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Roots and Causes of the Current Economic Crisis, Monetary Policy - Research Paper Example

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From the paper "Roots and Causes of the Current Economic Crisis, Monetary Policy" it is clear that the recent financial crisis resulted in such levels of credit spreads widening and credit standards tightening that even an aggressive easing of monetary policy failed to put a break to the crisis…
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Roots and Causes of the Current Economic Crisis, Monetary Policy
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Download file to see previous pages The valuable lessons learned from the crisis will be discussed herein. Bear Stearns, AIG, Lehmann Brothers, Northern Rock, and Goldman Sachs are some elite names that suffered most because of the economic crisis also known as a recession. Lehmann Brothers filed for bankruptcy while AIG and a few other elites just hung in there with the skin of their teeth. This economic crisis is still having repercussions on countries such as Greece and Spain; the whole of the Euro Zone is facing financial turmoil. There are a few other countries that have been not so severely affected by the same. The crisis was triggered off because of unchecked debt; banks kept issuing loans to people who invested heavily in buying assets; several things were taken for granted but when proved otherwise, there was hardly a place in the world to hide. Overvaluation in real estate is perhaps the biggest cause of the current economic crisis. It is better known as the subprime crisis in the US. The likes of Lehmann Brothers and other financial services went bust because they kept issuing a credit to the people who thought the property price would increase and they would be easily able to pay off the debt that they are borrowing. It did not turn out that way and there was a short of equity. This is exactly why the financial institutions went bankrupt. Overvaluation is the biggest factor that caused the current economic crisis. Factors such as bad income tax practices have added insult to injury, bad mortgage lending also contributed heavily to this current economic crisis. “The way to address the root cause is to let house prices drop to where an average house is within the means of an average household.  (Or, alternatively, boost the income of the average household to the point that they can afford an average house.  But that's very hard.   ...Download file to see next pagesRead More
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