Financial Crisis Of The Great Depression - 2215 Words

Beginning in August 2007, cracks in the economic system led to the United States’ second worst economic and financial crisis in history. The biggest crisis of all being the Great Depression. Stock markets crashed and banks lost hundreds of billions of dollars. The economy plummeted and suffered traumatic loss. After two years of hardship, the recession ended in 2009. This time period, now being called the Great Recession, is still to this day taking an effect on our economy. A financial crisis is when information flows in financial markets experience a particularly large disruption, with the result that financial frictions increase sharply and financial markets stop functioning (Mishkin, 2015). Several factors can cause a financial crisis†¦show more content†¦The Federal Reserve took action to attempt to control the crisis that was at hand. The Federal Reserve is a system of checks and balances created by Congress through the Federal Reserve Act of 1913 in order to re duce the number of bank panics. The checks and balances within the Fed are there to spread out the power and prevent the centralization of control. The Federal Reserve System consists of twelve regional Federal Reserve Banks, the Board of Governors of the Federal Reserve System, the Federal Advisory Council, the Federal Open Market Committee, and two thousand member commercial banks(Mishkin, 2015). The system is pretty independent from the government but is slightly under the control of Congress due to the fact that it was originally written by Congress allowing Congress to change its procedures at any moment. The Money Supply Process plays a major role in the economy considering that the circulation of money is what makes our economy function the way it does. The Money Supply Process is made up of three players: the central bank, banks, and depositors (Mishkin, 2015). The central bank is simply the Federal Reserve. Banks are financial institutions where citizens can deposit money and receive loans. Depositors are us; the people who deposit their money into the banks. The Federal Reserve plays the most significant role of the three by overseeing the entire banking structure and being held accountable for the