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One of the greatest economic events since the turn of the 21st century has been the United States financial crisis of 2008. The 2008 financial crisis led to one of the greatest economic downturns since the Great Depression of the 1930’s. In chapter 12 of our textbook, Mankiw provides a brief case study on the financial crisis of 2008. In his case study, Mankiw focuses on the historic low interest rate set by the FED in response to the collapse of bubble of the early 2000’s, low government regulation, and the financial innovation of securitization as leading factors that fueled the housing market bubble of the 2000’s(Mankiw 348). It was the eventual overheating of the housing market bubble that led to the financial crisis of 2008. The crisis ultimately led to a substantial rise in mortgage defaults and home foreclosures as well as large losses for both banks and shadow banks that owned mortgage-backed securities and higher volatility in the stock market (Mankiw 349). Mankiw provides an adequate overall analysis of the 2008 financial crisis as it occurred; however, Mankiw leaves out many key points in his case study in reference to factors that contributed to the financial crisis and its ultimate repercussions not only on the United States economy, but on the global economy as well. Mankiw correctly diagnosis many of the factors that led to the 2008 financial crisis and it is appropriate to address them and further elaborate the effects they had on the crisis. The first of these issues is the financial innovation that came to be known as securitization. Due to securitization, mortgages were no longer kept in the books of lenders. Instead, lenders sold them to packagers who bundled individual loans into bonds that were carve... ... middle of paper ... ... effects. Thus the danger, the fate of the economy is less in the control of the government or the FED as it stems out farther to investors without faces who’s speculation over profit returns very well determines the health of the economy. 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.
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