Overview of the Recent Financial Crisis in the US

The financial crisis in 2008 that led to a crisis in the banking sector, and which nearly led to a complete collapse of the economy globally, was not only caused by changes in the regulatory, regulation and legislation oversight, but also fiscal and monetary policies. Many believe that, expansion of excesses monetary and irresponsibility of some of the government agencies led to the crisis. According to reports by Taylor (2009), excesses monetary policies were the main cause of the 2008 financial crisis. He reports that, in 2003-2005 the federal reserves held its interest rate target below the well known monetary rules that state that historical experiences should be the base of a good policy. He says that, Federal Reserve tracked their rates according to what worked better in the earlier decades, instead of lowering the rates in order to prevent the crisis.

It pointed out that failure in different financial institutions including the Federal Reserve accelerated the crises. Lehman brothers; one of the three largest investments banks in the United States has been cited in the financial crises in 2007. The bank went bankrupt and it had to be sold in September 2008 (Currie, 2010). The other two banks Morgan Stanley and Goldman Sachs had to become commercial banks where more regulation was done. The collapse of large and significant financial institutions like the Lehman Brothers propagated the economic crises.

In the late 2000s, the World suffered from a big global economic crisis which caused “the largest and sharpest drop in global economic activity of the modern era”, in which “most major developed economies find themselves in a deep recession”, according to McKibbin and Stoeckel (1). Because its consequences have a very big impact to the whole world, many economists and scientist have tried to find the causes of the crisis; and some major causes have been emphasized are greed, the defection of the free market system, and the lack of prudent regulation and supervision. This essay will focus on the global imbalances, one of the most important causes of the current economic crisis. Many researchers have pointed out that the global imbalances are the root of the recent financial crisis. Portes claims that “the underlying problem in international finance over the past decade has been global imbalances, not greed, poor incentive structures, or weak financial regulation, however egregious and important these may be.” (2).

Introduction In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

Ocaya (2012) state that the credit crisis is a financial market or economic meltdown of borrowing the funds to the borrower and cannot get back, it evaluated by severe shortage of money or credit bring accumulation of bad debts, defaults and falling financial institutions among others. However, the experts and economists are unclear as what form a credit crisis. The Wall Street defines a credit crisis as a “period during which borrowed funds are difficult to get and, even if funds can find, interest rates are very high”. Credit crisis mostly began in 2007. The effect of the credit crisis has brought fall down on the housing market in some country resulting in foreclosures and unemployment.

The three most important things that I learned in this course are as follows: 1) Causes of Financial Crisis Financial crises have influenced the os of financial markets in past. The most important the Great Depression in 1929-30, the 1970s inflation failures and the banking difficulties in the 1990s led to problems in the financial markets causing serious disturbance. The recent financial crisis which became known in 2007, though the roots were implanted much earlier, has been the worst situation financial markets have ever faced. Causes of the Financial Crisis Several financial statements have been prepared to describe the causes of this current financial failure. There are a variety of factors that has resulted in the explosion of this financial crisis.

This paper will discuss the impact of the financial crisis as a result of subprime mortgages. Subprime mortgage is simply defined as loan offered to someone with a weak credit history (Zandi, 2008). Since the 2008 financial crisis had its source in the poor housing policies, low income earners consisting of members of the subprime mortgage were the most affected because of rapid increase in interest rates. ... ... middle of paper ... ...isis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Washington: Government Printing Office.

Ethical corporate behavior has been a recurring issue of public policy. Recent events have brought this issue into sharp focus beginning with the Enron scandal in 2001 and more recently the financial crisis of 2008. Subsequent regulation such as the Sarbanes-Oxley act seem to be in reaction to the public clamoring for government action in the wake of painful economic outcomes. A deeper examination of the events leading up to Enron and the financial crisis both seem to indicate that government agencies were asleep at the switch. Policy such as Sarbanes-Oxley in the wake of Enron have not prevented the more recent financial crisis of 2008.

2008 Financial Crisis seemed to come out of blue and shocked the whole world in the first place but was soon concluded by experts as a consequence of systemic risk. (Federal Reserve Bank of Atlanta, 2009) Characterizing such a risk are three consequences, including universal losses triggered by a single event (IBS, 2001), revelation of hidden correlations among financial institutions (Kaufman and Scott, 2003), and occurrence of a less optimal transition from one equilibrium to another (Hendricks, 2009). This systemic risk also draws attention to previously hidden risks and therefore perception of risks increased on an individual basis (Roszkowski and Davey, ... ... middle of paper ... ...ted States: Government Printing Office, before pp. 66. Lindsey (2010) Financial crisis inquiry report: final report of the national commission on the causes of the financial and economic crisis in the United States, United States.

One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco.