How Government Economic Policies Caused the Financial Crisis of 2008

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

The financial crisis that occurred in 2007-2008 is narrowly related to what happened with the housing market and the foreclosure crisis. In 2006, the housing market peaked due to newly available loans such as interest adjustable loans, interest only loans, and zero down loans for people with low-income jobs. Housing prices were increasing radically and new homeowners were taking out mortgages that they would be unable to pay for in the future, all in order to be able to afford homes with such steep real estate value. By 2007, things began to go downhill. Interest rates had begun to rise steeply, mortgage companies had to file bankruptcy, and banks across the country required bailout funds from the U.S. Treasury in an effort to recover

Little regulation in the banking industry allowed for risky investments and banks to grow out of proportion ultimately causing the Great Recession. The Great Recession of 2008 had many parallels with the Great Depression of 1929 and when compared it can be concluded that history repeats itself when the necessary precautions are not put into place. The Great Depression and the Great Recession each followed periods of exceptional business investment, productivity growth and economic gain. Interestingly preceding both these events too much leveraging was taking place leading to both of the collapses. Although leverage can be a good financial strategy, in the cases of the Great

The 2008 financial crisis had multiple causes but the most outstanding to me is the passing of the Gramm–Leach–Bliley Act. This act repealed Glass – Steagall which removed the safeguards that came between commercial and investment banks. It destroyed regulation between the two and gave unprecedented “innovation” which allowed millions of Americans to purchase homes they couldn’t really afford. This created the American housing bubble that eventually popped do to citizens being unable to pay for their new homes. The intial burst of the housing bubble resulted in the foreclosure of 860,000 homes in 2008. Another entity at fault for the recession would be the credit rating companies. They provided the means to the consumers to take out mortgages

Another economist by the name of Thomas Sowell stressed that the government’s role in creating the housing bubble. With the housing markets that had the largest home price increases were often markets that the local government had forced land use restrictions on the amount of land available for housing. Having relaxed mortgage lending standards were mainly the result of being government influenced (Russo). During the 2008 recession, the Federal Housing Administration increased its insurance activity to keep money flowing into the market. Without this government agency’s backing, it would have been much more challenging for the middle class to get a home loan from the start of the recession (Griffith). A few large financial firms experienced financial stress during the 2008 Recession and in response, the Federal Reserve provided the liquidity and support through a variety of programs motivated to help the functions of financial markets and institutions, and in effect limit the damage done to the U.S. economy. The Federal Reserve had provided record amounts of monetary accommodation in response to the severity of the reduction and the gradual return of the ensuing recovery. Finally, the financial crisis caused major reforms in banking and financial regulation, which included congressional legislation that significantly affected the Federal Reserve. One example is the

The 2008 financial crisis and the recession that followed were the most severe the United States ever had. The 2008 financial crisis must be discuss as well as what the government did during the recession which led to the slow recovery. First, there are three major types of financial crisis: banking, debt and currency however there is no universal definition of a financial crisis. The 2008 financial crisis was a banking crisis, it actually started in 2007. Many experts on financial crisis have defined a banking crisis as “severe stress on the financial system, such as runs on financial institutions or large-scale government assistance to the financial sector” (Sanders 11). The reason for the 2008 financial crisis and the recession which followed started wat before experts realize there were issues in the financial sector. The government must intervene in a financial crisis to avert disruption of the

-2. The background of the financial crisis.—what kind of monetary policy the federal reserve made?

The main cause of the Crash of 2008 was deregulation in 1980s of Financial Institutions which include Banks, Insurance Companies, Credit Rating Agencies etc. As a result of this deregulation, the Financial Institutions started playing in their own ways to get maximum personnel benefits. By the time the crisis was over, the top five executives of Lehman Brothers made millions of dollars between 2001 to 2007, the AIG’s Financial Product Division lost 11 billion dollars, instead of being fired, and Joseph Cassano, the head of AIGFP, was kept on as a consultant for a million dollars a month. The use of derivatives, subprime loans, and much greed within Wall street were all factors that caused the economy to drastically drop in the first place; making mortgage-backed securities in danger of defaulting. Brooksley Born was one of many that attempted to regulate derivatives; unfortunately she did not succeed. To pay for troubled assets from financial institutions, the Senate passed the $700 billion bailout bill that came out of taxpayers. Additionally President Obama came up with an economic plan that enforced regulation to speed up recovery. Although, I believe “command and control” was the wrong path to take.

The financial crisis of 2008 hit the American economy and the world economy as well. It cost tens of millions of people their savings, jobs, and their homes. For decades the American financial system was stable and safe, but it changed. The financial industry turned its back on society; it corrupted the political system, and plunged the world economy into crisis. It was not an accident; it was caused by an out of control industry, a greedy industry. The crisis has made more damage to society while the industry has made more money.

From 2000 to 2015, college graduate salary increases year after year, but there are ups and downs in the process of rising. There are many factors of these ups and downs, such as economy, policy, social development and so on. For example, in 2008 the US financial crisis directly affected many industries, and led to a larger employment shock, which led to the decline in wages. And then because of the subprime mortgage crisis in the United States caused by international financial tsunami, leading to many of the world's financial institutions in the chain of bankruptcy, and triggered a lot of the financial industry has been layoffs wave. The financial crisis of 2008 has infiltrated a lot of real economic fields, and brought great negative impact

Americans took on large amounts of debt believing that they could eventually pay it off. Investors borrowed money in order to buy stocks. This idea of leverage was critical to the excessive amount of debt that Americans began to rack up. One of the biggest causes of the financial crisis of 2008 lies within a term called deregulation. For the longest time, the financial industry was kept in check by strict regulations from the government. Banks were small and high-risk actions were not common. In the 1980s, however, the financial sector began to grow. Banks began to go public, thus receiving lots of stockholder money. The Reagan Administration started a period of financial deregulation that lasted 30 years. This deregulation allowed banks to make risky investments with the money given to them by depositors. This continued through several presidencies. By the late 1990s, a few firms made up the entire financial sector. These few firms were given way too much power. A bubble began to develop in housing markets because of financial deregulation increasing the speculation of housing. As a result of this, many risky mortgages were sold. In less than 15 years, there was a tremendous increase in lending mortgages to people who really couldn’t afford

Years before the crisis occurred, investors were looking for some place to put their loads of money to make more money. In the past these investors would go to the

There were many causes and consequences of the 2008 economic meltdown from different groups. Parties such as banks, individuals, and the government were all responsible for causing the economic meltdown. One factor was an overdependence on credit (Andrews 2009:1). In addition, struggling businesses relying on the banks also contributed to the 2008 economic meltdown (Gross 2009:18). Also, lax government policies like the Community Reinvestment Act (CRA) contributed to the 2008 economic crisis (Gross 2009:30-31). These were the factors that led to the 2008 economic meltdown.

There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.

In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary