QUESTION NO. 1: To what extent do you think that the Financial Crisis was caused by bad policies in the past?
If we look up at the causes of the financial crisis of 2008, some different causes show up. The shortcomings, took place in the private and public sector, both including the excessive debt, inability of the banks to monitor their risk, depending on short-term loans, extreme use of financial instruments, and gaps in the regulatory structure. If we trace down these issues, then we can know that the main reason behind all these causes were the federal policies. Most of the federal policies at that time were designed in a way that it would boost home mortgages. Most of the policymakers have been given the image that the reason behind the financial crisis of 2008 was the greed of the private sector. But it can be analyzed that the real reason behind this meltdown was the government policies that were focused on affording housing goals. Fannie Mae was created by Congress and to take up the place of S&L, and it was one main reason behind the crisis.
QUESTION NO. 2: To what extent do you believe that such crises are simply inherent in market-based economies?
It can be said that one reason behind the crisis was because of the market-based economy of the USA. Market-based economies lead to distorted priorities in investments. It is what happened in financial crisis 2008 as well, the whole of the public and private sector was focused on investing in places that would generate more profits for them, and this resulted in the form of a financial crisis.
Market-based economies create a gap between the capitalists and financial economies. This gap is created because in market-based economies the government intervention in the economy is reduced.
QUESTION NO. 3: Did government policy help us get out to the crisis?
There are some acts that were implemented by the government in the result of the financial crisis of 2008 that saved us from a bigger disaster. These acts include The Troubled Asset Relief Program that saved the financial system of the USA on the verge of failure. Secondly, The American Recovery and Reinvestment Act of 2009, this act further helped the economy to become stable and saved it from facing a second great depression of this era. Lastly, Tax Relief, Job Creation Act, and Unemployment Insurance and Reauthorization Act fully recovered back the economy of the USA.
The Troubled Asset Relief Program gave the government of USA access to seven hundred billion dollars to save the financial system. Almost half of this money was initially used by the government to inject the private sector banks, to make sure that the financial system would not fall apart.
QUESTION NO. 4: Did government policy responses cause problems of their own?
The Dodd-Frank Act that was created in response to the financial crisis of 2008 has now become the cause of legal uncertainty in the USA. Most of the part of the Dodd-Frank Act only creates a general outline. The key issues are not addressed in the act and are left to be settled by the regulations. The Act itself requires over 240 new rules to implement it. In the upcoming chapter of financial reforms, the regulators are going to face an extreme period for decision making. Even if the act is adopted by the government, then there are some issues left that need to be addressed. One issue is that the act does not cover the financial instabilities that are happening around the world and there is no guarantee that the act would be able to stop another financial crisis.
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