The financial crisis of 2007–2009 was the most severe one since the Great Depression of the 1930s. What were the main causes of the 2007–2009 financial crisis other than the housing market collapse? What were its impacts on the U.S. financial institutions and markets? If you were an economic policy decision maker, what could you have done better to resolve the financial crisis during that period?
One of the main downfall of the year 2007-2009 or in common terms the reason behind the financial crises for the given financial years was not just the collapse of the housing market, but also the collapse of the loans given against mortgage by various banks.
It was observed that during, the period of early 2007 which was during the months of Jan to march, the prices of the houses were roaring up and kept on increasing at a rapid rate. This attracted the house owners to sell the real estate at such a peal time and buy another property with the assumption that they will earn a lot of profits. The federal laws lowered the rates of interest which was an added advantage for the real estate owners, as a result the owners started taking loans to either buy a new house or for personal reasons. However, due to heavy investment in the housing market, there was a rapid downfall in the market as the values of the securities went down drastically. There were many banks in the market which had heavily invested in these securities, due to the reduction in the values of securities, banks started to go through a liquidity crises severely. This entire scenario had a very negative impact on the stock market and made the stock market fall down drastically. This had a direct impact on the businesses, as businesses started incurring a huge loss which led to them doing cost – cutting. A lot of employees lost their jobs and the unemployment rate drastically went up. Thus leading to a major crisis scenario.
If I was to be a economic policy maker during this reign, I would have first focused on the share market. As share market is the centre of the circle and the entire economy of the nation revolves around it. I would have focused to try and keep the share market stabilized. I would have additionally tried to control the financial institutions such as banks which were going through a huge liquidity crisis. As banks and share marked form the backbone of any nation, my major area of concern would have been these two. During this timeI would also help in creating as many employment opportunities as possible to avoid unemployed. At this time, I would try and increase the tariffs on imports, so that the nation does not spend more money purchasing products, rather I would focus and encourage the economy to try and export as much as possible to allow the money flow to come to the country. Overall, I would follow a very structured system, where I would focus on quality things instead of quantity things which will actually help the situation to calm.