U.S. Response to the Subprime Crisis
A critique of the United States government's intervention strategies to the sub prime crisis.
# 129005 | 2,394 words | 5 sources | APA | 2010 |
Published on Aug 25, 2010 in Business (Finance, Investment and Banking) , Political Science (U.S.) , Political Science (Fiscal Policy (economy)) , Hot Topics (General)
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The paper explains the root causes of the market failure, that were the interest rate policy of the Federal Reserve, the housing bubble and consumer behavior. The paper describes how this market failure had widespread consequences and then focuses on the government's response to this crisis. The paper argues that the response has not yet had the intended effect on the economy. The writer criticizes the bailout package and interest rate cuts, and explains why he disagrees with the government's approach. The writer instead recommends strategies that would have little direct economic impact, but that he believes would set the course for better decision-making both inside and outside the financial services industry.
From the Paper:"In February of 2007, when the subprime crisis began to emerge, few thought that it would threaten to send the global economy into a tailspin. Yet today we sit at the brink of recession. The federal government has committed to spending hundreds of billions of dollars to keep the economy afloat, and is likely to spend hundreds of billions more before we experience economic recovery. In order to help alleviate the crisis and to prevent this situation in the future, we must understand the root causes of this market failure.
"Subprime lending refers to the practice of lending to borrowers who have less than ideal credit. In the long run, subprime loans are subject to higher than average rates of default. Financial institutions account for this by charging higher rates of interest. The problem with the subprime crisis, however, is that the rate of default has proven to be substantially higher than most lenders expected. There are two causes for this - both of them externalities."
Sample of Sources Used:
- Boeri, Tito & Guiso, Luigi. (2007) Subprime Crisis: Greenspan's Legacy. Vox. Retrieved November 19, 2008 from http://www.voxeu.org/index.php?q=node/488#fn2
- Brown, Jeff (2008) Subprime Crisis: A Bouquet of Opportunity Masked a Reek of Risk. Knowledge @ Wharton. Retrieved November 19, 2008 from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1995
- Bagley, Nicholas. (2008). The Federal Role in the Subprime Mortgage Mess. Sacramento Bee. Retrieved November 19, 2008 from http://www.treasurer.ca.gov/beyondthehorizon/20080128.pdf
- Thoma, Mark. (2008). The Fed's View of the Sub-Prime Mortgage Market. Economist's View. Retrieved November 19, 2008 from http://economistsview.typepad.com/economistsview/2007/03/the_feds_view_o.html
- Wade, Robert. (2008). "Explaining US financial instability and its global implications" The Asia Pacific Journal. Retrieved November 19, 2008 from http://www.japanfocus.org/products/details/2536
Cite this Persuasive Essay:
U.S. Response to the Subprime Crisis (2010, August 25) Retrieved February 06, 2023, from https://www.academon.com/persuasive-essay/us-response-to-the-subprime-crisis-129005/
"U.S. Response to the Subprime Crisis" 25 August 2010. Web. 06 February. 2023. <https://www.academon.com/persuasive-essay/us-response-to-the-subprime-crisis-129005/>