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Regarding the Subprime Mortgage Crisis that created the Great Recession of 2008, Examine prior government policies...

Regarding the Subprime Mortgage Crisis that created the Great Recession of 2008, Examine prior government policies and legislation that might have exacerbated the impact of the shocks. Also, discuss government actions/regulations that might be undertaken, and/or have been undertaken, to moderate the effects of extreme economic fluctuations. Thank you.

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Answer #1

Sub prime loan was one of the many reasons responsible for economic crisis of 2008. Government policies related to regulation was another reasons for economic recession. for example, government relaxed few clauses of Glass-Steagall Act and banks got involved in risky activities and massively invested in stock market and derivatives, since now stock market investment and normal banking operations were integrated by new norms and legislation.

Government could have averted crisis had it tighten the financial rules and regulations. Further, Federal Reserve should have timely reduced the discount rate. These policies most probably would have reduced the severity of crisis.

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