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Financial Crisis

Towards the end of the year 2008, the United States experienced heavy financial crisis which led to a collapse in a number of major financial institutions. The genesis of the crisis was likened to a crunch in credit that had begun earlier in the year 2006 through 2007. The housing market of the United States has been viewed by many as the major cause of the financial dislocation. From 1990s, the prices of houses grew in a rapid motion. The price swell was responding to a number of factors among them the rising low rates of interest, excessive lending and speculative reasons. The constraints in the housing sector integrated with other factors for instance the crash in assets thus making the crisis in finance inevitable (World Bank, 2009).
It is however argued that there was an application of a number of financial measures that were adopted to help mitigate the crisis caused the spillage of the crisis into the larger financial market and the economy in whole. Financial institutions that seek to make profit choose to make financial processes that were very complex. These complex processes was marked by features such as high borrowing, lack of enough analyses of risk and limited outcome regulation bet thus a collapse of assets (Woodrow Wilson School of Public and International Affairs, 2010).
The United States government has worked hard to avert the crisis and the effects it had brought to the economy. The legislative regulatory mechanisms have had to be formulated. These interventions have yielded results though some economists argue that this is subject to debate. The efforts include the interventions made by the central bank, direct injections into institutions of finance made by the government and huge fiscal stimulus packages made by the government (Freedman, 2010).
The ultimate focus of the congress was to make sure that there was smooth working of the finance market and promotion of the good living of the Americans while at the same time ensuring that the interests of the taxpayers are protected and facilitation of hazard free business climate (Freedman, 2010).
The early response policy of the United States government was to contain the contagion in an attempt to mitigate the recession. The most important pieces of law were a program known as ‘the troubled asset Relief Program”. This piece of legislation was driven toward the provision of support to institutions of finance. The second piece of legislation was the ‘American Recovery and Reinvestment Act’ that was formulated in 2009. Its major objective was to provide a stimulus to the ailing economy (United States, 2009).
In the month of June the year 2009, the Obama government put forward for regulating the financial system of the United States government. On 17th of June 2009, the treasury department presented the administration of President Obama with a financial regulatory reform proposal. The proposal focused on five key areas (Nakagawa, 2011).
The first focus of the proposal was provision of robust supervisory mechanisms and financial market regulation. Under this, various pieces of legislation and actions were put in place. These are the formation of a new Financial Service Oversight Council, composing of a newer Federal Reserve to oversee all institutions that could pose a risk to the financial market stability, stronger capital and prudent standards to govern all financial firms, appointing of a new National Bank Supervisor for supervision of all chartered federal banks, abolition of Federal Thrift Charter to seal gaps that enabled a number of depository institutions to avoid bank regulation by the Federal Reserve and registering of advisors for hedge funds (Nakagawa, 2011).
The proposal also sought for establishment of a comprehensive framework of supervising the financial markets. This was to be facilitated through thorough regularization of secularization markets, stronger regulation of all-over- the counter derives and the formation of a Federal Reserve that was to help in overseeing payment, clearance and the settlement systems (Nakagawa, 2011).
The other component of the proposal was the shielding of the investors and consumers from the abuse from the financial markets. A set of actions under this included the formation of a Consumer Protection Agency, stronger regulations to help in improving transparency and fairness of products and services of consumers and enablement of a level competition field and higher standards for those who provide financial services to consumers (Nakagawa, 2011).
The plan provided the government with tools to aid in the management of the finance crisis. Lastly, the plan focused on the raising of the regulatory standards at the international level and improvement of international cooperation in solving financial crises (Nakagawa, 2011).
Due to of the duty bestowed upon the federal government reserve that is fostering full employment and stability of prices; it had to respond to the crisis in an aggressive manner. The crisis gained momentum in the mid of 2007. As noted by the chairman of the Federal Reserve, the Federal Reserve had to lower the rate of federal funds for five and a quarter to a very low range of zero to a quarter percent. The FRF also made cuts in the primary lending rates to 50 basis points. The initial lending rate was at 100 basis points. To add to that, the reserve a tripartite action to aid in the provision of liquidity to the institutions of finance while at the same time the same time fostering the improvement of financial markets’ conditions (Tatom, 2011).
Before September of 2008, two pieces of law were passed to help to help eliminate the mortgage crisis and the resultant recession. The first one was the Economic Stimulus Act of 2008. This act was enacted on 13th February. The legislation was aimed at reactivating the economy and the reversal of downturn trend of the price of houses. Some economists have however disputed the stimulus package plan by arguing that it was not effective to the expenditure patterns of consumers. The second piece of legislation was enacted in July 2008. It was known as the Housing and Economic Recovery Act of 2008. It was aimed at easing the crisis in the housing sector. Though with gains, the act was criticized by the Federal Housing Association of having low uptake (Giannamore & Osach, 2009).
The financial crisis that was experience d in the United States began way back in 1990s. The major cause of the crisis was the loopholes in the housing sector which combined with other factors to bring about the problem. With the realities of financial crisis being felt from the mid 2008, the government of the United States has worked work hard and come up with several pieces of legislations and actions to help mitigate the crisis. Most of the pieces of legislation have been focused on regulating the financial markets because forces in the market combined to bring about economic downturn. This approach has made considerate gains that have helped to improve the economic situation though some economists still criticize the approach.

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