According to Debonois et al(1999(, a financial crisis can be described as a combination of various disturbances, among them the failure of financial intermediaries, sharp decline in prices of assets and finally, a disruption in the foreign exchange markets. He goes on to see that the crisis is evident when there are negative impacts on employment, production, purchasing power as well as households, firms and governments failing to meet their financial obligations.
In late 2008-2009, the world faced what is deemed to be the worst financial crisis of all time and according to several economic indicators, the most severe economic contraction since the 1930s(it was however less severe than the great depression). (Elwel, C. 2012). Unlike the great depression, this crisis did not turn into a depression as the government intervened and responded by implementing policies that helped to stabilise the spending and financial system.
This paper will summarise the major causes of the financial crisis, focusing on the US economy in 2008. In addition, the paper will outline the major effects of this crisis and give a summary of the interventions and measures taken by the US government to mitigate the effects. Finally, statistical evidence will be provided and show the extent to which this measures have succeeded.
Causes of the Financial Crisis
Conflict of interest by those in wall street- This led to executives making very risky decisions only so that they could meet their target and get that end of year bonus. The higher a company’s profit is, the higher the executives’ bonus. In addition, Lack of ethics and morals by those in wall street led to...