 What I'd like to talk about now is the financial crisis and exactly what happened, what the direct events were that caused the financial crisis that hit the United States and spread all over the world. And then I'll talk a little bit more later about some of the underlying causes of this crisis. So the first thing I want to say is that the financial crisis started in the United States and spread around the world. It started in the U.S. mortgage market and in securities that were based on mortgages. The trigger for the crisis were problems in U.S. housing construction and finance. Home construction was based on optimistic expectations of the future. Home builders built homes and people bought homes frequently because they thought that this was a great investment, not just a place to live, that housing prices only went up and this is a very Keynesian financial market kind of activity. The mortgage, the terms of the mortgage, what people had to pay for the mortgage or what kind of mortgages they got didn't seem so important so you could take kind of risky mortgages if you were a buyer because everyone thought the housing prices would continue to rise forever. You may not believe me but that was actually what was happening, we thought the prices would rise all the time. So even if you had a problem with your mortgage you could always sell the house for a higher price than you bought it and get rid of the mortgage. Financial institutions use financial innovation, I'm going to talk about later called mortgage-backed securities to push cheap mortgages so they provided ways to get seemingly cheap mortgages that helped kept the boom rising. These mortgage-backed securities used to get the cheap mortgages were held by U.S. financial institutions and by foreign financial institutions. They were all vulnerable to any problems in this growing, growing, growing mortgage-backed securities market. The financial boom and the home construction boom couldn't sustain itself unless housing prices kept rising and interest rates on mortgages were low. If the prices began to fall or interest rates began to rise then this boom was unsustainable and in fact that's what they did. By early 2006 home prices had stopped rising and were beginning to fall and interest rates were beginning to rise leading to or helping to lead to mortgage defaults. So falling prices and increased mortgage defaults caused the value of these mortgage-backed securities that everyone held, I'll explain a bit later, to collapse. So the banks who held the mortgage-backed securities or the financial institutions held the mortgage-backed securities as it became clear that their value was not going to sustain itself because the mortgages on the houses were not going to be paid began to fear that they were going to lose a lot of money. So they began to sell their mortgage-backed securities which essentially led to everyone to fear that the value of mortgage-backed securities were going to fall. So all of the financial institutions who held all of these securities that were used to provide mortgages to people to buy houses to keep the housing price going up began to lose money, to be threatened with insolvency, to be afraid that they were not going to survive, and this basically kicked off the worst financial crisis in the 1930s. If the U.S. and other governments hadn't provided massive bailouts, then the collapse of the financial institutions probably would have been complete. That is, every large financial institution in the United States of America probably would have failed, and the international financial institutions probably would have been collapsed if governments hadn't intervened. Now the U.S. government, in one form or another, used about 12 to 14 trillion dollars to rescue financial markets and to bail out big banks. So much for the mainstream view that financial markets are efficient and financial markets are a friend. The collapse of the financial system had very bad negative effects on the real economy. People were losing their homes. Businesses couldn't get money to help create jobs. Unemployment began to rise. Aggregate demand began to fall. Unemployment began to rise, and all of this simply made things worth. As the economy had a kind of a negative multiplier effect and began to fall and unemployment began to rise, more and more people couldn't pay their mortgages, more and more people defaulted on their mortgages. More and more mortgage-backed securities became worthless, which meant more and more banks were pushed towards failure, and so we had this interacting collapse of financial markets, the home construction section, jobs, a negative wealth effect, and that's where we were when the government started to step in with huge financial bailouts and modest fiscal policy bailouts, including the stimulus bill. So the bailouts saved the giant financial corporations like Goldman Sachs, who read about, they're bigger than ever and they're more profitable than ever and they're paying their employees more bonuses than ever, but there's serious problems for the economy. The unemployment situation is going to be terrible for years. The government financial situation is bad. It's the government's running big deficits because the economy has gone down and tax revenues have gone down because they've had to stimulate fiscal policy to stimulate economic activity and slow growth, and so we're running large deficits and that means that the government is not going to be in a position to do much stimulation in the coming years, and so all of this has been pretty catastrophic and has been brought to us by our efficient financial markets.