The 2008 Economic Collapse

Policy changes incorporated with the economy are often a major factor. In this case, all roads lead to one major problem: Deregulation. Deregulation originating from the Carter and Regan Administrations, combined with a decrease in consumer spending, and the subprime mortgage bubble all led up to the major recession of 2008. Looking back to the Carter and Reagan Administration’s, you can begin to see where the Recession originated from. Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation.

The financial crisis in 2008 was been considered as the worst financial crisis since the Great Depression. One of the major reasons of the crisis was that banks in the States were given permission by the repeal of the Glass-Steagall legislation, which allowed banks to affiliate with insurance, real estate, security. The goal was to create financial firms “better equipped to compete in global financial markets”. With the firewall between commercial banks, which make loans and take deposits, and investment banks, which underwrite securities removed, an opportunity rise for banks to create and push more money and eventually to speculate on financial markets. The financial crisis reminded us that the banking industry has a serious influence on the economy and it should be under strict regulations.

The Financial Crisis of 2008 was the worst financial crisis since the Great Depression, however a lot of American’s want tougher law of be enforced against executives and companies they think started the mess (Jost/Misconduct). Civil charges have been brought up against major banks for misleading investors, but a federal judge rejected a proposed settlement saying it was too lenient (Jost/Misconduct). The flood of subprime mortgages roiling the housing market in the U.S. is also causing the worldwide credit crisis (Jost/Crisis). Investment banks everywhere are taking billion-dollar losses, forcing them to revalue their belongings (Jost/crisis). This crisis started under the surface for many years then emerged into the public in March 2008 when cash-strapped Bears Steams were being forced to sale to JP Morgan Chase; they did this for a worthless $2 a share (Jost/Misconduct).

Since World War II, home ownership and higher education have been equated with success in America. In this 21st-century economy, higher education is more than ever an important pass to upper social mobility. However, like the American Dream of home ownership that was shattered by predatory lending, The American Dream of higher education is also being threatened to be crushed by ever-growing student loan debts. Following the Great Recession, it is only normal to worry about an impending student debt crisis given the parallels it has to the housing crisis. Not only do both issues stem from inequality and involve huge amounts of loans that are doomed to default, but most important, they lack proper government intervention.

Sachit Grover The Decision That Drove the Economy Forward The downward spiral of the United States economy began in 2007. Initially, banks made careless loans to individuals. Following these careless loans, many couldn’t afford to stay in their homes. The credit crisis was occurring simultaneously with the housing market collapse. The credit crisis occurred when large financial institutions were on the verge of collapsing due to the risky loans issued to United States residents.

The resulting subprime mortgage crisis has led to one of the worst credit crunches in history. The DOW Jones Industrial Average which crashed in late October 2008 has lost nearly half its value, leaving many Americans without a means to retire. The causes, bad domestic securities and assets, have even spread abroad and have wrought financial havoc on a global scale. The financial sector is in a state of panic, its future is uncertain at best, and the banking industry is teetering on collapse. Now with all the ups and downs of the financial history globally and in the United States, the pervading fiscal, economic, and political failures wrapped around the United States’ debt could cause a complete economic austerity.

The 2007/2008 financial crisis is widely regarded as the worst financial crisis since the Great Depression. What began as a housing bubble and a rise in foreclosures, in the United States, lead to a domino effect of financial institutions collapse. What was named a credit crunch quickly became a full on financial crisis, pushing real GDP levels down to a negative 8,9% in 2008 (1), such figures had not seen since the Great Depression. This essay argues that President Barack Obama has taken the necessary steps to take the United States out of the “Great Recession” and that the US government’s response has been proven successful combining fiscal stimulus and hints of austerity and implementing them in the appropriate times. Despite the major efforts of the expansionary monetary policy of Federal Reserve program (Quantitative Easing) to prevent the banking system from collapsing (2), the economic crisis took its devastation toll.

Thetan. N.p., n.d. . . May 16 2014. Web.

The 2008 financial crisis left much of the United States’ economy in shambles and the debate still continues as to what in particular led to the collapse. In reality, it was a combination of all the factors mentioned above that contributed to the economic meltdown of 2008. To prevent it again would require greater regulation and a decrease in liberal economic policies. However, that is easier to say than to practice in an era dominated by liberal policies. Another financial crisis will occur; however, it will depend on US policymakers and other actors in the financial and economic sectors to determine the extremity of the crisis.

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.