Lessons from the 2007 financial crisis for U.S. market reform

U.S. Financial Market -- Lessons from the Economic Crisis

2007 saw the commencement of a great economic depression. Emerged in the American real estate sector, the financial burdens soon took over rest of the American sectors, as well as most of the global regions. Yet, the good that came out of the crash was the realization of several mistakes which should not be repeated. In this order of ideas, the main recommendations for the players in the financial markets, based on the challenges posed by the current crisis, are as follows:

Reduced access to loan

This does not mean that people's access to funds necessary for development should be constrained, but that better assessments ought to be conducted. This virtually means that banks and other financial institutions should first verify the ability of the credit solicitors to reimburse their principal and the adjacent interest rate. They should require more documentation from the employer of the solicitant and information on any previous credits he might have contracted. While such a measure would increase bureaucracy and would as such trigger customer and employee dissatisfaction, it would also ensure that the sub-prime mortgage situation is not relieved.

3. Avoid over-inflation of prices

The root cause of the sub-prime mortgages was the necessity for people to buy houses at unrealistically high prices. As a future recommendation then, better controls should be instated not only within financial markets, but within all sectors. The scope of these controls would be that of ensuring that the retail prices implemented, within the real estate sector as well as in any other industries and sectors, are realistic and pegged to the true costs.

4. Recognition of mistakes (or their possibility) and acceptance of the role of others

The United States perceives itself as the most powerful and developed nation, which it is, but we do seem overzealous at times and do not accept the possibility of being wrong. Yet, as this crisis has shown, we are not invincible. So another lesson is that of learning from the mistakes.

Additionally, in these times of strengthening forces of globalization, it is necessary to accept and embrace the role and aid from other countries or international institutions. The International Monetary Fund for instance should have sufficient resources -- all financial as well as know-how, technologies, expertise and so on -- to help a country cope with more challenging times (Truman, 2009).

References:

Batson, a., April 2, 2009, China Housing Market Shows Signs of Life, the Wall Street Journal

Makin, J.H., 2009, Three Lessons from the Financial Crisis, American Enterprise Institute for Public Research, http://www.aei.org/outlook/100067 last accessed on March 1, 2010

Truman, E.M., 2009, the Global Financial Crisis: Lessons Learned and Challenged for Developing Countries, Peterson Institute for International Economics, http://www.iie.com/publications/papers/paper.cfm?ResearchID=1240 last accessed on March 1, 2010