This paper briefly analyses the cause of recent US financial problems and recommends certain solutions for that.
The major reason for the current financial crisis in America is the credit policies of the Federal Reserve. They have made the credit cheaper and loan seekers like the home buyers took advantage of the easy credit and the bid up prices of the homes increased drastically. Financial institutions were ready to pay any amounts to the loan seekers as a result of the policies of the Congress and Federal Reserve. Congress continued its support for mortgage tax deduction which encouraged the home buyers to purchase expensive houses beyond their financial capabilities. Real estate agents took advantage of the favorable housing market conditions and they encouraged the home buyers to buy expensive houses in order to get more commissions.
Wall Street firms paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS) and the Bush administration failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market (Wall Streets Role in the U.S. Mortgage Crisis Examined, 2008). In short, lack of control over the financial institutions was a major cause of the recent financial crisis. Everybody tried to catch the fish in the muddy water and nobody thought that the American economic bubble may burst in the near future.
In short, lack of governmental control and the visionless policies caused the current financial crisis in America. Globalization and liberalization policies also contributed heavily to the current crisis. The huge expenditure made for war on terror and that for the recent gulf war put immense financial burden upon the common public.
Tight control over the financial sector is the most important strategy the US government should take to avoid future financial