Financial Crisis in the US

Abstract

The study discusses the financial crisis of 2008-2009 in the United States and the causes that led to the economic downturn. The research also discusses the consequences of the financial crisis and how it affected the financial market in the US. Furthermore, the research also discusses the role of significant actors such as the government, president, congress, secretary of the treasury and FED in recovering from the financial crisis.

Table of Contents

Abstractii

Introduction1

Thesis Statement1

Aims and Objectives1

Discussion2

The Consequences of the Financial Crisis in the U.S2

The influence of the U.S. Financial Crisis on World Stock Markets2

Causes of the Crisis3

Rescue Plan6

Monetary Policy7

Congress8

Conclusion8

References10

Financial Crisis in the US

Introduction

The U.S. financial crisis began in late 2006 with the mortgage crisis in the sector of subprime (poor-quality loans), which appeared due to huff a bubble in the mortgage market caused by the Fed's low interest rates, abundant liquidity and the frivolous attitude of mortgage companies to borrowers. A chain reaction around the world caused by the fact that mortgage companies trying to get out of difficult situations with low-quality mortgages, mortgages were sold to institutional investors in the U.S. and other countries.

When real estate prices in the U.S. fell, the company bought these mortgages, incurring huge losses as the price of real estate was much lower than the price of mortgages. The U.S. housing bubble was blown away that hit the global economy. In fact, the U.S. mortgage companies gained unfair, poor speculative clients, and when the debt no longer give away, resell mortgages to other companies around the world who suffered huge losses on themselves.

Thesis Statement

There was a significant impact on the recovery of the financial crisis in the US by the steps taken by the government.

Aims and Objectives

The aim and objective of this paper is to determine the causes of the financial crisis in the US and the measures taken by the president, Secretary of the Treasury, Congress and FED in recovering from the crisis.

Discussion

The Consequences of the Financial Crisis in the U.S

The most striking effects of the financial crisis in the U.S. have become nationalized mortgage agencies Fannie Mae and Freddie Mac, the bankruptcy of the largest U.S. banks and systemically nationalized insurance giant AIG. Furthermore, in September 2008, in the U.S. mortgage crisis triggered a liquidity crisis in world banks. Therefore, because of the financial crisis, the U.S. banks went bankrupt such as Bear Stears, Bank Lahman Brothers and Merrill Lynch was bought by Bank of America. The Fed bought 80% stake in American International Group (AIG) the world's largest insurer, in effect nationalizing it (Jansen, 2009).

As a result, pillars of the U.S. financial system suffered a shock and disappeared altogether. The Fed created a fund to buy out bad debts, and maintained the country's financial system by adopting the Paulson plan. The essence of the plan was to create a public corporation, which dealt with purchase troubled assets from banks. It stood out on the $700 billion, subsequently refused to buy the assets, but instead allocated $800 billion to banks ...