Download The
Total Page:16
File Type:pdf, Size:1020Kb
Preface This year’s edition of SUPANOVA includes selections by students enrolled in Economics 203, Sociology 101, Public Affairs 101, and English and Textual Studies 142. It was a very difficult task narrowing down which entries to include. We would like to thank all the students who submitted work to us. We were impressed by the quality of the writing and wish we could have printed them all. We are publishing these essays with the assumption that readers are interested in student work as presented in college-level classes. The essays were chosen based on the quality of the writing and the degree to which they fulfilled the learning objectives of the courses. Please enjoy the 2011 SUPANOVA essays. We believe they represent the wide diversity and scope of the Syracuse University courses offered by Project Advance. Syracuse University Project Advance Fall 2011 i Contents Preface ........................................................................................................................................ i The Financial Crisis: Causes, Responses, Effects ......................................................................... 1 The Economy of the United States: How we got into the current recession and why recovery doesn’t mean that the “Problem” is “Fixed” ............................................................................ 9 Sociology Final Exam .................................................................................................................. 16 Sociology 101 Inspired Artwork .................................................................................................. 22 Emergency Medical Services Taxing District Assessment – The Town of Rotterdam .................. 23 Intellectual Power ....................................................................................................................... 37 I’m Still Here: Studying the questions of subjectivity that arose from “The Lost Years” of Joaquin Phoenix ................................................................................................................................. 41 ii SUPANOVA 1 1 Economics 203 ECN 203: Economic Ideas and Issues furnishes students with an introduction to Western economic thought. Students learn the scientific method and use it to examine the way individuals and societies make choices. Progressing from microeconomic to macroeconomic elements, students examine the benefits and the problems inherent in a market driven economy. Students learn about the role government plays in both creating and solving disruptions in global systems. The following two authors outline what they each believe to be the most influential causes of the current economic crisis. The Financial Crisis: Causes, Responses, Effects Rachel Winsberg Brighton High School, Rochester, NY Instructor- Mr. Noto No one, not even an expert like Ben Bernanke, can definitively make the claim that he knows everything there is to know about the current economic crisis. The causes are too vast, the effects too all-encompassing, and the solutions to impenetrable. In writing this paper, I will endeavor to explain the main causes of current conditions, how governments and individuals have responded, what the current status is, and some possible actions for the future. When examining the origins of the current economic situation, one can find endless examples of finance gone wrong, overspending, or undersaving. I am going to focus on what I think are the main causes of today’s global recession: the mortgage crisis, credit freezing, financial innovations, the banking crisis, lack of regulation, credit rating agencies and a culture of spending. All of these causes are interconnected, just like the world’s economies. They had all been building up for years, but the one thing that made them all come to a head was the mortgage crisis that revealed itself in late 2006 (“Giant”n.pag.). It all started in the early 2000’s when investors all over the world were tired of buying low-interest, low risk bonds from the United States government, and were looking for a place to make their savings grow quickly (“Giant” n.pag.). These investors discovered that house loans, or mortgages, had a slightly higher risk but a much higher return. Wall St. realized the increased demand for these investments, and so mortgage-backed securities were born (“Giant” n.pag.). These were pools of thousands of mortgages from which investors could buy and reap the benefits. Word spread quickly of these new investment opportunities, and the global demand was so high, in fact, that the supply could not keep up with it. Mortgage brokers realized this, and so the deregulation of who could get a mortgage started. First there were Stated Income, Verified Assets loans; then State Income, State Assets; then No Income, Verified Asset; then No Income, No Asset; and finally No Income, No Job or Asset (NINJA) loans (“Giant”n.pag.). Of course, with people able to get mortgages so easily, the demand for housing shot up along with the demand for the MBS’s (“Giant”n.pag.). Housing prices mushroomed, but that did not deter people from buying a house, because it seemed as if the prices would never stop getting higher (“Giant”n.pag.). Buying a house started becoming an investment instead of a life decision (“Giant”n.pag.). By 2006, anyone who wanted to get a loan for a house could easily get one regardless of their income. These risky SUPANOVA 2 2 mortgages did not really bother the issuing banks, because they would just sell them to Wall St., who would then sell the pooled mortgages to investors all over the world (“Giant”n.pag.). Nor were the investors worried, because data showed that the more risky loans were doing fairly well; a 3.5% default rate versus a 1.5% default rate made it worth the risk. These data, however, were irrelevant because history could not provide data on the types of loans that were being issued (“Giant”n.pag.). In late 2006, banks started noticing that people were defaulting extremely early on their mortgage payments, and many had never even paid at all (“Giant”n.pag.). When the houses foreclosed, this put more houses on the market, while at the same time demand was spiraling down because of the high prices; demand was saturated (“Giant”n.pag.). This combination of higher supply and lower demand caused a burst of the housing bubble; the MBS’s were quickly losing value (“Giant”n.pag.). Small banks that had borrowed huge amounts of money from larger banks in order to buy mortgages now could not pay them back because the MBS’s no longer had a viable market (“Giant”n.pag.). Now, there was a credit crisis because global investors were more interested in the safety rather than the profit of their investments (“Giant”n.pag.). It was therefore much harder to borrow because of the fear of default (“Giant”n.pag.). The mortgage crisis revealed itself in late 2006. Financers worldwide were not sure if it would spread into other sectors of the economy, but it was not long before they realized that the mortgage crisis was an indicator of a larger problem (“Another” n.pag.). The commercial paper market is one in which big companies can borrow from one another on a daily basis; it is an “industrial-sized IOU,” according to Adam Davidson of NPR news (“Another” n.pag.). However, that market froze as a result of the Money Market Mutual Fund (MMMF) breaking the buck, or losing its depositors’ money (“Another” n.pag.). And this happened as a result of Lehman Brothers’ collapse on September 15, 2008; MMMF had lent so much money to Lehman Brothers that it could not pay back the money it had borrowed from other places (“Another” n.pag.). There was a lack of trust in the commercial paper market that could not be restored (“Another” n.pag.). Financial institutions, as the main lenders and borrowers in the US economy, seemed to be at the core of this, and it’s true that banks are the main lenders and borrowers in the United States economy. In order for a bank to function, it must have its assets equal its liabilities plus its capital (“Bad” n.pag.). When a bank’s assets do not equal its liabilities plus its capital, the bank is insolvent and must either be shut down or bailed out by the government (“Bad” n.pag.). When people do not pay back their loans to the bank, the owners must change their capital amounts to balance out capital, assets, and liabilities (“Bad” n.pag.). During the housing crisis, when so many people were defaulting on their loans, the banks started taking over the houses that people could not pay for, but that did not help their balance sheets much because the houses’ values had gone down so dramatically (“Bad” n.pag.). Because there is no firewall between commercial and investment banks, the banks that had been partaking in the risky behavior with mortgages were the very same banks that held people’s savings that they had put there merely for safekeeping. Barack Obama has said that the complex, new financial instruments were developed in order to spread risk, but instead they concentrated it (“US Unveils” n.pag.). Wall St. came up with all sorts of strategies to make money fast that seemed like they would decrease the risk, but in fact they were increasing it because of the interconnected chains that were created. One example is Credit Default Swaps (CDS), which are sorts of insurance against SUPANOVA 3 3 bonds failing (“Another” n.pag.). They were used as a way for those who owned a bond to make sure they did not lose money if a company defaulted. However, CDS’s became a way for people to bet on the failure of a company by buying a CDS without even owning a bond from that company (“Another” n.pag.). This market became a huge global craze, worth over $60 trillion, all of which was unregulated (“Another” n.pag.). CDS’s popularity led to over- leveraging, which is when a person insures a bond worth more than he owns and just relies on the fact that it will not default so that he can continue to collect premiums (“Another” n.pag.). Yet another new, dangerous financial instrument was “netting.” This is when a person backs up the CDS he has sold for a company by buying a CDS on that very same company.