One of the biggest issues that led to the 2008 financial crisis was the prospect of significant losses on residential mortgage loans that started to be noticed shortly after house prices began to decline. Although those losses were not enough on their own to account for the magnitude of the crisis, they combined with vulnerabilities in the system and gaps in the governments crisis-response sector to be the main explanations to why the crisis was so severe and has such overwhelming effects on the whole economy.
The heads of several of the big financial institutions like AIG, Lehman, Fannie Mae and Freddie Mac were not true leaders during this time. “Heads of the failed firms forgot two basic principles of business: To sustain success, firms must serve their customers well for the long term and contribute to ensuring healthy markets” (2008). Recently passed reform legislation and the establishment of the Financial Stability Oversight Council and new authorities for regulators will be a great help in the future.
The US will weather the financial crisis and a recession better than emerging and developing countries. Despite systemic differences, there is no room for complacency if Russia, China, and other emerging economies suffer economically, as instability there will have huge economic and political repercussions for the US. We need global leadership which can both manage the rise of China, India, Russia, and Brazil as well as the discerning decline of the United States, and even Europe.
Once a crisis occurs, timely effective action by the government is critical to containing the severity of financial disruptions and their economical effects. When this crisis occurred it revealed large gaps in the governments ability to respond quickly, effectively, and with minimum cost to taxpayers and the economy as a whole. In a time of panic and liquidity shortages, central banks must be able to provide funding to reliable... [continues]
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