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Maroeconomics Financial Crisis 2008 Essay

846 words - 4 pages

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There were many factors that lead to the financial crisis of 2008. In 2001 America was facing the possibility of a recession, in part due to the terrorism attack. Fearing this recession the Federal Reserve decided to cut interest rates drastically with the plan to slowly increase it over time. Banks and other financial institutions saw this as an opportunity to make money and used the low interest rate to capitalize in real estate. Banks began the spiral of offering no money down mortgages with the cheap money interest rates to subprime borrowers, many which had little money and no assets. As the real estate business began to boom the prices of houses increased. Many people ...view middle of the document...

When split this act applied one third of this money into government investment projects such as roads, bridges, and electrical grids. Another third was spent to assist the people hardest hit by the crisis as well as local governments. This money was used to provide stimulus checks and spending incentives to qualifying families. The final portion of the money was for tax cuts and credits. (Treatment).
TARP was another government funded program consisting of many programs to alleviate stress from the economy. These programs dedicated money primarily to areas such as the banking industry, the credit market, and the auto industry to bail out companies that failed to raise the private capital needed to avoid bankruptcy. Although the majority of this act was for industry allotments were made for struggling families and individuals facing foreclosures on their homes. (TARP).
Government money however, was only a temporary solution. Many pieces of legislation were passed to prevent similar situations from arising in the future that put checks and balances into financial institutions. The Dodd Frank Wall Street Reform and Consumer Protection Act was a major piece of legislation passed by the Obama administration in 2010 outlining many provisions and new government oversight programs to be implemented applied over the following several years. Under this act departments such as the Financial Stability Oversight Council and Orderly Liquidation Authority were created to monitor major financial institutions that could potentially negatively affect the country’s economy. The...

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