The Financial Crisis of 2008

This make-up explores the f take onors, which caused the recent monetary crisis of 2008. Further more(prenominal) this paper will explain how the federal Reserves (Fed) monetary policies and the federal official political sympathiess fiscal policies are crucial in qualifying and perhaps eliminating future catastrophes.The Financial Crisis of 2008Factors and PreventionThe pecuniary crisis of 2008 is widely considered the worst monetary crisis, since the Great Depression (Pendrey, 2009). The repercussions of the crisis were mind-boggling, and unfortunately for galore(postnominal), it was life altering. Families lost their houses, their jobs, and in m all cases, they lost their entire life savings. Furthermore, neither businesses nor banks escaped the massacre. The financial crisis not only devastated the United States, it withal had far reaching worldwide consequences. The spherical economy suffered, as a result of what was happening here.The devastation was so severe, tha t the economy has yet to fully recover. To make matters even more frustrating, Sewell Chan of the in the buff York Times explained, The 2008 financial crisis was an avoidable catastrophe caused by widespread failures in government regulation, incorporated mismanagement and heedless risk-taking by Wall alley (2011). This paper will attempt to discuss the factors, which guide to the crisis, and perhaps more importantly, attempt to provide courses of action, which would save similar incidents in the future.DiscussionIn the years that led up to the financial crisis, seemingly everyone who could fog a mirror could extend a home loan. These loans were often much more than the borrower could ever maybe afford to compensation back. The government commission, which investigated the crisis, believes one of the main factors causing the financial crisis was the national Reserves and other regulatorsfailure to recognize the insalubrious combination of careless mortgage loans, in addit ion to the packaging and deal of loans to investors and risky bets on securities backed by the subprime loans (Chan, 2011).The previous statements are outdo summarized, when Leon Hadar, a research fellow in foreign policy studies, opines in his Cato Institute commentary, The housing boom and bust that precipitated the crisis were facilitated by extremely leisurely monetary policy. (2009).Faulty monetary policies are not alone in the blame, however. The Federal Governments shoddy fiscal policy overly vie a role. The Gramm-Leach-Bliley work, also known as the Financial Modernization Act of 1999, repealed the injunction on the collaboration between investment and commercial message banking effected by the New Deal-era Glass-Steagall Acts of 1932 and 1933. According to Hadar, this policy also proved dreadful. He states the Act, caused the crisis by clearing the way for investment and commercial banks to merge, and thus giving investment banks the incentive to take greater risks, season reducing the amount of equity they are required to hold against any given dollar of assets. (2009).Not surprisingly, the incompetency and, in some cases, illegal actions of corporate management, in addition to Wall avenues propensity to risk, also contributed to the 2008 financial meltdown. The US governments official report, on the financial crisis, concluded, several financial industry figures may have broken the police force in the run-up to the crisis. (Rushe, 2011). Furthermore, risk taking is an every day fact with Wall Street. Charles Ferguson pulls no punches with respect to Wall Streets role of the blame, in an online article.The article titled Heist of the century Wall Streets roll in the financial crisis orates, It is no exaggeration to swan that since the 1980s, much of the global financial sector has become criminalised, creating an industry refining that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and fina ncial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some descriptor of economic accident. (2012). SolutionWith the previous factors given, one might wonder how to disallow otherfinancial crisis from occurring. Costas Markides provides a very reasonable thesis in my opinion. In a Bloomberg.com blog, which addresses actions needed to avoid the next predicament, Markides contemplates, If you want to change how pack behave, dont tell them. Instead, change the underlying environment that produced their big behavior in the first place. (2012). In other words, it is human constitution to demand punishment and thitherby obtaining a sense of instant gratification. To prevent future financial calamities, however, it is wise to address the underlying causes and understand what went wrong.Although there can never be a hundred percent radical to managing the national economy to such an extent that there will never be another crisis, the needed adjustme nts seem to lay at the feet of the Federal Reserves monetary policy and the Federal Governments fiscal policy. The Fed addressed one major cause of the financial crisis by implementing much needed regulations regarding mortgage loans and requiring proof of borrowers ability to pay the loan back (Warner, 2013).The Government, on the other hand, initiated mass government expending in order to stimulate the economy. Both the Fed and the Federal Government need to tighten regulations, but perhaps more importantly, they need to act more quickly and resolutely to limit, or even more optimistically, prevent the next financial crisis. Mark Thoma of CBS best summarized this point by stating, This disaster could have been prevented by a strong regulative response, but the dogma that markets would self-regulate led to a regulatory hands-off approach The hands-off regulatory approach was a mistake. (2009).SummaryIn summary, it is clear that the financial crisis of 2008 was caused by errant monetary and fiscal policies. Furthermore, there was a delayed reaction by two the Fed and the Federal Government, which was caused by a hands-off regulatory approach. In the future, the Fed and the Federal Government need to act more decisively and promptly to better steer the economy away from a down trending economy. Both the monetary and fiscal policies are vital to the ongoing convalescence and future growth of the countrys economy.