THE ROOT CAUSES OF THE 2008-2009 ECONOMIC CRISIS AND THE POLICIES IMPLEMENTED BY KEY FACTORS RESPONSIBLE FOR RESCUING THE U.S. ECONOMY Name Number Instructor Date Economic crisis Many economists consider the economic crisis of 2008-2009 to be the worst to have ever hit the world since the great depression of the 1930s…
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The effects of the crisis led to numerous evictions and foreclosures in the housing sector and prolonged periods of unemployment for many people. The crisis contributed to the failure of many businesses leading to a massive decline in consumer wealth, a loss which was estimated to be worth trillions of dollars (Simkovic, 255). Generally, there was a significant decline in economic activity all over the world as a result of the recession. This paper will look into how many governments strived to put appropriate measures in place to curb mitigate the crisis; particularly, the United States’ government, through the various policy makers and stakeholders, implemented effective measures to deal with the crisis. The crisis resulted from a complex interplay of liquidity and valuation problems in the banking system of the United States in 2008. The bursting of the housing bubble in the United State’s mortgage sector in 2007 resulted in a crisis in the subprime mortgage market. Consequently, the values of all securities that were tied to real estate pricing in the United States plummeted significantly leading to the damage of the financial institutions, both in the United States and the world at large. The challenges that resulted from the insolvency in the banking industry led to a decline in the availability of credit. This led to decline in investor confidence that impacted negatively on the stock markets around the globe leading to large losses in the stock markets especially in 2009. Economies from all over the world slowed down significantly during this period as international trade declined and credit tightened (Lahart, 140). While there have been many suggested causes of the crisis by the experts, the senate of the United States issued a report on the same. It ruled out the possibility of the crisis being a natural disaster. Instead, it explained the crisis as having resulted from complex and high-risk financial products; conflicts of interest that had remained undisclosed; failure by credit rating agencies and regulators; and the market which was reported to rein in the Wall Street excesses (Lahart, 142). On the other hand, Ross explains that investors and credit rating agencies failed to do accurate pricing of the risk that was involved with the financial products related to the mortgage sector. They also claimed that the government failed to adjust the regulatory practices that would address the financial markets in the twenty first century appropriately. A repeal done in 1999 on the Glass-Steagall Act of 1993 removed the separation that had existed between depository banks and the investment banks in Wall Street. Both the regulatory solutions and the market-based solutions were considered in response to the crisis and were embedded in the various solution packages. According to Gross, many economic analysts agree that the economic crisis was triggered in 2007 in the subprime mortgage sector as a result of banks in the United States giving high-risk loans to economically unstable people most of whom had poor credit histories. Even then, the root causes of the economic crisis are complex. They include an unregulated or poorly regulated banking industry especially in matters of investment and lending, which led to proliferation of speculative people with unstable income into the mortgage market. The proliferation coupled with highly reduced interest rates for a long period of time created space for overextension of
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On the economic side there was the desire of financial interests to make profit. US policy promoted both of these sides. It is difficult to place total blame for the resulting economic crisis on either side. Furthermore it is difficult to blame U.S. policy if one were to sanction and promote the positives of the free market system upon which it is based.
The global economy was hit by a series of financial crises that, like a volcano, started erupting on August 9, 2007. For many years, business and economic factors have converged to this point, which is why this crisis had several causes that could not be reduced to a single individual, institution, nation-state or financial instrument.
The direct measures have been those performed by human activities to present the effect to lead to the degradation of the environment. An example of the direct environmental influence has been witnessed in deforestation and poor use of the available resources.
2008-2009 Economic Crisis. Introduction In economics, a recession refers to a business cycle reduction. It refers to a general retardation of economic activities (Simon, 2001). Macroeconomic pointers like Gross Domestic Product (GDP), investment spending, employment, capacity utilization, household income, inflation and business profits fall.
Due to the on-going liquidity crisis in Europe, the European banks including other financial institutions are facing difficulty in getting access to short-term credit. Aside from its implications to the U.S. economy, the on-going European economic crisis will also affect other global economies.
Because of this, the international coverage of the crisis had also been remarkable. This paper discusses in detail the 2008 financial crisis focusing on the causes as well as, the final consequences. It is worth noting that poor financial policies were a major category of the probable causes of the 2008 financial crisis.1 Notably, major weaknesses were exposed within the national stretching beyond the international financial regulatory body frameworks.
It saw to the near collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets across the world. The housing market also suffered in many areas that resulted in evictions, foreclosures and prolonged unemployment.
This essay focuses on assessment of the amount of the economic losses, that East Asian countries incurred, as a consequence of the financial crisis. It is argued, that just after the crisis, most developed countries suffered setbacks while East Asian countries, escaped without damages. That escape from the crisis is deemed temporary one by experts.
According to Wallison (2009), key issues that led to the crisis included increment and sudden reduction in house prices as well as increases in default rates in 2006. Furthermore, the collapse of stock prices in 2008 speeded by Bear and Lehman’s failures fuelled the crisis (Wallison, 2009, p. 3).
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