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American government policies in overcoming the aftermath of the Financial Crisis of 2008 - Assignment Example

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This paper talks about the real reasons behind the origin of the global financial crisis, its chronological unfolding, different effects, that crisis had on important macroeconomic aspects. Also policies, initiated by the American government, in order to overcome the crisis, is under the review…
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American government policies in overcoming the aftermath of the Financial Crisis of 2008
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Download file to see previous pages The US directive on the mortgage financial institutions to decentralize their loan facilities to the mid and low income earners increased the risk involved leading to an enormous increase in defaults. High leverage ratios were explicit results of the financial crisis leading to lack of confidence in the financial institution by the investors. Bankruptcy was experienced by a number of mortgages lending institution due to lack of credit worthiness to finance their activities (Braun and Borja, 2004). Failure, economic bailout by the government, mergers, in addition to takeovers of financial institutions for example the Washington mutual, Merrill lynch ,Wachovia and many more was also a major implication of the financial crisis. The insurance companies for instance AIG were not able to offer the necessary insurance on the loans given because they did not have the funds to offer such services. A number of the financial institutions resulted in stringent measures in terms of offering loans leading to few people applying for the loans and the resultants is the decline in profits for the banks, reduced money supply as well as lack of assets acquisition by the people who rely on these loans. Stock markets The decline in the average index was a major result of the crisis. For instance, Dow Jones industrial Average index declined from a high 14,000 points to 6,600 points in a span of two years within the crisis period (Evans-Pritchard and Ambrose, 2007). As a result, Investment turnover declined. Decline in the turnover rate led to lack of investment in the stock markets. Major players in the stock markets that are the New York Stock Exchange, for example Dow Jones and brokers...
This paper seeks to analyze the economic impact of the financial crisis in US as well as the measures that have been taken by the US government to address the implications of the crisis.
According to many economists, the housing bubble that occurred in US was a major trigger that resulted to reduced value of the securities in the US market as well as the prices of the real estates. World economists have come with various theories that attributed to the financial crisis. According to Levin-Coburn Report, a policy paper that was issued by US Senate, the crisis was not as a result of natural forces but it was caused by complex financial products, inadequate credit rating mechanisms and conflict of interests among other factors.
In terms of the consumer wealth, crisis led to decline of the investments with most of the local and international investors losing huge amounts of investments caused by the collapse of their companies.
As a result of the financial crisis, most of US banks suffered heavy losses due to the unpaid loans. One of the major financial institutions that underwent a financial crisis was the Lehman brothers. The financial crisis also led to insolvency of many banks and financial institutions in the U.S
The U.S Governments adopted different policies such as; financial saving plans, spending stimulus packages, and aggressive monetary policies to contain the crisis. The crisis moved the US into deep recession due to bankruptcies and foreclosure of banks and firms that caused huge layoffs and reduced disposable income.
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