The financial crisis in US in 2008
According to leading economic figures,The 2008 Global Financial crisis is considered the worst financial crisis since the Great Depression of the 1930s.Whilst the cost of the crisis has so far remained under examined, significant risks remain for the world economy in coming years.
First of all, easy money policy is one of the reasons that made the financial crisis in US in 2008. Because of trade deficit, the US must borrow money from abroad which bid up bonds prices and low interest rate. To deal with the increasing in trade deficit, the government must borrowed large sums of capital from abroad.
Apart from the easy money policy, it is the subprime lending that contributes to worsen the US economy. Simply, people can borrow more money than they can effort – an adjustable rate mortgages (ARM). These ...view middle of the document...
Nonetheless, when the housing bubble burst, housing price fell dramatically.
Lastly, it is believed that mortgage-backed security also leads to the financial crisis in US. The problem started when subprime model did not make banks any incentive to check carefully the mortgages that they issued and as a result housing market fell in the United State. When home owners who are subprime borrowers realized that they could not afford their homes because of the falling in housing price and the high interest rate, they did not have many choices. They could just walk away from the home or negotiate their loan in a workout program. Normally, bank could recover the capital at foreclosure. However, the new model made people who want to buy a house can borrow 80% the value of home, so the falling of housing price led banks took hefty losses on the loan. Thus, banks and investors who held a large amount of MBS default and go bankrupt.
According to analyze the main causes of this crisis, we need to draw out the importants lessons for our economy.Firstly, Government intervention in financial market is very necessary and it requires that the government has to prepare big amount of reserve foreign currency when the financial crisis occurs.
In addition, The government has to pays attention to the balance trade, current account, capital account, and so on.
Equally important, the monetary policy has to be used as suitable as possible( when should use Loosen monetary policy, when should use tight monetary policy?)
In conclusion, the financial crisis left a lot of problems for the whole world economy. It made a strong impact on various aspects of economy: collapse of major investment banks, funds became risky, credit well dried up, and most important, collapse of confidence make the world economy, which is considered very stable before, suddenly became fragile. Government around the world have to formulate the suitable policies to control their economy as well as possible, also improve national standard of living as well as quality of life.