Introduction
Many economists consider the 2008 to 2009 economic and financial crisis to be the worst economic crisis since the 1930s Great Depression. Beginning in 2007, the crisis was also called the global financial crisis, occurring regardless of the many efforts to try and prevent it from the Federal Reserve and the Treasury Department. The price of housing decreased more than the prices during the Great Depression, with a decrease of 31.8 percent. The crisis led to increased unemployment rates, with the rate remaining at 9% even after the end of the crisis. Further, the crisis discouraged many workers and employees who in turn gave up looking for jobs. The first major sign of the crisis was the 2006 reduction in housing prices, where realtors thought that the housing market would remain sustainable. Banks in turn allowed homeowners to request for loans at 100% or a much higher value than the real value of their homes. Even though the 2008 economic and financial crisis had some achievements, there were many predictors of the crisis, some of which helps in analyzing the level of the current economic protection.
Predictors of the 2008 Economic and Financial Crisis
With the deep effects from the 2008 economic and financial crisis touching some parts of the world, early indicators could have helped prevent the crisis and the economy (Guina, 2018). The 2008 financial crisis was almost a perfect test of the indicator which later shocked many countries in the world exogenously. Even though the indicators were not 100% accurate, they had a significant value that was useful to the economy of the world.
With the house being the largest single asset owned by most people in the world, it accounts significantly in the overall individual net worth. Increase in the demand for housing is attributed to increased employment, and increased wages. A decrease in the economy on the other hand, leads to a lower rate of supply and a slower rate of home sales. The 2008 decrease in housing prices in the United States was one of the most crucial contributors to the global financial crisis. Another predictor of the global financial crisis was the 2008 ratio of market capitalization as compared to the GDP. Most investors claim that the market capitalization to gross domestic product ratio as the best measure of equity market valuations. The 2008 market was slightly overvalued, and was later corrected in 2009 as the crisis came to an end (Guina, 2018). Among the most observed financial indicators is employment. Jobless claims determine the strength of the economic workforce. Jobless claims in 2008 got to a low point before rapidly accelerating, a clear indicator of the crisis which later resulted.
Achievements and Pending Issues of the 2008 Financial Crisis
The 2008 to 2009 economic and financial crisis affected millions of people in the United States and the rest of the world. The long term effects of the 2008 financial crisis made a lot of people feel as if they were in a fight for a losing battle. Even though the labor market has not returned to its normal level, there has been a significant economic growth since the 2008 financial crisis (Amadeo, 2011). The 2010 summit in Toronto after the 2008 financial crisis, focused on fiscal consolidation so as to stabilize the ratios of foreign debts.
According to Amadeo (2011), the year 2009 saw a severe drop in the gross domestic product, where the United States GDP dropped by 2.6%, the United Kingdom dropped by 4.9%, and Germany dropped by 4.7%. The recovery of the economy was still pending even in 2010, as investment and public finances had deteriorated. However, the government’s net direct fiscal costs as it supports the financial system have been sustained at a modest level. The 2008 economic crisis is still impacting the fiscal balances indirectly even with the government’s fiscal costs. The debt of the government in the G-20 countries is still likely to increase. However, investors are concerned on these developments, and they have ventured into different countries with austerity programs, a factor that could lead to growth.
The Current Level of Economic and Financial Protection
Fannie Mae and Freddie Mac are still on the blame as legislators claim that they contributed to the entire economic crisis. However, Fannie and Freddie claim the solution is the privatization or closure of both agencies. Still, shutting down the two agencies would lead to the collapse of the housing market. This is attributed to the fact that the two agencies ensure 90% of the total mortgages. Moreover, the securitization sector has spread to more than just the housing sector. To this effect, the government must step into the matter to provide the necessary regulations. The Dodd-Frank Wall Street Reform Act which stops the banking system from engaging in excessive risks was passed by the Congress. With this Act, banks which grow too big and in turn fail are being reduced to smaller sizes by the Fed. Banks are currently growing too big and are pushing to the end of the regulation by this Act. As attributed by the 2008 event which proved that banks cannot regulate themselves, this could lead to another financial crisis (Amadeo, 2011). Government oversight can prevent another crisis.
Conclusion
The 2008 to 2009 economic and financial crisis was the world economic crisis that ever hit the world since the 1929 depression. Arising from the United States reduction in housing prices, the crisis affected a lot of countries across the world. There were various predictors for the 2008 to 2009 economic and financial crisis, which could have helped save the economy. The major predictor was the reduction in housing prices, where the banks gave high price mortgages that exceeded the value of the people’s housing. Other factors such as the 2008 job claims which rose rapidly, clearly indicated the 2008 financial crisis. There were significant achievements from the crisis, where reforms were made which accelerated the economy, thus leading to economic growth. There are certain issues still pending from the 2008 global financial crisis, impacting the fiscal balances and the government financial debts. If the government does not intervene and regulate the banking system, growth of banks could lead to another financial crisis.