Essay On U.s. Financial Crisis

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Essay On U.s. Financial Crisis



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Essay: The Faces of the Financial Crisis

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Toggle Navigation Legal Information. Most financial institutions could not sustain themselves in the market and had to close down with some undergoing buyouts and acquisitions. The banking and financial industry had a lot of staffs laid off. The financial industry had been destabilized and was so weakened. Investors ended up loosing trust in the financial institutions. The financial industry is supportive of the manufacturing industry and all other sectors. The accessibility to credit was jeopardized leading to layoffs in the manufacturing industry as companies struggled to adjust to the realities in the economy. A research that was conducted between November and April of approximately 40 percent of households in the US has been laid off Suter and Mark, pp.

Inflation came to be a reality in the United States. As part of the measures of adjusting to the crisis, industries had to raise the prices of their products. There was a sharp rise in prices of goods and services. Coupled with the unemployment and the inability of people to pay the house mortgages, the United States saw a sharp downturn in economic growth. The economic crisis has led to a cut down in household expenditure with high cut downs seen in families with the unemployed populations. The standards of living of the Americans dropped drastically. People could not access finances for investments. The social welfare of the Americans was highly compromised with the cut down in earnings and the inflation.

Business went down with closures being common for weak businesses. The crisis impacted the trading environment in the United States with the volume of international trade drastically dropped. The US lost trading ground in the international market with its competitors like China taking advantage of the crisis to gain grounds in international trade. This further contributed to the reduction in economic growth of the US Suter and Mark, pp. The United States government and policy makers had to come up with both physical and monetary measures embedded in legislation.

These were aimed at mitigating the consequences that the crisis was on the economy. As the crisis continued to smolder, a number of policy measures were taken with the aim of stopping the crisis from sprouting to the entire economy. The first measure was the lowering of interest rates and introduction of schemes to prevent enhanced liquidity in order to abate the credit crisis that was emerging. The second measure was the taking over of the Bear Stearns bank which was facilitated by the state. Legislation was also passed at this pint which sought to mitigate mortgage foreclosure via demand stimulation.

All these failed to stop the crisis with the Federal Reserve being accused of favoring certain banks in offering credit Marshall, pp. After the real shocks of the crisis were felt, the government of United States had to move to cub the recession. The treasury was to lead in implementing the Emergency Economy Stabilization Act. The act was passed in October the year The treasury injected a capital into the financial institutions in exchange for common equity stakes and preferred stock. This was followed by massive bailouts of financial institutions for instance AIG.

The other policy was the lowering of the rates of interests by the Federal Reserve and the raising of liquidity. The credit easing policy supported the purchasing treasury bills and the mortgage-backed securities. The Securities and Exchange Commission suspended the short-selling of the institutions of finance. Also, a fiscal plan known as Homeowner Affordability and Stability Plan was initiated which helped the struggling home owners in the refinancing of their mortgages Marshall, pp.

One of the most famous policy responses to the crisis is the famous fiscal stimulus. This policy response was developed by the Obama administration and voted into law by the US senate. Under this policy, the government of US government released billion dollars. The legislation was transformed into law in This piece of legislation awarded cuts in taxes in a number of sensitive areas in the economy. Some of these policy measures were extremely resourceful in stopping the crisis from further advancing. The economic bailouts and the reduction in the rates of interests helped the economy to recover.

The bailouts helped to increase the reserves of the financial institutions. Though the bailout was effective, it has had certain level f inefficiency. Most financial institutions have been accused of taking advantage of the bailout funds. They manipulate it and use it making more profits on their side while leaving those who were to benefit to suffer from large burden of interests Kolb, pp. The failure to bail some banks by the Federal Reserve and the treasury bills was meant to ensure that banks exercised responsibility. However, this step had negative consequences on bank investments. Many banks collapsed leading to a lapse in investor confidence. The Lehman Bank was left to collapse because of bankruptcy.

Inter-banking lending rates shoot up leading to the development of a crisis in the banking industry Kolb, pp. The government of the United States through the treasury managed in stopping the crisis from spreading further. However, the crisis had already reached a level where almost all sectors of the economy had been infected or affected. The financial stability plan is still being implemented by the treasury with a lot of loopholes being witnessed. A number of economic analysts are still not satisfied with the scope of the plan. They argue that the plan is not comprehensive enough to address the financial challenges facing the financial institutions and the economy of the US.

The banking sector of the US still remains troubled. The amount of money set aside for the financial stability plan has been critiqued. Many analysts point that the money is far too little to addresses the asset problem in US banks Kolb, pp. More fiscal and monetary policies that have long term goals or objectives of eliminating possible problems in the financial sector need to be developed. The US government has focused a lot of the short-term goals in of ensuring the direct effects of the crisis have been addressed.

Tighter monetary policies of addressing the challenges that are born from institutions for instance speculation can be part of the long-term policies. Speculation was one of the roots caused of the crisis that engulfed the housing sector of the US paving the way to problems in banking and financial markets Kroszner and Benjamin, pp. The United stated economy has to some extend recovered from the impacts of the financial crisis. The economy has not fully recovered as it is being implied by treasury and the recovery plan. The Federal Reserve should continue with plans of offering more loans as most financial institutions have not regained the optimum capacity of service offering.

As the economy continued to recover through the short-term policies, the focus has to be on the long term economic measures of regulating the financial sector. Such policies will govern actions and activities of financial institutions thereby preventing unitary actions, which are likely to destabilize the sector Kroszner and Benjamin, pp. The Financial crisis, which hit the United States, began in the housing sector though the housing sector was not the main crisis. The crisis was transitional moving from the problems in the housing sector to the banking industry and the financial markets and the entire economy. A number of fiscal and monetary policies have been used to avert the crisis. Some are still in in implementation. The government has to shift and focus on long-term regulatory policies that will prevent such crises in the future.

Marshall, John. The financial crisis in the US: key events, causes and responses. Kolb, Robert W. Hoboken, N. J: Wiley, Kroszner, Randy, and Benjamin M. Reforming U. Suter, Christian, and Mark Herkenrath. World Society in the Global Economic Crisis. Berlin: Lit, Need a custom Essay sample written from scratch by professional specifically for you? American Financial Crisis. We use cookies to give you the best experience possible.

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