The Financial Crisis: The Great Recession Of 2008

Additionally, when America’s economy was melting in 2008, the Federal Reserve played a big role to stabilize it. Besides the Great Depression during the years 1929 through 1939 the worst economic time for the United States, 2008 was unmistakable one of the worst years of America’s economy history. When this economic recession was taking place, the Fed had to take action to avoid another depression and to stop a fall from the financial system. With the help of the Federal Reserve J.P. Morgan Chase and Co.’s they planned to help Bear Stearns (an investment bank) with financial assistance to help the government to buyout AIG, a well-known insurance company. This helped to produce a strategy targeting to stabilize the credit market and also the short-term interest rate from 45% to almost 0 from the benchmark (Coste). Thanks to the Federal Reserve and their well design plan to avoid another recession they prevented the economy of the world or better known as Macroeconomic system from falling and getting it

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

First, I want to give you a little background on the Financial Crisis of 2008/2009. The Financial Crisis began in December of 2007, and by the fall of 2008 the economy was in a huge downfall. This all began in August of 2007 because of defaults in the subprime mortgage market, which sent a shudder through the financial markets. The former chairman of the Federal Reserve described the crisis of 2008/2009 as a “once-in-a-century credit tsunami”. Many firms, including commercial banks, Wall Street firms, investment banks, all suffered significant losses and eventually went bankrupt. This caused households and smaller businesses to have to pay higher rates on the money that they borrowed. This downfall wasn’t just

Government help was seen as the only way to avoid a total economic collapse in the United States, although many thought it could result in a worldwide economic recession. On September 18, 2008 the 700 dollar bailout plan was proposed to congress. Fed Chairman Ben Bernake is quoted telling congress, “If we don’t do this, we may not have an economy on Monday” (The Housing Market Crash of 2007, 2011). This is when it became apparent that the government had a stake in this situation. When people begin questioning whether the United States economy will still exist, the government then has a huge role in the survival of not just the economy, but the entire country. The government is in a situation where it must decide how to protect the American economy, the citizens, the businesses, and the future of the United States of America. On October 3, 2008 congress passed “Emergency Economic Stablization Act” (H.R. 1424- 110th Congress, 2008) which led to the lending of 700 billion dollars’ to

Investors and mortgage holders owe so much money to different firms that is has become almost an irreversible meltdown. The government tried to raise and cut taxes where they think they can get caught up and it doesn’t change. Money is owed by nearly every institution as well as the day to day expenses that each one occurs. Homes in major cities around the country lay to waste leaving blocks of run-down wasteland. Jobs and unemployment are just now starting to stabilize. Th economy is making a slow change for the good, but you must take baby steps after you fall. According to the Bureau of Labor Statistics Chart October 2007 unemployment was at 4.7% and rose to 10% by the year 2009 and everything from construction to professional and business services decreased by an average of 37.4% (Bereau Of Labor Statistics). These statistics are horrible and one can only hope we do not repeat our mistakes. A conclusion can now be made with all the factors stated

Congress responded to this crisis through TARP, the American Recovery and Reinvestment Act (ARRA) and with the Dodd-Frank Wall Street Reform and Consumer Protection Act. TARP was a unique piece of legislation in that it wasn’t your average piece of fiscal or monetary policy. Originally, the crisis took a turn for the worse after the House of Representatives failed to pass a $700 billion-dollar bailout package proposed by the bush administration. The representatives at the time were fearing for their careers in politics since constituents would have most likely responded very negatively to a Wall St. bail out package. It wasn’t until October that TARP was actually passed. TARP temporarily increased deposit insurance to 250,000. The TARP

The political stalemate of the American government between Republicans and Democrats has affected the US economy negatively. The foundations of the crash can be blamed on the government and its organizations. The biggest government failure was the Federal Reserve. Through three presidencies era and two Federal Reserve chairmen problems persisted. The Feds really started to turn away from their core principles in the 1990s. The minor tech-bubble recession in the early 2000s previewed to the Feds possible major problems with how the financial services are doing business. But both former Fed Chairmen, Alan Greenspan and Ben Bernanke, predicted if a problem popped up in the ever growing United State economy, it would not have a significant or

In the history of the United States, we have experienced numerous financial crisis, where millions have been affected. Some of them include the great depression in 1929, World War II, and recently the financial crisis of 2008. The government has tried to learn from these past events and implement new procedures that would prevent from occurring once again. However, it seems like there is always something new to learn from when these type of events occurs. As such, the government always tries to addressed the issues, but in some instances are praised and in some criticized. Two of the most important legislature that have been passed in order to prevent financial crisis and protect the consumers and the economy of the United States are the

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

In this essay, I will briefly explain what happened during the financial crisis of 2007-09, and also discuss the contribution of the government to the financial crisis.

hroughout History, our great Nation, the United States of America, went through many era's of financial crises that resulted in depressions. This also happened in 2008, when we experienced an immense financial crisis known as the Great Depression of 2008-2009. In an effort to end the financial crises, the government established three major bailouts: the Emergency Economic Stabilization Act of 2008 (EESA), the Troubled Asset Relief Program (TARP), and the American Recovery and Reinvestment Act (ARRA). Overall, the financial crises of the Great Recession of 2008-2009 caused the government to implement various bail-outs in an attempt to stabilize the economy. These programs have their own advantages and disadvantages that affect individuals and

During the financial crisis, the Fed’s monetary policy and the Treasury’s fiscal policy were both expansionary and thus essentially complementary to each other. Both policies aimed at stimulating the economic activities and stabilizing the credit market and the entire financial system. During the crisis, the inflation rate dropped significantly as the commodity prices plummeted, which freed the Fed from worrying about inflation risk. The foreign investors poured their money into the U.S. Treasury, allowing the U.S. government to borrow at extremely low interest rates. The various actions taken by the Treasury and the Fed served to work together to address the problems which were critical to save the U.S. financial system from collapse and to end the most severe recession since the Great Depression.

The unprecedented government intervention during the massive economic crisis of the late 2000’s was met with varied sentiment of economists (Lee, 2009). For example, economist Marci Rossell felt that government intervention was arbitrary and lacked clarity as to which firms would receive government aid (Lee, 2009). She furthered her argument by stating that if the government bailed out homeowners and banks that were borrowing and lending “over their heads,” they were creating a dangerous precedent to set (Lee, 2009, p.40). However, Rossell praised the Obama administration for having a clear grasp on the economic situation and trusted in this administration’s guidance to recover from the economic crisis. Conversely, economist Steven Schwarcz said that though the government bailout in 2008 would cost more than it would have if the government had reacted more swiftly to early signs of recession, these institutions would collapse and fail without government aid (“How Three Economists,” 2008). If these institutions failed, the ripple effect of this failure to the U.S. economy would be irreparable.

During Reagan's administration, Continental Illinois, the 8th largest commercial bank at the time, was bailed out because there was a fear that if International bond holders saw a large bank failing, they would pull money out of all American bank. So, after Continental Illinois was bailed out, large banks started to become dependant on the government. They began to act riskier with investments because they knew the government would bail them out. During Bill Clinton’s presidency a similar situation occurred, further clearing the message that if you are a large bank and are about to fail, the government will take tax payer’s money to bail you out. Again, during Bush’s last year as president, because of a fear of a recession, Bush once again bailed out large banks. It is a continuous cycle that unnecessarily and negatively impacts everyday people. Government has now got itself trapped in a bubble where they will constantly bail out large banks due to the fear of a economic collapse, but each time the government bails out the banks, the potential crisis worsens. The government is not responsible for saving the banks, only our

The U.S government implemented policies that would adhere to the Keynesian model that suggest “that it is the responsibility of the government to help stabilize the economy” (Keynesian). Key actions the government and the fed took was quantitative easing, the stimulus and recovery act which were approved in 2009. Though the US has not completely recovered from the recession the government did effectively stabilized our