The Recession And Its Impact On The Economic Essay

The Recession And Its Impact On The Economic - Essay ExampleThe securities later mixed-up value following the US house bubble and mortgages began to default in payment in 2007. The subprime losses that emerged began the crisis, which exposed other risky loans and overpriced assets.An sum up in loan losses and the collapse of the Lehman Brothers in September 2008 brought a big panic in the inter-bank loan market. The shadow banking system caused major banks and fiscal institutions in Europe and US to go bankrupt and suffer huge losses. The crisis was majorly caused by the emergence of shadow banking system that included investment banks and non- monument financial institutions. The systems rivaled the depository system yet they werent subjected to regulatory safeguards (Tett & Gillian 2008). The housing bubble burst leading t major losses and default in the mortgage payment. The gathering of household debt prior to the crisis resulted in balance sheet recession. Consumers started to pay down debts which reduced their disposable income, thus slowing down the economy further. US governance policies encouraged home ownership even to people who couldnt afford it, resulting in lax lending standards, unsustainable increases in house prices and debts.I support the come along which proposes for a simpler and smaller financial sector in which the size, power, and complexity of the financial system are limited in important ways. A smaller financial sector has the strengths of providing more benefits to the economy. These benefits include a more effective monetary and fiscal policy, increased corporate financing, reduction in market risks and greater integration. A smaller financial sector has the strength and the advantage of influencing the government to develop sound and efficient monetary and fiscal policies.