Do You Think That Something Like the Financial Crisis That Occured in 2007 2008 Could Happen Again

How government's policies led to the Financial Crisis of 2008

The Financial crisis of 2008 is the worst fiscal crunch since the Great Depression, which started with crunch in subprime mortgage market in the The states and developed into a global economic downturn, the Keen Recession. In this picture, 2 men are conveying abroad a "Lehman Brothers" banking concern sign. This bank was founded in 1850 and collapsed after 158 years of operating in September 2008. This was the 4th-largest investment depository financial institution in the The states, so its bankruptcy led to huge new losses for the economy. The crunch afflicted everyone, reducing the living standards of every family. The atmosphere of harsh atmospheric condition and loss of confidence is vividly expressed by men's mimics and poses on the photo. While the consequences of this recession are pretty obvious, it is not the aforementioned with the causes. Economists all around the world fence whether free market or government regulations were the primary cause and how to prevent adjacent economic downturns.

In this artictle I assert that in that location was no free market place economic science in this time period in the US, and therefore,

enormous regime intervention and regulation of the economy acquired the financial crisis of 2008 and the Keen Recession.

Virtually of the politicians and mainstream economists claim that the authorities should be given more power to regulate the economy. They retrieve that the main crusade of the financial crunch were

"the Wall Street executives whose greed and irresponsibility got usa into this mess"

— Barack Obama.

The immorality and selfishness of "greedy entrepreneurs, taking reward of the de-regulations and low interest rates, involved in excessive lending and with support of inaccurate rating securitized and sold their loans" in particular led to the Swell Recession according to Dr. Necati Aydin, Associate Professor of Economics.

For decades regime has increased its function, and switched it primary role from protecting private rights to providing lots of services to the people.

In the terminate of the 19th century, the government started to increment its ability and intervene into economic science. Firstly it has been through government grants, f.e. railroad grants. Later it started to bosom big businesses and laissez passer lots of legislation. The most meaning turning point was the era of the Great Depression and FDR'southward New Deal. It was the first fourth dimension during peace when the Us government was straight ruling the economy. For near modern politicians and economists the New Deal is the function model. Paul Krugman, winner of Nobel Prize in economics and NYT columnist, wrote in his book "The Return of Low Economics and the Crunch of 2008" that the mode to forbid future recessions is to create a new regulatory regime based on principle that

"anything that has to be rescued during a financial crisis, because it plays an essential part in the financial mechanism, should be regulated when at that place isn't a crunch so that it doesn't take excessive risks".

— Paul Krugman

Even though many people claim that markets were the cause of the crisis and the recession, there is evidence that the principal cause for this economic downturn were the policies of the Usa government. Yes, people and markets massively misinvested into the consumption (ownership home is consumption, not investment), but in such highly-regulated economy

"it is impossible to have a systemic failure of the fiscal markets without mistakes by government policy makers being the primary cause"

— John Allison, ex-CEO of BB&T Banking concern

There were several mistakes in government policies. The most crucial of them were made by the Federal Reserve. Federal Reserve, or the Fed, is a central banking concern of the U.s.a., created in 1913. Co-ordinate to John A. Allison, CEO of BB&T Corp. from 1989 to 2008,

"the 'success' of the Fed'southward efforts to prevent significant market place corrections from early 1990s to 2007, which was achieved at the expense of a massive misallocation of uppercase (especially to the housing market place), laid the groundwork for the Great Recession".

Federal Reserve's policies of printing coin in order to forestall deflation, because it was to the reward of the U.Due south. Treasury which could pay back debt in inflated (cheaper) currency, of lowering brusque–term interest rates

"non just fueled growth in the dollar volume of mortgage lending, but had unintended consequences for the type of mortgages written".

— Lawrence White

There is another case of government activity that led to the financial crisis.

Dr. Aydin in his work claims that greedy entrepreneurs "offered credit to individuals who could not beget to pay them back. They did so because they invented intelligent means to pass on their chance to a third party. Since they did not have to worry about the risk factor, information technology was in their best interest to offer as much credit as they could", but that is not true. Of grade, some of the businessmen could accept used this scheme, but that wasn't the master reason why banks gave credits to people who couldn't afford to pay it back. Banks were required by the authorities regulatory agencies, i.e. the Off-white Housing Act of 1968, the Community Reinvestment Deed of 1977 and the Equal Credit Opportunity Act of 1974 coupled with

"a totally misleading study by the Boston Federal Reserve bank. Even the Fed currently acknowledges that this study was fundamentally flawed"

— John Allison

led to "energizing the affordable-housing/subprime-lending efforts that subsequently destroyed the residential real manor market place". Under these laws, especially under the CRA "banks had a legal duty to make high-hazard abode loans to low-income borrowers". Even behemothic sponsored enterprises (GSEs) were forced past the Clinton assistants to accept "at least l pct of their loan portfolios in affordable housing (subprime) loans", which was incredibly risky and after led to their failure. And these are only some of the examples how regime agencies which were supposed to prevent the crisis led direct to its creation.

Even though recessions are considered to exist bad for the economy, panics in pre-Fed era didn't accept a major affect (wait at "Log of Industrial Production, 1790–1915", Davis (2004)). Recessions are normal for the economy, no government can protect guild from downturns. As Mr. Allison stated, "Unfortunately, if all the regulatory standards were fully enforced to the maximum, the U.Southward. economic organisation would grind to a halt. Banks must take risk for there to be economical growth. Driving chance to zero would destroy our economy". Furthermore, the being of government regulations massively increases the touch of recessions on the economy and exposes the marketplace to negative consequences.

Works cited:

Allison, John A. "The Financial Crisis and the Market place Cure: Why Pure Capitalism is the World Economic system'southward Simply Hope"

Aydin, Necati "The 2008 Financial Crisis: A Moral Crisis of Capitalism", African Journal of Business Management, vol. five, no. 22, 2011, pp. 8697–8706

Krugman, Paul "The Return of Depression Economics and the Crisis of 2008"

Obama, Barack Speech at Reno, Nevada on Sep. thirty, 2008.

White, Lawrence H. "How Did We Go Into This Financial Mess?", Cato Institute, 2008

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