Foreword

The Council for Economic Education's Teaching Financial Crises comes at an opportune moment for teachers of economics and personal finance. The financial markets have dominated the headlines in recent years and likely will continue to do so for some time. Teachers are confronting a teachable moment they have never before encountered: they now have students who want to know more about topics such as hedge funds, credit default swaps, deposit insurance, market volatility, and expanding tools of monetary policy. They have students who need clarity as well as context -- that is to say, they need to be taught how the recent financial crisis is similar, and how it is dissimilar, to financial crises in the past. Students will also need to know how the recent financial crisis and any yet to come will help shape their personal and professional lives in the future.

Unfortunately, teachers have no organizing framework for putting into context the media attention that has been paid to the financial crisis. All they have is a set of current events articles, opinion pieces, and other popular media pieces unconnected to educational objectives, historical analysis, and economic processes and concepts that are used in the high school classroom.

Teaching Financial Crises is an attempt to fill this void with lessons that bring current issues and economic thought into economics, government, social studies, business and history classrooms. The volume makes a challenging series of events accessible to teachers and students by exploring the causes of and potential solutions to financial crises with creative, tested classroom activities.

Teaching Financial Crises is an attempt to fill this void with lessons that bring current issues and economic thought into economics, government, social studies, business and history classrooms. The volume makes a challenging series of events accessible to teachers and students by exploring the causes of and potential solutions to financial crises with creative, tested classroom activities.

There is a lot we know and there is much we still do not know about the recent financial crisis. A financial crisis reminds us that many economic events do not have simple, obvious causes or solutions. As teachers, we should not fall into the trap of suggesting that the causes and consequences of the crisis of 2007-2009 were as simple as some would have us think. The list of possible causes is as long and deep as the presumed solutions that have been advanced by countless commentators. Was it low interest rate targets maintained by the Federal Reserve in the first half of the 2000s? Was it the glut of worldwide savings that found its way into U.S. financial markets? Was it a lack of financial education on the part of borrowers in the mortgage market? Was it financial service providers offering complex financial instruments about which few people understood the exposure to risk? Was it that government either regulated too little or too much? Or was it simply about greed? Students must be taught that the potential causes of and solutions to the crisis are numerous, complex and interconnected. They must understand that both the causes and solutions require careful thought and discussion. And that is what we hope that this publication will encourage.

This resource is unique in that it is not applicable simply to recent events. It also takes a look at previous financial crises, which allows for exploration of both similarities and differences among these defining events. The first four lessons discuss common elements of financial crises in different time periods and different parts of the world. Lesson 1 compares the 2007-2009 crisis with a similar event in 1907. Among other things, this lesson uses compare-and-contrast analysis and asks students to solve a mystery that helps them see the very different outcomes that resulted from the two crises. Lesson 2 compares the recession that officially began in December 2007 with five earlier contractions, including the Great Depression. Students are asked to do independent research and engage in small-group discussions. Lesson 3 takes a historical look at five bubbles and panics that occurred at different times and places. Using a group activity, students discover that the same basic structure exists in each bubble. They will be struck by how difficult it seems to be to identify a financial bubble in the making. In Lesson 4, students participate as members of the President's Council of Economic Advisors to make comparisons to the Lost Decade in Japan--a serious long-term crisis that began in 1991 and continues to this day.

The final four lessons focus specifically on the crisis of recent years. Lesson 5 explores monetary policy during the crisis. Students serve as Federal Reserve Board governors to explore several monetary policy tools used by the Fed to promote economic and financial stability. Lesson 6 examines the housing bubble that occurred in the first several years of the 2000s. Students interpret data, review basic supplyand- demand models, and simulate a securitization process to see the effects of increasing leverage. A quiz bowl game in Lesson 7 helps students learn the concepts necessary for thinking and talking intelligently about modern financial markets. Teaching Financial Crises ends with Lesson 8, an exploration of the interaction between modern financial markets and monetary and fiscal policies. Students take part in a mock trial and work in small groups in an attempt to order events that occur in a logical sequence.

Benjamin M. Friedman's introductory essay on the crisis discusses what we, as teachers of economics and related subjects, can learn from the recent crisis. This informative and highly engaging essay is a good starting point for the study of financial crises.

Many people are responsible for bringing this publication to completion, starting with Richard MacDonald, Senior Adviser for Program Development at the CEE, whose idea it was in the first place. Stephen Buckles, Senior Lecturer in Economics at Vanderbilt University, deserves the highest praise for his role directing this project, drawing the best out of the authors and coordinating closely with CEE every step of the way. Lesson authors Brett Burkey, Rick Fenner, Cheryl H. Morrow, and M. Scott Niederjohn contributed first-rate classroom lessons and then reviewed other authors' lessons. Classroom teachers then tested the lessons and gave us their thoughtful comments and made creative suggestions that helped shape the publication.

As noted above, Benjamin M. Friedman, the William Joseph Maier Professor of Political Economy at Harvard University and a CEE board member, wrote a thoughtful introduction that anyone thinking about teaching the economics of the crisis of 2007-2009 will find to be truly helpful. The project could not have been completed without the careful and creative work of Suzanne Becker who edited the volume, making it much better than the rest of us had any right to expect.

Finally, CEE gratefully acknowledges the NYSE Euronext Foundation, whose generous support made this publication possible.