The Financial Crisis of 2008

This paper explores the factors, which caused the recent pecuniary crisis of 2008. Furthermore this paper go away inform how the feederal permits (Fed) pecuniary policies and the federal official Governments fiscal policies are crucial in limiting and perhaps eliminating hereafter catastrophes.The Financial Crisis of 2008Factors and Pr veritable(a)tionThe pecuniary crisis of 2008 is widely considered the worst pecuniary crisis, since the Great depression (Pendrey, 2009). The repercussions of the crisis were mind-boggling, and unfortunately for many, it was life altering. Families lost their houses, their jobs, and in many cases, they lost their whole life savings. Furthermore, neither businesses nor banks escaped the massacre. The fiscal crisis not only devastated the united States, it in like manner had far reaching worldwide consequences. The orbiculate delivery suffered, as a result of what was happening here.The devastation was so severe, that the economy has still to fully recover. To make matters even more frustrating, Sewell Chan of the red-hot York Times explained, The 2008 pecuniary crisis was an avoidable disaster caused by widespread failures in government regulation, embodied mismanagement and heedless risk-taking by Wall Street (2011). This paper will attempt to discuss the factors, which led to the crisis, and perhaps more importantly, attempt to will courses of action, which would prevent similar incidents in the future.DiscussionIn the years that led up to the financial crisis, seemingly everyone who could fog a mirror could get a category loan. These loans were often much more than the borrower could ever possibly afford to return post. The government commission, which investigated the crisis, believes one of the main factors causing the financial crisis was the federal Reserves and other regulatorsfailure to recognize the poisonous combination of careless(p) mortgage loans, in improver to the packaging and sale of loan s to investors and risky bets on securities backed by the subprime loans (Chan, 2011).The old statements are best summarized, when Leon Hadar, a look for fellow in foreign policy studies, opines in his Cato Institute commentary, The accommodate boom and bust that precipitated the crisis were facilitated by extremely loose financial policy. (2009).Faulty monetary policies are not alone in the blame, however. The Federal Governments shoddy fiscal policy also played a role. The Gramm-Leach-Bliley Act, also known as the Financial Modernization Act of 1999, repealed the injunction on the collaboration between investment and commercial banking established 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 openhanded investment banks the incentive to take greater risks, while reducing the heart and soul of equity they are required to hold against any given vaulting horse of assets. (2009).Not surprisingly, the incompetency and, in some cases, illegal actions of corporate management, in addition to Wall Streets 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 law in the archive up to the crisis. (Rushe, 2011). Furthermore, risk taking is an every day occurrence with Wall Street. Charles Ferguson pulls no punches with respect to Wall Streets share of the blame, in an online bind.The article titled Heist of the century Wall Streets roll in the financial crisis orates, It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a earthy o utcome and continuation of this pattern, rather than some kind of economic accident. (2012). SolutionWith the previous factors given, one might wonder how to prevent some otherfinancial crisis from occurring. Costas Markides provides a very reasonable thesis in my opinion. In a Bloomberg.com blog, which addresses actions postulate to avoid the next predicament, Markides contemplates, If you want to change how people behave, dont tell them. Instead, change the underlying environment that produced their bad behavior in the first place. (2012). In other words, it is human nature to demand penalty 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 neer be a hundred percent solution to managing the national economy to such an extent that there will never be another crisis, the needed adjustments seem to lay at the feet of the Federal Re serves 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 spending in fiat to stimulate the economy. Both the Fed and the Federal Government need to keep down regulations, but perhaps more importantly, they need to act more rapidly and decisively 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 regulatory response, but the belief 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, th ere was a delayed reaction by both 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 go bad steer the economy away from a downward trending economy. Both the monetary and fiscal policies are vital to the ongoing recovery and future harvest-time of the countrys economy.