Financial Crisis Research Paper Example | Topics and Well Written Essays - 500 words

Financial Crisis - Research Paper Example Researchers point to missteps by the government, starting from a loose-fitting economic policy and a deviation from the historical principles for putting interest rates in place (Taylor, 2008). Some experts believe that such a financial meltdown was bound to happen as a result of the unpreventable problems brought about by capitalism (Foster & Magdoff, 2009). Still, others blame the financial crisis to a domino effect caused by financial mismanagements in other parts of the world (Obstfield & Rogoff, 2009). At any rate, there is a general agreement that the financial crisis was caused and even prolonged by lapses in the economic policies set forth by the government (Taylor, 2008; Foster & Magdoff, 2009). History serves a lesson that was not well-learned from the time of the Great Depression. John Maynard Keynes, one of the foremost economic minds of history, argued that underemployment was inevitable in a capitalist economy as it results from a savings-and-investment mentality of market players (Foster & Magdoff, 2009). Despite these earlier warnings, the US government still championed the capitalist environment, employing free market at most levels of the economy. Unfortunately, such a scenario led to misdiagnosis of bank credit markets which consequently led to an inappropriate liquidity-focused rather than risk-focused response (Taylor, 2008). Moreover, the government further made a series of wrong decisions by raising real estate values, tightening credit qualifications and inequitable support to financial institutions (Obstfield & Rogoff, 2009). Undoubtedly, the financial crisis of the 2000’s affected not only the US but worldwide economies as well as it continued a chain reaction which started off around the 1980’s (Foster & Magdoff, 2009). The disastrous effect was felt in the whole country as businesses started to close and mass layoffs occurred. People were driven out of their homes and found it extremely