2008 Financial Crisis Essay

On the 2008 Financial Crisis

Part of the American dream is the idea of ownership, in particular, of a house. However, it is difficult for individuals to get a mortgage if they do not have a steady job and have a bad credit. Lenders do not want to take the risk of these individuals not paying the loans. However, in 2000 that started to change; low documentation loans came into play. This was the starting point of what is known as The Great Recession, which is considered the largest downturn since the Great Depression in the United States. It all started when the housing market in the United States went to bust, a period of time during which economic growth decreases rapidly. As a result, mortgage-backed securities and derivatives lost their

government created a two strategies to reverse the financial crisis. They pumped government money into the economy and bailed out distressed financial institutions (Britannica). The goal of the first strategy was to solve the problem of private loans scarcity through the stimulation of business activity with the government money. As a result of the second strategy, the bail out, the government involvement was evident in the private sector. In its encyclopedia, Britannica asserts that “the government by late 2009 had provided an estimated $4 trillion to keep the financial sector afloat” (n.d). Moreover, Congress enacted a $787 billion fiscal stimulus bill for school construction, highway repair, and other public-works. The congress also enacted the TARP, Troubled Asset Relief Program. This program authorized the department of Treasury to invest $700 billion to buy “unproductive real estate investments and even to purchase financial company stock, which made them part owners of these companies. Furthermore, the Fed played an extremely important role during this crisis since it printed more money because there was not enough money available. According to Britannica, “By the end of 2009, the government owned almost 80% of American International Group (AIG), the country’s biggest insurer, at a cost of more than $150 billion. It also owned 60% of GM and had a stake in some 700 banks” (n.d.). Even though this government intervention helped to relieve and improve the economy, it led to huge government budget