FINANCIAL CRISIS DIFFERENCES AND SIMILARITIES

Differences and similarities between the crisis of 1929 and the crisis of 2008

Melissa Gabriela Chalco Castro

The crisis of the 29 was the most devastating fall of the stock market in the history of the United States Stock Exchange. International attempts to fix the situation extended to eight years, affected the major international powers allowing countries, such as Spain, less industrialized, to stay slightly off. But to a greater or lesser extent, this crisis was the continuation of a cyclical process, which is capitalism, and which has seen economic depressions from time to time.

But without a doubt, the greatest economic depressions are found in the crack of 29 and in the current crisis, an international crisis that again involves the major powers and affects almost all countries.

In my opinion, both crises have similarities and differences, we can not say that they are the same or totally different.

Both crises are caused by financial speculation. In 1929 speculation was stock market, crack was preceded by a speculative boom that had emerged in the early 1920s and had led hundreds of thousands of Americans to invest heavily in the stock market, even lent money to buy more actions. In 1929 brokers lent to small investors more than two-thirds of the value of the shares they bought. A larger amount had been lent to the money circulating in the United States at that time.

In the current crisis, speculation is about mortgage loans. All the attention is focused on the financial crisis or mortgage, better known as subprime crisis.

The term subprime is given by a type of mortgage that is offered in the United States for clients of high risk, that is to say, potentially insolvent clients to whom a much higher interest rate is applied than the market. This type of mortgage, better known as mortgages, accounted for almost half of the mortgages hired in 2006. Banks, insurance that in case the client does not pay will recover the money and even earn more by the rise of housing, they made mortgage loans with great flexibility. However, with the fall in prices, recovering those floors lost money, money that had to be returned to the US Federal Reserve or its depositors, which goes bankrupt.

In both cases, banks wanting to make a lot of money quickly did not take enough guarantees to guarantee the loans they gave, in the first even to buy stocks that later became wet paper.

One of the most important similarities is that both have had global repercussions, have destroyed employment and affected the entire financial system.

In 1932 the number of unemployed amounted to twelve million in the USA . This represented 25% of the active population. To this unemployment was added the ruin of millions of farmers plus the fall of agricultural prices. The increase in unemployment caused the reduction of demand, which, in turn, implied a decrease in production and aggravation of problems. At present, unemployment is one of the aspects of the crisis that most concern and in the case of Europe, Spain is one of the leaders in the percentage of the unemployed population with almost 20% unemployed.

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