Financial crisis - Essay Example

Here it is important to discuss the causes of market instability i.e. the greedy nature of people which encouraged them to opt for the expensive mortgages. For instance, individuals who required a high standard home could easily get it on credit basis while the brokers used to eliminate their loan responsibilities when selling home (Guina). This ultimately caused people to drown into heavy loans. Consequently the housing market which was previously acting as a major economic participant declined.

Investors were then restricted to change their residents in order to gain profits. When investments slowed down then the financial institutions such as banks increased their lending requirements. This subsequently affected the credits functions (Guina). As a result the Economic Bailout was designed so that the government could purchase the securities and mortgages. This was aimed at providing assistance to banks so that they can easily lend money. Author also states that the economy was the undergoing intense instability which might have causes total economic crash down.

Analysis Author has made a hypothesis that the financial crisis of 2008 was predominantly caused by credit mismanagement and lack of cash reserves. In order to strengthen his claim he has further discussed the market instability and the peculiar way in which business operations were being performed at that time. Research indicates that the initiation of cheap credits which were extended to the individuals in order to avail maximum life opportunities were actually causing hindrances in the normal market operations.

Cheap crediting system increased the demand of certain goods in the market such as the houses and cars which subsequently caused inflation. This was then related with the rising unemployment (Guina). Most of the claims presented in the articles are about the credits which represents that the author has maintained a firm position over the hypothesis. This further illustrates that the primary motive of author was to evaluate the credit issues in the American society rather than covering the entire financial crisis.

Moreover, the discussion over the political influence and prevailing monetary system is has been missed by the author. The article actually reveals entirely new perspectives on money and banking. For instance, it discusses the role of brokers and how they eliminate themselves from the risky mortgages (Guina). This significantly affects the individual buyer as he has to bear the complete responsibility of loan while handling all the risks. Since money and banking are closely related with one another therefore the impact of purchasing mortgages which are not backed by securities also influences the bank’s cash reserves and the overall money management.

The Economic Bailout was discussed in the article so as to reflect what government has done in order to deal with the financial crisis. However, the author must have also mentioned the effectiveness and efficiency of analytical frameworks. For instance, if the government had implemented the fundamental concepts of demand and supply then such intense inflation must have never raised. Additionally, the poor cash reserves must have presented a better economic progress in the contemporary world (Mishkin).

The government should eliminate all the cheap credits from the financial institutions. This will actually facilitate in smoothing the