The world now confronts a global economic downturn and it is critically important that we learn the right lessons from the experience. At this point, two things are clear. First, government regulation and improper monetary policy were major contributing factors to the crisis.Imprudent lending practices, highly leveraged financial institutions, imprudent relations between bond dealers and risk-rating agencies, and high-pressure marketing all played a role.
Moreover, global financial markets quickly spread the risky mortgage-backed securities throughout the world. But the foundation of the crisis was provided by government regulations and the policies of the central
banks that mandated the risky loans and supplied the massive credit that created the boom and bust in the housing industry. Furthermore, the key players in the United States, including the two huge government-sponsored lenders, Fannie Mae and Freddie Mac, were doing what their regulators wanted them to do: extending more and larger loans with lower down payments to households with low and moderate incomes.
Second, the opponents of economic freedom are blaming the crisis on the operation of markets and hoping to use it as an excuse for a vast expansion in government.Their success is dependent on what we learn from the experience.
Tags: Economic, financial, Marketing, markets, mortgage, regulation