hundreds of articles for
young people She is a former ed itor of the Harvard Law Review and writes often for CO BBLESTONE ODYSSEY and other Ca rus magazines
If only it were this easy
Meanwhile it became easier to get and use credit cards Use of debt-buying now and paying later-became more and more acceptable says Steve Fazzari an economics professor at Washington University in St Louis Missouri But if credit cards are not paid off fully each month they accrue interest on the unpaid balance This can add up to huge amounts in personal debt over time
PISf(y B1JSINESS Bad business decisions by many lenders made matters worse Starting in the 1970s the government cut back banking regulations The move freed banks to take more risks in loans and investments
When Kerrys mother lost her job the family also lost the ability to support its lifestyle
roo M1JCH DEBT In this particular case the financial crisis was caused by too many people having too much debt says Raj Aggarwal a finan~e and business professor at the University of Akron in Ohio Money was easily available and was cheap So it was easy for people to get loans And interest rates were falling Many people spent more money than they earned and built up debts
Starting in the mid-1980s home mortgage interest rates dropped significantly With lower interest rates and relaxed lending policies people could get mortshygages more easily As more potential buyers entered the market for homes sellers raised their prices
Equity lines of credit also encouraged mounting debt A family could borrow against their homes equity which is the value of a house that results from a familys initial down payment and the monthly mortgage payments minus whatever is owed on existing mortgages The equity line of credit could be used to remodel pay for college or even take vacations The home became collateral If a person couldnt repay the borrowed money lenders could seize and sell the home to pay the debt But as long as interest rates kept falling and housing prices stayed high borrowers could usually refinance or sell their homes and still make a profit People felt wealthier than they actually were
Sooner or later the bubble had to pop And it did Once interest rates stopped falling people couldnt get better debt deals With fewer buyers in the marketplace sellers lowered their prices Some people had borrowed more on their home than it was now worth Many were forced to try to sell their now-overpriced homes The resultshying glut in the real estate market further pushed down home prices
j Interest is the cost for borrow-ingmoney Suppose
a home costs $400000 If your parents make a 20 percent down payment and take out a 30-yea fixed-rate mortgage at 7 percent for $320000 ~
they will pay $212897 per month Fixed rates V~ ~ ~~~ -
remain the same over time Now suppose your rc l
~ parents get a 30-year variable-rate mortgage for r i $320000 Variable rates change over time The
interest rate might go from 7 percent the first year to 8 percent the second and 10 percent the third That means that monthly payments would rise to about $2787 by the third year
A 1ortgltlge is a temporary pledge of propert) to a creditor as security for repayment of a debt
A ~owr] payment is a partial payment at the time of purchase with the balance to be paid over t ime
Pefmance means TO make a new mortgage agreement that replaces an earlier one
deprive a homeowner of ownership because mortgage payments have not been made
DefalJI means to fail to pay back a loan in
a timely way
Revenues are income
or ot her money comong in to a business
Mu ual funds are investment companies that combine money from many people and invest those funds in securities (stocks and bonds) of other companies
National debt is money owed by t he federal government
The sharp decrease in her parents combined income forced Kerrys family to give up its dream house and move to a smaller more affordable home
4
Investment firms insurance companies and other busishynesses faced even less regulation but they started acting like banks too Some programs they offered sounded like 30-year investments that paid good interest rates The invested funds werent technically bank deposits but they worked that way except that they werent insured
Another type of deal bought up lots of home mortgages and resold the repayment income to groups of investors Interest earnings varied based on whether investors got paid back from earlier or later mortgage payoffs But these investments were risky Too many people began to default on their mortgages Consumers-borrowers-also were irresponsible Some signed contracts they did not understand or even read They ignored the fine print that might have warned them that certain deals were too good to be true
Additionally banks didnt operate in just one state anymore They did business nationwide and traded in international markets A single large banks failure could potentially cause chaos in the system Everybody had started borrowing too much money not just in the United States says Aggarwal The resulting crisis became global in nature
A CPISIS or CONFIDENCE In 2007 an economic recession or a downturn in the economy began Lower revenues led to cuts in production and services Job losses folshylowed As people had less income they spent less Confidence in the economy declined
Businesses and everyday people had trouble paying debts so financial institutions had less money coming in Foreclosures became more comshymon Yet as more property came on the market when people couldnt pay mortgages or other debts the value of those assets fell Eventually big firms couldnt pay their own debts and they began to fail
When the investment firm Bear Stearns amp Co had problems in early 2008 the federal government helped arrange for
Like other Americans in the 1990s and 2000s Kerrys family had spent more money than it could pay back Getting a handle on its bills and tightening its use of credit are helping to get the family out of debt
another company to buy it Then Lehman Brothers filed for bankruptcy in September 2008 Other collapses followed including the huge AIG insurance company and Citicorp which survived only because of huge government loans When the banks started to fail they didnt want to lend to each other says Aggarwal They didnt know who was going to go down next
The lack of confidence made it hard for anyone to get loans Companies couldnt get ready cash so there were more job layoffs and production cuts The financial crisis quickly became an economic crisis says Aggarwal In other words problems with getting loans and having enough cash on hand caused lower economic production which meant less work and less income for millions of people Like a vicious circle the banks problems lowered confidence throughout the financial system
Stock values plunged too Nervous investors expectations aggravated problems If many shareholders sell because they fear falling prices stock prices fall faster Stocks fell by more than 50 percent and people lost lots of value in retirement funds and other investments
Most retirement and college savings funds include stocks or This arrangement spreads investors risks and lets them benefit from interests in securities they might otherwise not be able to buy on their own By investing in the stock market people hope that their initial deposit will greatly increase over time But falling stock values in 2009 and 2010 shrank the value of those funds
SfEPPING IN Its now clear that some financial firms had become too big to let fail Since a lot of other financial institutions are holding their assets its like a stack of dominoes explains Lewis Mandell a finance and business professor at the University of Washington If they fail they have the ability to bring down the rest of the economy
The federal government tried to restore confidence in the finanshycial system by buying large shares in some troubled firms It also guaranteed some firms debts In other words the government promised to pay the companies debts if the companies couldnt
The cost of bailing out banks and other institutions and corposhyrations that were too big to fail is in the trillions of dollars notes Mandell That is going to be added to the money that Americans owe as part of the national deb t
business
~
Itrlrfit11
IJ middot~Or8t ~eelilll
8111C~ laquo9-t eClra
to he d dfearl1 Sajd rg1JT7lr-J
160000
~ middot b I O S
~t1Jp~ a sin 0 ~ gle ~bols ~~O] tt]cts I
~s oIVOIt e~ ~ IIIIlJq](~ose tb
$
As consumers have less income businesses such as this Blockbuster Video store feel the pinch created by fewer customers and in particularly bad economic times can go out of
Other government actions tried to prop up the economy with stimulus
fund grants Basically the government gave money to states for public projshy
ects In theory putting underused resources back to work could create jobs or
at least prevent wider layoffs But this strategy also adds to the national debt ~ Stimulus money is helping states with much-needed repairs and the
rebuilding of roads bridges sewers and other projects It also lessened
the bite of big budget cuts required by lower tax revenues in the states
Otherwise says Fazzari they were going to be forced to cut back on basic
public services Critics on both sides debate the wisdom of government
actions But says Fazzari they dont know what would have happened
without the stimulusI~I LOOkING AHEAD
Many experts have called for stricter regulation of the financial sector They want rules to promote prudent lending and investment actions in the
future especially among large firms Consumer debt and investshyment programs will probably change too Instead of complicatedmiddot borrowing programs and elaborate investment deals financial comshyost In panies may offer something simple that nonexperts can understand
1 Taxes are likely to go up and stay high for a very long time to d ay help payoff the cost of the stimulus says Mandell He urges teens to be cautious in their financial affairs Ask yourself if you really need
Abundant pink Ips ~n ~r the latest cell phone ConSider choosmg an affordable college And
dIJ-bulln~ 0 someday when it is your turn to buy a home choose or build one
III ~I~ ~ ler~obslit CO that you can comfortably afford II~ ~111t4~I~ lIlfolJ llJOI e~ Live within your means and borrow only the money that you can
tA bull II ~ lillo 001]1 bull ~ 1 JA pay back agrees Aggarwal Overborrowing could lead to disaster on
a personal basis-and on a national basis
Kathiann M Kowalski has written 21 books and hundreds of articles for
young people She is a former ed itor of the Harvard Law Review and writes often for CO BBLESTONE ODYSSEY and other Ca rus magazines
If only it were this easy
deprive a homeowner of ownership because mortgage payments have not been made
DefalJI means to fail to pay back a loan in
a timely way
Revenues are income
or ot her money comong in to a business
Mu ual funds are investment companies that combine money from many people and invest those funds in securities (stocks and bonds) of other companies
National debt is money owed by t he federal government
The sharp decrease in her parents combined income forced Kerrys family to give up its dream house and move to a smaller more affordable home
4
Investment firms insurance companies and other busishynesses faced even less regulation but they started acting like banks too Some programs they offered sounded like 30-year investments that paid good interest rates The invested funds werent technically bank deposits but they worked that way except that they werent insured
Another type of deal bought up lots of home mortgages and resold the repayment income to groups of investors Interest earnings varied based on whether investors got paid back from earlier or later mortgage payoffs But these investments were risky Too many people began to default on their mortgages Consumers-borrowers-also were irresponsible Some signed contracts they did not understand or even read They ignored the fine print that might have warned them that certain deals were too good to be true
Additionally banks didnt operate in just one state anymore They did business nationwide and traded in international markets A single large banks failure could potentially cause chaos in the system Everybody had started borrowing too much money not just in the United States says Aggarwal The resulting crisis became global in nature
A CPISIS or CONFIDENCE In 2007 an economic recession or a downturn in the economy began Lower revenues led to cuts in production and services Job losses folshylowed As people had less income they spent less Confidence in the economy declined
Businesses and everyday people had trouble paying debts so financial institutions had less money coming in Foreclosures became more comshymon Yet as more property came on the market when people couldnt pay mortgages or other debts the value of those assets fell Eventually big firms couldnt pay their own debts and they began to fail
When the investment firm Bear Stearns amp Co had problems in early 2008 the federal government helped arrange for
Like other Americans in the 1990s and 2000s Kerrys family had spent more money than it could pay back Getting a handle on its bills and tightening its use of credit are helping to get the family out of debt
another company to buy it Then Lehman Brothers filed for bankruptcy in September 2008 Other collapses followed including the huge AIG insurance company and Citicorp which survived only because of huge government loans When the banks started to fail they didnt want to lend to each other says Aggarwal They didnt know who was going to go down next
The lack of confidence made it hard for anyone to get loans Companies couldnt get ready cash so there were more job layoffs and production cuts The financial crisis quickly became an economic crisis says Aggarwal In other words problems with getting loans and having enough cash on hand caused lower economic production which meant less work and less income for millions of people Like a vicious circle the banks problems lowered confidence throughout the financial system
Stock values plunged too Nervous investors expectations aggravated problems If many shareholders sell because they fear falling prices stock prices fall faster Stocks fell by more than 50 percent and people lost lots of value in retirement funds and other investments
Most retirement and college savings funds include stocks or This arrangement spreads investors risks and lets them benefit from interests in securities they might otherwise not be able to buy on their own By investing in the stock market people hope that their initial deposit will greatly increase over time But falling stock values in 2009 and 2010 shrank the value of those funds
SfEPPING IN Its now clear that some financial firms had become too big to let fail Since a lot of other financial institutions are holding their assets its like a stack of dominoes explains Lewis Mandell a finance and business professor at the University of Washington If they fail they have the ability to bring down the rest of the economy
The federal government tried to restore confidence in the finanshycial system by buying large shares in some troubled firms It also guaranteed some firms debts In other words the government promised to pay the companies debts if the companies couldnt
The cost of bailing out banks and other institutions and corposhyrations that were too big to fail is in the trillions of dollars notes Mandell That is going to be added to the money that Americans owe as part of the national deb t
business
~
Itrlrfit11
IJ middot~Or8t ~eelilll
8111C~ laquo9-t eClra
to he d dfearl1 Sajd rg1JT7lr-J
160000
~ middot b I O S
~t1Jp~ a sin 0 ~ gle ~bols ~~O] tt]cts I
~s oIVOIt e~ ~ IIIIlJq](~ose tb
$
As consumers have less income businesses such as this Blockbuster Video store feel the pinch created by fewer customers and in particularly bad economic times can go out of
Other government actions tried to prop up the economy with stimulus
fund grants Basically the government gave money to states for public projshy
ects In theory putting underused resources back to work could create jobs or
at least prevent wider layoffs But this strategy also adds to the national debt ~ Stimulus money is helping states with much-needed repairs and the
rebuilding of roads bridges sewers and other projects It also lessened
the bite of big budget cuts required by lower tax revenues in the states
Otherwise says Fazzari they were going to be forced to cut back on basic
public services Critics on both sides debate the wisdom of government
actions But says Fazzari they dont know what would have happened
without the stimulusI~I LOOkING AHEAD
Many experts have called for stricter regulation of the financial sector They want rules to promote prudent lending and investment actions in the
future especially among large firms Consumer debt and investshyment programs will probably change too Instead of complicatedmiddot borrowing programs and elaborate investment deals financial comshyost In panies may offer something simple that nonexperts can understand
1 Taxes are likely to go up and stay high for a very long time to d ay help payoff the cost of the stimulus says Mandell He urges teens to be cautious in their financial affairs Ask yourself if you really need
Abundant pink Ips ~n ~r the latest cell phone ConSider choosmg an affordable college And
dIJ-bulln~ 0 someday when it is your turn to buy a home choose or build one
III ~I~ ~ ler~obslit CO that you can comfortably afford II~ ~111t4~I~ lIlfolJ llJOI e~ Live within your means and borrow only the money that you can
tA bull II ~ lillo 001]1 bull ~ 1 JA pay back agrees Aggarwal Overborrowing could lead to disaster on
a personal basis-and on a national basis
Kathiann M Kowalski has written 21 books and hundreds of articles for
young people She is a former ed itor of the Harvard Law Review and writes often for CO BBLESTONE ODYSSEY and other Ca rus magazines
If only it were this easy
Like other Americans in the 1990s and 2000s Kerrys family had spent more money than it could pay back Getting a handle on its bills and tightening its use of credit are helping to get the family out of debt
another company to buy it Then Lehman Brothers filed for bankruptcy in September 2008 Other collapses followed including the huge AIG insurance company and Citicorp which survived only because of huge government loans When the banks started to fail they didnt want to lend to each other says Aggarwal They didnt know who was going to go down next
The lack of confidence made it hard for anyone to get loans Companies couldnt get ready cash so there were more job layoffs and production cuts The financial crisis quickly became an economic crisis says Aggarwal In other words problems with getting loans and having enough cash on hand caused lower economic production which meant less work and less income for millions of people Like a vicious circle the banks problems lowered confidence throughout the financial system
Stock values plunged too Nervous investors expectations aggravated problems If many shareholders sell because they fear falling prices stock prices fall faster Stocks fell by more than 50 percent and people lost lots of value in retirement funds and other investments
Most retirement and college savings funds include stocks or This arrangement spreads investors risks and lets them benefit from interests in securities they might otherwise not be able to buy on their own By investing in the stock market people hope that their initial deposit will greatly increase over time But falling stock values in 2009 and 2010 shrank the value of those funds
SfEPPING IN Its now clear that some financial firms had become too big to let fail Since a lot of other financial institutions are holding their assets its like a stack of dominoes explains Lewis Mandell a finance and business professor at the University of Washington If they fail they have the ability to bring down the rest of the economy
The federal government tried to restore confidence in the finanshycial system by buying large shares in some troubled firms It also guaranteed some firms debts In other words the government promised to pay the companies debts if the companies couldnt
The cost of bailing out banks and other institutions and corposhyrations that were too big to fail is in the trillions of dollars notes Mandell That is going to be added to the money that Americans owe as part of the national deb t
business
~
Itrlrfit11
IJ middot~Or8t ~eelilll
8111C~ laquo9-t eClra
to he d dfearl1 Sajd rg1JT7lr-J
160000
~ middot b I O S
~t1Jp~ a sin 0 ~ gle ~bols ~~O] tt]cts I
~s oIVOIt e~ ~ IIIIlJq](~ose tb
$
As consumers have less income businesses such as this Blockbuster Video store feel the pinch created by fewer customers and in particularly bad economic times can go out of
Other government actions tried to prop up the economy with stimulus
fund grants Basically the government gave money to states for public projshy
ects In theory putting underused resources back to work could create jobs or
at least prevent wider layoffs But this strategy also adds to the national debt ~ Stimulus money is helping states with much-needed repairs and the
rebuilding of roads bridges sewers and other projects It also lessened
the bite of big budget cuts required by lower tax revenues in the states
Otherwise says Fazzari they were going to be forced to cut back on basic
public services Critics on both sides debate the wisdom of government
actions But says Fazzari they dont know what would have happened
without the stimulusI~I LOOkING AHEAD
Many experts have called for stricter regulation of the financial sector They want rules to promote prudent lending and investment actions in the
future especially among large firms Consumer debt and investshyment programs will probably change too Instead of complicatedmiddot borrowing programs and elaborate investment deals financial comshyost In panies may offer something simple that nonexperts can understand
1 Taxes are likely to go up and stay high for a very long time to d ay help payoff the cost of the stimulus says Mandell He urges teens to be cautious in their financial affairs Ask yourself if you really need
Abundant pink Ips ~n ~r the latest cell phone ConSider choosmg an affordable college And
dIJ-bulln~ 0 someday when it is your turn to buy a home choose or build one
III ~I~ ~ ler~obslit CO that you can comfortably afford II~ ~111t4~I~ lIlfolJ llJOI e~ Live within your means and borrow only the money that you can
tA bull II ~ lillo 001]1 bull ~ 1 JA pay back agrees Aggarwal Overborrowing could lead to disaster on
a personal basis-and on a national basis
Kathiann M Kowalski has written 21 books and hundreds of articles for
young people She is a former ed itor of the Harvard Law Review and writes often for CO BBLESTONE ODYSSEY and other Ca rus magazines
If only it were this easy
business
~
Itrlrfit11
IJ middot~Or8t ~eelilll
8111C~ laquo9-t eClra
to he d dfearl1 Sajd rg1JT7lr-J
160000
~ middot b I O S
~t1Jp~ a sin 0 ~ gle ~bols ~~O] tt]cts I
~s oIVOIt e~ ~ IIIIlJq](~ose tb
$
As consumers have less income businesses such as this Blockbuster Video store feel the pinch created by fewer customers and in particularly bad economic times can go out of
Other government actions tried to prop up the economy with stimulus
fund grants Basically the government gave money to states for public projshy
ects In theory putting underused resources back to work could create jobs or
at least prevent wider layoffs But this strategy also adds to the national debt ~ Stimulus money is helping states with much-needed repairs and the
rebuilding of roads bridges sewers and other projects It also lessened
the bite of big budget cuts required by lower tax revenues in the states
Otherwise says Fazzari they were going to be forced to cut back on basic
public services Critics on both sides debate the wisdom of government
actions But says Fazzari they dont know what would have happened
without the stimulusI~I LOOkING AHEAD
Many experts have called for stricter regulation of the financial sector They want rules to promote prudent lending and investment actions in the
future especially among large firms Consumer debt and investshyment programs will probably change too Instead of complicatedmiddot borrowing programs and elaborate investment deals financial comshyost In panies may offer something simple that nonexperts can understand
1 Taxes are likely to go up and stay high for a very long time to d ay help payoff the cost of the stimulus says Mandell He urges teens to be cautious in their financial affairs Ask yourself if you really need
Abundant pink Ips ~n ~r the latest cell phone ConSider choosmg an affordable college And
dIJ-bulln~ 0 someday when it is your turn to buy a home choose or build one
III ~I~ ~ ler~obslit CO that you can comfortably afford II~ ~111t4~I~ lIlfolJ llJOI e~ Live within your means and borrow only the money that you can
tA bull II ~ lillo 001]1 bull ~ 1 JA pay back agrees Aggarwal Overborrowing could lead to disaster on
a personal basis-and on a national basis
Kathiann M Kowalski has written 21 books and hundreds of articles for
young people She is a former ed itor of the Harvard Law Review and writes often for CO BBLESTONE ODYSSEY and other Ca rus magazines
