The 2008 Financial Crisis: Crash Course Economics

The video explores the 2008 financial crisis, detailing how risky mortgage practices and financial instruments led to a housing bubble that burst, causing widespread economic turmoil. The government intervened with measures like TARP and Dodd-Frank to stabilize the economy and prevent future crises. Key lessons include understanding perverse incentives and moral hazards.

What was the primary cause of the 2008 financial crisis?

• The burst of the housing bubble

• A global pandemic

• A sudden increase in oil prices

• The collapse of the tech industry

What is a mortgage-backed security?

• A financial product made by bundling mortgages

• A loan given to subprime borrowers

• A type of insurance for homeowners

• A government bond

Why did lenders start offering subprime mortgages?

• To help low-income families

• To increase the number of mortgages for securities

• To comply with new government regulations

• To reduce their own risk

What happened when the housing bubble burst?

• Home prices continued to rise

• The stock market reached new highs

• Borrowers easily paid off their mortgages

• Defaults increased and home prices fell

What was the purpose of the TARP program?

• To provide tax relief to homeowners

• To bail out banks and stabilize the financial system

• To increase interest rates

• To fund new housing developments

What did the Dodd-Frank Law aim to achieve?

• Provide free housing to all citizens

• Eliminate all forms of lending

• Reduce taxes for large corporations

• Increase transparency and reduce risk in the financial system

What is a perverse incentive?

• A reward for good behavior

• A policy that has unintended negative effects

• A government subsidy

• A type of financial security

What does 'moral hazard' refer to in the context of the financial crisis?

• The risk of losing money in the stock market

• The tendency to take more risks when others bear the consequences

• The danger of investing in foreign markets

• The ethical responsibility of banks

Who was blamed for the 2008 financial crisis?

• Only individual borrowers

• Only the government

• Only the financial institutions

• Both the government and financial institutions

What lesson can be learned from the 2008 financial crisis?

• Regulation and oversight are crucial to prevent systemic failures

• Financial crises are unavoidable

• Markets can always self-correct without intervention

• Investing in housing is always safe