The 2008 Financial Crisis is known as one of the worst recessions in the American economy. The domestic meltdown turned into one of the most devastating world economic crises. It also led to the lack of trust in the government and gave rise to populism in politics (“Panic: The Untold Story of the 2008 Financial Crisis”). The current essay describes the causes of the Financial Crisis of 2008 and the solutions suggested by the Keynesian school of thought.
The starting point for the 2008 Financial Crisis was the appearance of the mortgage crisis. According to “Panic: The Untold Story of the 2008 Financial Crisis”, the crisis was caused by unconscious mortgage lending. In turn, this facilitated the creation of the housing bubble that finally burst, causing the Wall Street crisis that grew into a national and later the global one (“Panic: The Untold Story of the 2008 Financial Crisis”). Two years before the crisis, the housing prices went down, and the banks gave loans to too many people. Finally, this caused a high level of non-payments because of which banks lost their liquidity. Such an event became possible due to the securitization and deregulation of the American economy.
Keynesian school of thought argues that government intervention in economics makes sense if the goal is to reduce unemployment and stabilize prices (Jahan et al. 53). This way, it could be suggested that the crisis of 2008 could be prevented if the government intervened in economic affairs instead of deregulation. Besides, Keynes emphasized the necessity to avoid deficits and surpluses in trade. This practice could be recommended to use by the government to deal with the outcomes of the crisis (Bateman et al. 225). Additionally, the Keynesian school suggests using fiscal stimulus as a measure that would facilitate the resolution of the crisis. Already by the end of 2008, this recommendation was used by the leading 20 economies in the world to cope with the consequences of the crisis and stabilize domestic economies (Giles et al.). Thus, it could be observed that the views propped by Keynesians appeared to be useful and led to the revival of the school.
Works Cited
Bateman, Bradley W., et al. The return to Keynes. Harvard University Press, 2010.
Giles, Chris, et al. “The undeniable shift to Keynes.” The Financial Times, vol. 29, no.12, 2008, Web.
Jahan, Sarwat et al. “What is Keynesian Economics?” Finance and Development, vol. 51, no. 3, 2014, pp. 53-54.
“Panic: The Untold Story of the 2008 Financial Crisis.” YouTube, uploaded by HBO, Web.