Analysis of Policy Responses to the Financial Crisis of 2007-2009

ANALYSIS OF POLICY RESPONSES TO THE FINANCIAL CRISIS OF 2007-2009

 Introduction

In 2006, the United States was experiencing vast economic growth: the unemployment rate fell while salaries rose at the quickest pace seen in five years. Many Americans were unaware that just one year later the United States and the rest of the world would be experiencing a devastating global financial crisis. The peak reason for the collapse has to do with "the American Dream". The American Dream means many different things to different people, but under all ideas of the American Dream, home ownership plays a leadership role. Before the collapse, housing prices were vastly overstated, and, much like the tech bubble a decade earlier, the bubble would soon pop. As housing prices swelled and rose to unprecedented volumes, so too did the subprime mortgage industry. Subprime mortgages were the biggest low quality loans that failed in large quantities, leading to reduced credit flows, decreasing asset values, and increased borrowing costs. They largely considered the number one contributor to the 2007-2009 financial crises.

It is our stance that fiscal and monetary policies are necessary to minimize further losses when a financial crisis occurs. It is our duty to work together with the Senate, House, and Executive office to soften the blow of the crisis and then to aid in its recovery. We understand that in the 21st century no country is isolated and globalization is in full force. The financial crisis that started in the United States bled quickly into the rest the world that interacted with us. Many nations had invested heavily in mortgage-related financial products. Our goal with this memorandum is to determine how to most quickly and efficiently recover from the first global financial crisis of the 21st century.

Framework

To fully understand the nature of the crisis, we must understand where the economy and financial markets stood before the crisis occurred. The...