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The Great Recession In 2007-2008

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The Great Recession in 2007-2008 was the second largest financial crisis in U.S. history. In this discussion, I will be analyzing how the financial system contributed to the Great Recession and their response to the crisis, the involvement of the U.S. government, missed opportunities to avoid or shorten the crisis, and my personal opinion on the U.S. economy in the next decade. First a definition and the primary purpose of a financial system is needed.

A financial system is composed of institutions such as banks, insurance companies, mutual funds, and organized markets where stocks and bonds are sold. The primary function of a financial system is to lend assets to individuals or businesses in order to generate investment income. During …show more content…

In an article in Money Management Executive, Brent Shearer, summarizes a report prepared by the Tower Group regarding risk. In this article he states that financial institutions should incorporate a multi-faceted approach to risk management and understand the impact of the structured investment vehicles (SIVs), CDOs and subprime mortgages that they were purchasing and selling. These financial institutions should have been diligent in understanding the risk and conveying that risk to investors rather than looking at the potential return/profit only (Shearer, …show more content…

In the aftermath regulations such as the Dodd-Frank Act have been enacted to help identify signs of financial crisis, but regulation cannot eliminate financial crisis. The bull market for stocks continues, but at some point a correction will happen, how will the U.S. economy respond, that is the question that economists will continue to try and answer.

References:

Guynn, R.D., (2010, November 20). Financial panic of 2008 and financial regulatory reform. Retrieved from https://corpgov.law.harvard.edu/2010/11/20/the-financial-panic-of-2008-and-financial-regulatory-reform/ Minshkin, F.S., & Eakins, S.G. (2015). Financial Markets and Institutions (8th ed.). Boston, MA: Pearson.

Shearer, B. (2007). Subprime Crisis Exposes Risk Predicament (cover story). Money Management Executive, 15 (47). 1-12.

Villani, K. (2012). Subprime Crisis Was Government’s Fault. American Banker, 177(F333), 9.

Board of Governors of the Federal Reserve System. (2017).
Retrieved from

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