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The Economic Crisis of 2008 - Research Paper Example

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The goal of this paper is to evaluate the factors that led to the economic crisis in 2008 as well as the damage it dealt. Moreover, the writer will provide a discussion regarding the measures were taken by the governments in the wake of the economic crisis…
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The Economic Crisis of 2008
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Download file to see previous pages Major financial markets went into a free fall when the government of US decided to take over both Freddie Mac and Freddie Mae. The crisis was further aggravated when Lehmann Brothers, failing to find a buyer, declared bankruptcy. American International Group had to be bailed out by the federal government of US with the help of $85 billion capital injection, while another failing company, Merrill Lynch, was rescued from deep waters by the Bank of America. This series of failures triggered a nerve-wracking chain reaction of further failures that plunged the whole of America into chaos (Chari et al 2008). The assets of Washington Manual were purchased by JP Morgan Chase in order to limit the damage done as a result of the biggest bank failure in the history of America. These failures resulted in a crisis of trust and confidence that made banks unenthusiastic to lend money among themselves or to anyone else. Consequently, the whole economy was brought to a complete standstill as there was not much money in the economy to spend.
In order to understand the measures taken by the governments in the wake of the economic crisis, we need to understand the mechanisms of monetary and fiscal policies. We also need to be clear about what role the government has to play in such situations. Should the government follow a hands-off policy or should it play a more active role?
A government can aim to improve the economy through either a fiscal policy or a monetary policy.  ...Download file to see next pagesRead More
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