2008 Global Crisis Starting in 2005, the Federal Reserve perceived that its excessively broad financial strategy had made the potential for higher expansion. It properly started to fix arrangement through its standard technique of rising it’s focused on interest rate. A key initial phase in the money policy procedure includes the making of bank reserves; these are deposits that banks keep at the Fed. At whatever point anybody other than the Federal Reserve buys anything they have to have cash to pay for them. The Fed is diverse. It has the special capacity to pay for its purchases by informing banks that it has expanded their bank saves by whatever sum is important to pay for its purchases. https://youressaymarket.com/im-working-on-a-risk-management-case-study-and-need-support-to-help-me-study-sc/ Making more bank reserves has a tendency to give banks more money that empowers them to make credits and ventures. This procedure has a tendency to add to the cash supply, which inevitably expands the rate of expenditure. After some time, an increment in spending well beyond the capacity of an economy to create products and administrations prompts inflation. From 2001 to 2005, there was an increment of bank reserves in the Federal Reserve by about 20%. In the same period, other measures of money such as monetary base and currency increased rapidly. This increase in funds led to an increase in the rate of spending that consequently led to the increase in the dollar GDP. This made the Federal Reserve to ease its monetary policy by reducing the bank reserves; this caused the indicators or measures of money to slow dramatically. This caused the dollar GPD to slow. The slowdown in growth of money decreased the rate of spending in the United States. The Federal Reserve continued to drain or remove the bank reserves from the system, and this fuelled the financial crisis. Keynes, the famous economist, introduced what is commonly known as “financial stimulus.” The basics of financial stimulus is the people who have more disposable income will lend the money to the government, and the government will give it to those who do not have to boost spending. Many have argued that this is true and have not questioned its validity, while others argue that the stimulus is not huge enough to cause an economic downturn. Before the 2008 financial crisis, the United States was practicing this theory widely as postulated by Keynes. https://weassistessays.com/learning-outcomes-assessed-this-part-please-refer-to-learning-materials-for-co/ In reality, the financial stimulus policy is a drawback to the economy. For instance, in a year, the United States produces products worth $13 trillion, therefore they receive the same in income. The Population will save approximately 10% of this in order to purchase capital goods that will bolster future production. The government of the United States used to borrow this 10% meant for capital goods and pump it to the economy and most o.

1. 2008 Global Crisis
Starting in 2005, the Federal Reserve perceived that its
excessively broad financial strategy had made the potential for
higher expansion. It properly started to fix arrangement through
its standard technique of rising it’s focused on interest rate. A
key initial phase in the money policy procedure includes the
making of bank reserves; these are deposits that banks keep at
the Fed. At whatever point anybody other than the Federal
Reserve buys anything they have to have cash to pay for them.
The Fed is diverse. It has the special capacity to pay for its
purchases by informing banks that it has expanded their bank
saves by whatever sum is important to pay for its purchases.
https://youressaymarket.com/im-working-on-a-risk-
management-case-study-and-need-support-to-help-me-study-sc/
Making more bank reserves has a tendency to give banks more
money that empowers them to make credits and ventures. This
procedure has a tendency to add to the cash supply, which
inevitably expands the rate of expenditure. After some time, an
increment in spending well beyond the capacity of an economy
to create products and administrations prompts inflation.
From 2001 to 2005, there was an increment of bank reserves in
the Federal Reserve by about 20%. In the same period, other
measures of money such as monetary base and currency
increased rapidly. This increase in funds led to an increase in
the rate of spending that consequently led to the increase in the
dollar GDP. This made the Federal Reserve to ease its monetary
policy by reducing the bank reserves; this caused the indicators
or measures of money to slow dramatically. This caused the
dollar GPD to slow. The slowdown in growth of money
decreased the rate of spending in the United States. The Federal

2. Reserve continued to drain or remove the bank reserves from
the system, and this fuelled the financial crisis.
Keynes, the famous economist, introduced what is commonly
known as “financial stimulus.” The basics of financial stimulus
is the people who have more disposable income will lend the
money to the government, and the government will give it to
those who do not have to boost spending. Many have argued
that this is true and have not questioned its validity, while
others argue that the stimulus is not huge enough to cause an
economic downturn. Before the 2008 financial crisis, the United
States was practicing this theory widely as postulated by
Keynes. https://weassistessays.com/learning-outcomes-assessed-
this-part-please-refer-to-learning-materials-for-co/
In reality, the financial stimulus policy is a drawback to the
economy. For instance, in a year, the United States produces
products worth $13 trillion, therefore they receive the same in
income. The Population will save approximately 10% of this in
order to purchase capital goods that will bolster future
production. The government of the United States used to borrow
this 10% meant for capital goods and pump it to the economy
and most of it went to projects that were not resourceful to the
economy. This meant that in the subsequent year, there were
fewer funds for capital goods, and this weakened the economy.
The housing bubble pushed up the inflation rate that
consequently led to US central bank raising the borrowing rates.
This made borrowing quite costly, and the borrowers were not
able to meet their mortgage payments, this led to foreclosures
and lenders selling the houses (Krugman, 2009). Most of the
Collateralized Debt obligations (CDO) were mortgage backed
securities (MBS). The CDO’s rose exponentially in 2007 and
the traders were ladling the consumers with securities that had
no value. The subprime mortgages were riskier compared to the
prime mortgages, and this is because the originators did not

3. want to hold on to the mortgages. The mortgages were sold as a
package known as Collateralized Mortgage Obligations (CMO);
this was backed by subprime which was riskier and difficult to
manage.
The U.S. housing bubble busted due to poor policies that
encouraged homeownership. There financial crisis was triggered
by interplay of several factors: subprime mortgages were
overvalued on the assumption that their value will increase in
the future. Banks and other financial institutions provided easy
loans so that people will buy houses. The deals between the
buyers and sellers were unscrupulous because they valued short
term deal flow over long-term value creation. The banks and
insurance companies that provided low interest loans did not
have capital holdings to back the financial commitments they
were engaging in (Krugman, 2009). Many Americans were
unable to settle the mortgages, which led to plummeting of
stock prices, especially in the real estate; this led to
foreclosures and many people being evicted. The lending
institutions had a liquidity crisis as they had lend much and the
Americans were unable to pay. This crisis led to prolonged
employment as many institutions had to cut back on expenses
and costs by laying off the employees.
https://convenienthomeworkhelpers.com/students-will-trace-the-
historical-development-of-one-of-the-following-depressi/
In response to the global recession, the United States and other
countries had to come up with strategies, both short term and
long term, to mitigate the crisis. The immediate response by the
Federal Reserve and other central governments was to provide
short term credits to restore confidence and address the liquidity
crisis. The fed noted that it was important to keep credit
flowing so that economic activities would not stall. In order to
jumpstart the economies, different countries had to come up
with a fiscal stimulus package (Savona, 2011). The United
States had two stimulus packages that amounted to $1 trillion.

4. The stimulus in early 2008 took the form of tax refunds/ tax
rebates; most of the consumers chose to save the tax refunds
instead of consuming, this plan had a small effect in improving
the aggregated demand.
The first proposal was a $700 billion bailout plan that involved
the purchase of impaired assets from the balance sheets of the
financial institutions (Lefebvre, 2010). The bill was passed in
October, 2008 where the treasury had planned to hold on to the
purchased assets and resell them when the markets improved.
Even though the Emergency Economic Stabilization Act of 2008
was approved, the financial market conditions were still on the
decline. The treasury decided to invest directly in the financial
institutions as it would be more efficient and faster. The United
States government invested $125 billion in nine of the largest
U.S financial institutions and a similar amount in the smaller
firms. The buying of the troubled assets by the United States
government was initiated by the Troubled Assets Relief
Program (TARP) that was signed into law by the Bush
Administration to address the subprime mortgage crises in 2008.
With an end goal to invigorate the business sector for transient
loaning among enterprises, the treasury has additionally offered
to specifically buy commercial paper from evaluated guarantors
not able to raise cash in the private business sector. The
administration likewise proposed a stimulus intended to
improve economic activities. This eagerness to utilize deficit
spending to help the economy amid a monetary downturn is a
change over economist activities amid the 1930s, when it was
by and large believed that financial plans ought to be balanced
even in economic slowdowns.
The Fed brought down its key federal fund rate to give extra
liquidity to the financial related framework, extended the scope
of security it would willing to acknowledge consequently for
loans, and gave direct lines of credit to a more extensive

5. mixture of financial establishments. Before the financial crisis
on the commercial banks would directly borrow from the
Federal Reserve. According to Acharya (2011), the Fed
nationalized two of the mortgage institutions (Freddie Mac and
Fannie Mae) and promised to provide $100 billion in capital for
each company; the government took 80% ownership in each.
The government took a similar stake in AIG by promising that it
will lend it more than $80 billion. The government agreed to
shoulder the risk of losses for Bear Steams, a big investment
bank, toxic mortgage assets; this was in a forced sale to JP
Morgan.
Different countries responded differently to global crisis. For
instance, Singapore implemented a financial policy known as
Resilience package which was aimed at increasing job
competitiveness and job retention. In Singapore there was
Special Risk-Sharing Initiative (SRI) where the government
took some default risk of loans up to S$5 million. The job credit
scheme offered cash grant in order to encourage businesses to
retain workers (Kawai, 2010).
In conclusion, during the crisis, the Federal Reserve injected
liquidity in the system to hinder economic activities from
stalling. The US government had to increase its expenditure that
provides a financial stimulus to the economy. The government
had to restore confidence in the financial system through
insurance programs, direct investments, loans and guarantees.
Some of the short term responses did not perform well. For
instance, the Emergency Economic Stabilization Act of 2008
did not ease the financial crisis. In the long term, some policies
worked and others did not. As at 2012, the housing market in
the US had not stabilized as there were still troubled mortgages,
the foreclosure rate remained high as homeowners could not
modify their mortgages. On the other hand, the financial
markets stabilized by the start of 2010, signifying some of the

6. policies were working even though the economic growth was
slow.