FINAL ASIGNMENT IN INTERMEDIATE MACROECONOMICS THE UNITED STATES FINANCAL CRISIS IN 2008

VIETNAM NATIONAL UNIVERSITY UNIVERSITY OF ECONOMIC & BUSINESS FINAL ASIGNMENT IN INTERMEDIATE MACROECONOMICS Course code: 202 INE20102-E TOPIC: THE UNITED STATES FINANCAL CRISIS IN 2008 Lecturer: Phan The Cong, Assoc, Prof Dr Student: Tran Thi Thu Trang ID student: 19051242 Class: QH-2019-E KTQT CLC Hanoi, July 2021 Introduction The financial system is one of the most important parts of the economy The existence of the financial system is an indispensable element of the market Even a small change in this system can turn into a big wave affecting both the economy of each country and the world economy Therefore, if a financial crisis occurs, the consequences will be huge and have extremely dangerous consequences for the global economy Entering the 21st century, the world economy is developing continuously, developed countries such as the US, Japan, and the EU region always achieve an increase in GDP and GNP The growth rate is always from 2% - 3% a year However, accompanying that development is the risk and danger of the financial crisis along with the inevitable recession of the economic development cycle after the years of maximum development With the seeds of the crisis in the past, 2007 marked a recession, starting the signs of crisis of the world economy Spending within a few months of the end of 2007 and the beginning of 2008, the whole world witnessed the shaking of the US financial system - which is considered the most powerful power in the world This is considered the most serious crisis to occur in the past 80 years Hundreds of billions have been dissipated, the contagion has spread and affected the whole world for many years Therefore, the essay will learn about “The United States financial crisis in 2008” with the hope that it can help people better understand the crisis with its causes and impacts on the global economy Thus, we will have a more detailed view of the crisis and from there will find out lessons as well as solutions to help the economy avoid the risks caused by the crisis Thereby, each country will find for itself appropriate policies to help overcome the crisis and develop its economy 1 Theory of Financial crisis Discussing the development of a country, economy plays an important role in evaluating their development after long a period of upheaval and long development, therefore it's undeniable that almost country have to experience economic fluctuations and crises when developing their country According to Market Business News, the definition for’’ economic crisis’’ is a situation in which a country’s economy deteriorates significantly during the crisis, GDP is typically declining, liquidity dries up, and property and stock market prices plummet It is an economic downturn that gets worse and worse Financial crisis occurs when financial markets crash caused by adverse selection and moral hazard become acute in financial markets, rendering these markets incapable of capital mobility efficiency from savers to potential investors The result was an economic downturn - Signs of the Financial Crisis:  Commercial banks failed to return depositors' deposits  Borrowers, including A-rated customers, were also unable to repay the bank's loans in full  The government abandoned the fixed exchange rate regime  Financial liberalization  Weaknesses in the financial system, especially domestic banks  Poor supervisory institutions - Types of financial crisis:  Banking crisis: When a series of customers want to withdraw their deposit to the bank before, the bank will have difficulty in lending The main source of loans of the bank is from customers' deposits Therefore, when a series of customers ask to withdraw their deposits, the bank is very likely to go bankrupt when the previous loan amount has not been recovered If this situation spreads, a crisis is likely to occur  Crisis in financial markets: Because some government policies and speculative bubbles lead to a crisis situation in the financial markets For example, when the state issues money to cover debts, or when people rush to buy certain financial goods to speculate  World financial crisis: Countries with strong currencies have their currencies devalued Or the inability of a certain country to repay its national debts will cause a widespread currency crisis  Financial crisis in economic groups: The crisis occurred in economic groups due to the following reasons: incorrect investment, failure to recover the invested capital, failure to pay the loan, being affected by the general crisis Overview of the economic crisis in the United States Let take a glance at the United States -a country with a developed economy, which account for roughly 20% global economy (according to Business Insider posted on 22.6.2019) and back to 2007-2009which marked an important milestone in the US economy, especially in 2008 when approximately 84,000 US workers losing their jobs each month from January to September According to Investopedia, the financial crisis began as usual with good intentions but after deal with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the September 11 terrorist attacks, the Federal Reserve lowered the federal funds rate from 6.5% in May 2000 to 1% in June 2003 in the purpose of boosting financial by creating the monetary available to the businesses and consumers at make a loan or debt from the bank The result was an upward in home prices because the debtor took advantage of the low mortgage rates Even subprime debtors who had lack of money or credit were able to perform the dream of buying a home The banks then sold those loans on to Wall Street banks, which packaged them into what was billed as low-risk financial instruments such as mortgage-backed securities and collateralized debt obligations (CDOs) Soon a big secondary market for originating and distributing subprime loans developed Fueling greater risk-taking among banks, the Securities and Exchange Commission (SEC) in October 2004 relaxed the net capital requirements for five investment banks—Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS) That freed them to leverage their initial investments by up to 30 times or even 40 times Causes of the economic crisis It’s can be said that the financial crisis in the US was from the collapse of Lehman Brothers bank on 15/09/2008 with the loan of roughly 619 billion USD has a stroke on both United States and worldwide financial According to the balance report, Lehman used a high-leverage business model that required it to raise billions of dollars every day to open After the world financial crisis in 1997, many people no longer had confidence in their country's banking system, they considered the US a country with a stable financial background, so in 2002-2006 when monetary was cheap, and interest rates are very low so people are encouraged to consume and easy to get credit Therefore, people were excited to borrow money to buy a house This phenomenon led to the housing credit crisis Some semi-public banks in the real estate industry boldly lend money to make a profit, as is the case of two semi-public banks Fanny Mae and Freddie Mac In mid-2006, when the US Federal Reserve Bank (FED) raised interest rates to hedge against inflation The investment bubble, real estate speculation began to burst because many people borrowed money beyond their means, now could not pay their debts and their houses were foreclosed on Only then did people discover that, among the debt packages in circulation, there were many "bad debts" it had invested heavily in high-risk real estate and subprime mortgages When these markets turned worse, Lehman couldn’t raise enough cash to stay in business For more details according to the Financial News of BBC reports in October 2008:  On 16/3/2008, Fed accepted JPMorgan Chase a loan of 30 billion dollars to acquire Bear Stearns  On 7/9/ 2008, the United States government took over banks named Freddie Mac and Fannie Mae  Then in 15/9 Lehman brothers applied for bankruptcy with a loan roughly of 619 billion dollars, Bank of America accepted to repurchase Merrill Lynch with over 50 billion dollars  Finally, on Sept 16, 2008, the Reserve Primary money market fund "broke the buck." That meant its shares, normally worth at least $1, were only worth $0.97.10 Investors lost confidence in the money market fund when it announced losses of $785 million in Lehman’s commercial paper  On Sept 18, 2008, Paulson and Bernanke met with congressional leaders to explain that credit markets were only a few days away from a meltdown They asked for $700 billion to bail out the banks, which would allow the Treasury Department to buy shares of troubled banks; It was the fastest way to inject capital into the frozen financial system Therefore, from the bankrupt of Lehman Brothers, the finance of the US getting worse and worse therefore the economy begun a crisis Moreover, the financial crisis started from indirect and direct reason: After the collapse of the Lehman Brothers bank, the US economy entered a difficult time The first factor started in 2001 Inflation slowed down and interest rates fell, especially after the 9/11 terrorist attacks But the current financial crisis also begins here That was the time when the Fed pumped money into the US economy and gradually reduced the basic interest rate from 3.5% a year in August 2001 to 1% in mid-2003.Monetary easing has generally made it easier to borrow money from banks and lower costs for the entire economy, but it has also devalued the currency and led to inflation Moreover, the Fed has kept interest rates so low for too long The second factor is that low-interest loans stimulate home buying In 2006-2007, commercial and investment banks eased home loans for less reliable borrowers The Fed did not control these "doubleedged sword"-like realities As a result, anyone can get a home loan, even if they are least able and even unable to repay the loan Low- interest rates caused many people to rush to buy houses, blowing up the real estate "bubble" Rising house prices made banks feel safe to give money to those who could not pay their loans because banks assumed that, if borrowers defaulted, they would foreclose on their homes for their value pushed higher Things went fine as long as house prices kept going up, but once home prices peaked and started to fall, lending conditions tightened, and banks suddenly found themselves owning homes whose value is not enough to cover the value of the loan The third factor is the answer to the question of why a powerful financial system is in trouble when real estate credits (formed by home loans) in the financial market the US itself is only about 500 billion USD - a small number compared to the capacity of the market? To answer the above question, many economists analyze: First of all, we have to start explaining leverage in the business When the business is profitable, anyone can think of borrowing more money to develop the operation This is called the leverage effect of borrowed money But when borrowing, there must be something as collateral In the U.S financial system, this security is often a package of debt or a note that stipulates that an asset will become liquid, cash, at maturity Imagine that the debt package is a "cocoon" with many layers, inside containing many types of real estate credit debt The real estate finance company took a commission from the customer after taking the note, they sold the deed to another financial group This consortium gathers those debentures into packages like a cocoon, inside there are all kinds of bad and good and uses them as collateral to borrow more money to continue doing business in other fields Banks and financial investment complexes have exchanged these "rotten cocoons" in tangled relationships like silk without being able to know exactly how bad and good inside The bank's balance sheets were filled with mortgages, encircled in complex forms that made risk assessment extremely difficult Firms that specialize in asset valuations are also dubious and are bullish on valuations When home prices peak, loans slow down and home prices start to fall The housing "bubble" burst in the last months of 2007 and banks with large mortgages were forced to publish reports of huge losses After seeing the true value of the property they hold, no one wants to embrace those "rotten cocoons" anymore The real estate credit crisis that led to the crisis of the debt market is the bond market As a result, illiquid banks or financial institutions fall into a situation known as a technical default - having assets that can't be converted to cash because they're outstanding In addition to the panic of the people, because they are afraid that the bank will default, their deposit will be lost, so they pull together to withdraw money, leading to bank bankruptcy as in the case of Bear Stearns- the firstclass bank in US financial market The Fed's easing monetary policy, which began late last year to avoid an economic slowdown, has now caused inflation, not helping the US economy recover Oil, food, and gold prices rose to historic highs and the dollar also depreciated to unprecedented levels Many analysts believe that if the monetary policy continues to accelerate, it will not be able to prevent the risk of collapse, but will also create a situation of inflation and economic decline Impacts 4.1 Financial impacts The biggest and heaviest consequence is to destroy the productive forces and push back the development of the world economy First of all, for the United States In the United States, the financial crisis turned into an economic crisis, production declined, unemployment increased, thus being considered a "3 in 1" crisis The crisis bankrupted a series of banks and financial companies, including leading banks and financial companies in the United States Bear Stearns - one of the leading securities brokerages and investment banking groups on Wall Street, has been operating for 85 years in the US financial market, suffered heavy losses when the housing market fell, on March 16 2008 declared bankruptcy, was bought by Morgan Chase for $2 a share Lehman Brothers, the fourth-largest investment bank on Wall Street with 158 years of operation, on September 15 2008 had to file for bankruptcy protection due to losses, total debt amounting to $ 768 billion Bankruptcy losses also occurred with a series of other large banks and financial companies such as Indy Mac Bancorp Inc, Freddie Mac, and Fannie Mae, Merrill Lynch & Co, City Group, National Bank of Commerce, Bank of Clark Country 4.2 stock impacts The US stock market wobbled, many stocks fell dramatically Before the bankruptcy, shares of Lehman Brother bank fell 94%, shares of Freddie and Fannie fell 90%; from the beginning of 2008 to March 2009, AIG's shares fell 79%; shares of City Group, Bank of America, Goldman Sachs fell more than 60%, etc All four important indexes of the US stock market, namely the Dow Jones, S&P 500, Nasdaq, and FTSE indexes all fell seriously, a dramatic decline The sharpest decline since the 1930s Production and consumption in the US also fell into a very difficult situation The auto industry, one of the most important manufacturing sectors in the U.S economy, saw sales plummet The top three American automakers, General Motors, Ford, and Chrysler, all suffered heavy losses In January 2008, Nortel Networks Corp, one of the largest telecommunications equipment corporations in the US, in February 2008, Lyondell Chemical, one of the largest chemical manufacturers in the US, had to file the insurance claim After the financial crisis, the agencies had to change their policies after the economic recovery Because large corporations are affected, they have to change their policies on employees, human resources and reduce production output to limit losses Since then, the problem of unemployment has become a concern 4.3 Unemployed According to the report of the US Department of Labor, unemployed workers are mainly concentrated in the service sector, accounting for 80% of the labor force, with 273 thousand people, followed by the manufacturing and manufacturing sectors (149 thousand people) due to the bad impact of the automobile manufacturing industry, the construction industry (101 thousand people), the retail sector (67 thousand people) Some fortunate people were not fired, but their working hours were reduced In December 2008, the average number of hours worked per week for American workers fell 0.2 hours to 33.3 hours, the lowest level since the index was introduced in 1964 The rapid increase of Unemployment in this country has surprised many economists In fact, the unemployment rate in 2008 was 0.2% higher than economists predicted Unemployment increased due to the economic recession, on the contrary, the unemployment rate also created a negative impact on the US economy According to the financial report, the economic recession and a serious decline in consumption caused a series of large US retail companies such as Circuit City Store Inc, Sharper Image Corp, Steve & Barry's LLC, Macy Inc, Ann Taylor Stores Inc … go bankrupt or file for bankruptcy protection Production stagnation, layoffs caused the unemployment rate in the US to increase month by month and reach a 25-year high, from 2.59 million people in 2007 to 3.84 million people in 2008 and 4.61 million people 2008 in February 2009 From the US, the crisis has shaken the financial market, the stock market, bankrupted many banks, financial companies, many large economic groups in many countries around the world, causing financial services to decline seriously reduced international trade, financial and investment relations, and the world economy in general Royal Bank (Scotland), Kaupthing, Landsbanki, Glitnir (Iceland), Northern Bank, mortgage lender Bradford & Bingley (UK), IKB Bank, DZ Bank, Deutsche Bank, Saxony LB (Germany), Yamato Life Insurance Co (Japan)… and many other banks were victims of the US financial crisis, forced to seek help from the government or nationalized by the government Research by the Asian Development Bank (ADB) shows that in 2008, the global economic crisis cost the world's total financial assets a loss of 50 trillion USD, of which developing countries in Asia were hit the hardest with total losses amounting to $9.6 trillion, which is higher than the total GDP in a year for these countries Although only more than 20 countries have officially declared themselves in recession, the reality is that most countries in the world are affected, experiencing difficulties and slowing growth to varying degrees According to a forecast of the World Bank (WB), in 2009, the world economy will grow by only 0.9%, the growth rate of OECD countries is -0.3% (in which, the US is - 9%, euro area - 0.6%), the growth rate of emerging and developing economies is only 4.5%… World economic forecast of the International Monetary Fund, Organization for Economic Co-operation and Development (OECD), Citi Group, or Reuters also had a similar downward trend Another consequence of the current global financial crisis and recession is the bankruptcy of the liberalizing economic policy that the United States has carried out for many years and wants to impose on the world After the crisis, in the US and around the world, the economic policies of governments will be more balanced between market regulation and state regulation; the state's economic intervention and regulation in the economy will be more; The State's supervision over business activities of enterprises, especially the financial system, banking, and the stock market will be stricter than at present From there we can see, the financial crisis caused the US to have heavy economic and employment consequences thereby posing challenges, forcing the US to seriously change its policies 4.4 The capital impacts According to the financial report, the economic recession and a serious decline in consumption caused a series of large US retail companies such as Circuit City Store Inc, Sharper Image Corp, Steve & Barry's LLC, Macy Inc, Ann Taylor Stores Inc … go bankrupt or file for bankruptcy protection Production stagnation, layoffs caused the unemployment rate in the US to increase month by month and reach a 25-year high, from 2.59 million people in 2007 to 3.84 million people in 2008 and 4.61 million people 2008 in February 2009 From the US, the crisis has shaken the financial market, the stock market, bankrupted many banks, financial companies, many large economic groups in many countries around the world, causing financial services to decline seriously reduced international trade, financial and investment relations, and the world economy in general Royal Bank (Scotland), Kaupthing, Landsbanki, Glitnir (Iceland), Northern Bank, mortgage lender Bradford & Bingley (UK), IKB Bank, DZ Bank, Deutsche Bank, Saxony LB (Germany), Yamato Life Insurance Co (Japan)… and many other banks were victims of the US financial crisis, forced to seek help from the government or nationalized by the government Research by the Asian Development Bank (ADB) shows that in 2008, the global economic crisis cost the world's total financial assets a loss of 50 trillion USD, of which developing countries in Asia were hit the hardest with total losses amounting to $9.6 trillion, which is higher than the total GDP in a year for these countries Although only more than 20 countries have officially declared themselves in recession, the reality is that most countries in the world are affected, experiencing difficulties and slowing growth to varying degrees According to a forecast of the World Bank (WB), in 2009, the world economy will grow by only 0.9%, the growth rate of OECD countries is -0.3% (in which, the US is - 9%, euro area - 0.6%), the growth rate of emerging and developing economies is only 4.5%… World economic forecast of the International Monetary Fund, Organization for Economic Co-operation and Development (OECD), Citi Group, or Reuters also had a similar downward trend Another consequence of the current global financial crisis and recession is the bankruptcy of the liberalizing economic policy that the United States has carried out for many years and wants to impose on the world After the crisis, in the US and around the world, the economic policies of governments will be more balanced between market regulation and state regulation; the state's economic intervention and regulation in the economy will be more; The State's supervision over business activities of enterprises, especially the financial system, banking, and the stock market will be stricter than at present From there we can see, the financial crisis caused the US to have heavy economic and employment consequences Thereby posing challenges, forcing the US to seriously change its policies Government’s policies After the economic and housing crisis, the United States economy shrank significantly by a negative 0.3% in the third quarter of 2008 Consumer spending contributed two-thirds of economic growth in the US The United States shrank by the most since 1980 The federal budget deficit in fiscal 2008 rose to a record $454.8 billion, more than three times the deficit of $161.5 billion in fiscal 2007, mainly due to a sharp increase in defense spending, especially for the two wars in Iraq and Afghanistan The federal budget deficit for the fiscal year 2009 is forecast to reach $1 trillion According to the US Department of Labor, the current unemployment rate in the country is 6.5%, the highest in 14 years According to forecasts, the US economy will continue to decline in 2009, the unemployment rate may rise to 8%, while reserves and real estate values drop sharply, the confidence index of the American people decreases, down to a record level 5.1 the policies To get out of the financial crisis, the G Bush administration launched a $700 billion bailout program that Congress passed after many revisions The US Treasury Department plans to sell bonds worth a total of 55 billion USD, including 3-year bonds to meet the massive borrowing needs of banks In the immediate future, it is necessary to approve a new $61 billion relief package for the unemployment insurance program to improve living conditions for the poor Deeper and deeper into the crisis, but until the end of 2008, the US has not agreed on how to use the financial bailout worth 700 billion USD While the Bush administration wants to save the banks, Congress wants to save families from foreclosure, President-elect B Obama wants to save the auto industry first from the brink of bankruptcy with a bailout 25 billion dollars From the US economic crisis in 2008, not only the US auto industry was affected (Total losses of GM, Ford, and Chrysler corporations amounted to 28.6 billion USD in the first six months of this year) but the US auto industry was also affected the Auto industry in countries such as Toyota (Japan) also reduced profits by 39% Not only that, in autoproducing countries like that, it also decreased by about 66.8% Automakers have asked the government for help GM, Ford, and Chrysler have asked for $34 billion On December 10, the US House of Representatives passed a bill to restructure and finance the auto industry worth $ 14 billion According to House Speaker Nancy Pelosi, the passage of the bill will create momentum for the auto industry as well as the US economy to recover However, on December 11, the US Senate voted against the plan to rescue the country's auto industry This is a blow to the leading car companies in the US, which are running out of cash after a long time of trying to call for help The European auto industry hopes to borrow about 40 billion euros to improve the situation, but according to the latest news, they will only be granted billion euros The US government has outlined how to improve the banking system, combat the lack of transparency in financial markets and improve financial regulations, proposing to create a supervisory team to supervise 30 banks After a rescue plan worth up to $ 700 billion, the latest step in a series of tests to support the US Government is the plan of the Department of Finance, the Fed, and the US Federal Deposit Protection Corporation 24-11 to support Citigroup, a financial group that failed to recover from the crash, can give the economic foundation as well as the wobbly financial system of the US The plan includes buying $20 billion worth of Citigroup shares as well as insuring hundreds of billions of dollars in asset risk The plan includes buying $20 billion worth of Citigroup shares as well as insuring hundreds of billions of dollars worth of risky assets According to FED Chairman Ben Bernanke, the FED will probably announce a reduction of the basic interest rate by at least 0.5 percentage points, from the current 1% (the eighth rate cut in 2008) On December 4, the European Central Bank (ECB) decided to cut the key lending rate by 75 percentage points, to 2.5% The Bank of England (BoE) announced a 100-point (1%) cut in the prime lending rate, to 2%, the lowest level since 1939 The central banks of Canada, Sweden, and Switzerland has taken similar steps: The Swiss Central Bank (SNB) unexpectedly announced a reduction in interest rates to 1% - a record reduction for this bank Sweden's Riksbank decreased from 4.75% to 4.25% After bailing out several banks on the brink of bankruptcy to avoid the knock-on effect, governments have revised current regulations and raised deposit insurance levels to protect their interests depositors, preventing the risk of a mass withdrawal of people's deposits at financial institutions In addition, central banks of other countries have cut interest rates, reduced the required reserve ratio, and even injected hundreds of billions of dollars into the financial-banking system On the other hand, after offering a rescue package of 700 billion USD two months ago, the US also intends to provide 150 billion USD into the financial system So how did the US use these bailout packages?  October 14, 2008: The US government uses 250 billion USD in 700 billion packages to buy back shares of some important banks  November 9, 2008: Insurance giant AIG has more financial support from the US Government, bringing the total amount of relief to $ 150 billion  November 12, 2008: Authorities abandoned a plan to use part of the $ 700 billion to buy back bad loans of banks Instead, it will focus on buying shares of troubled lenders - November 25, 2008: A new solution package with a total amount of up to 800 billion USD is announced In general, we can see, the US solves the economic crisis starting with the relief of the headquarters, the auto industry, and the big banks that influence on the United States and the world  January 13, 2009: US President-elect B Obama asked the National Assembly of this country to disburse another $350 billion in the Troubled Asset Relief Program (TARP) worth 700 billion to help the United States cope with deal with the financial crisis  January 15, 2009: The US Senate voted to allow the government to further disburse $350 billion in economic stimulus with a vote-to-vote ratio of 52/42 The other half of the $700 billion economic stimulus package has been approved to buy back struggling assets in the US  Early February 2009: U.S Treasury Secretary Timothy Geithner unveiled a comprehensive bank bailout plan worth at least $1.5 billion with the goals of reviving credit markets and strengthening credit stock banks and actively support homeowners and small businesses; and with this implementation is the adoption of new and higher standards of transparency and accountability 10 It can be seen that the US has applied an expansionary fiscal policy, combined with an expansionary monetary policy when the economy is in crisis to shift the aggregate demand curve through government spending and funding banks to stimulate private investment activities Expansionary fiscal policy under floating exchange rate system of US  Initially the US economy is at equilibrium A The US government conducts expansionary fiscal policy (G↑) The IS curve shifts to the right The economy reaches the internal balance at B R2 > r1: interest rate increases → CI increases → demand for domestic currency increases.  Y2 > Y1 : income increases → import increases → supply of domestic currency increases  Foreign exchange market: Supply of domestic currency: Sdc = M + CO Demand for domestic currency: Ddc = X + CI Expansionary monetary policy under floating exchange rate system of US 11 When the government uses expansionary monetary policy by increasing the money supply, the LM1 curve shifts right to LM2, the economy is in equilibrium at B, output increases from Y1 to Y2, the domestic interest rate falls from r1 to r2 so the exchange rate tends to increase An increase in the exchange rate means that the domestic currency depreciates, thereby increasing net exports Thus, the amount of net foreign currency inflow increases, the IS1 and BP1 curves shift to the right to IS2 and BP2, the new equilibrium point is C Therefore, in the short run, monetary policy has a strong effect in the rate mechanism floating price 5.2 Results of the policies After proposing a plan to rescue the government, banks, corporations, the auto industry in general, everything affects the country's economy with a support package roughly 800 billion USD, so what difficulties the United States had to deal with? It is undeniable that there were difficulties and disagreements on the part of the government during the discussion on the allocation of subsidies: Firstly, the presidential candidates are having a battle around economic policy, focusing on two issues: energy prices and taxes Senator McCain- the Republican candidate, caused a stir when he propagandized for a temporary moratorium on the federal gasoline tax for the summer because he wanted to develop nuclear power, exploit more oil in the continental shelf of the US Meanwhile, the Democratic nominee, Obama wants to be closer to cleaner energy, levy special taxes on oil companies and invest $50 billion in "energy independence." Senator Obama and many Democrats in Congress want an additional up to $50 billion, besides $168 billion package already in effect in order to help people escape the risk of losing their homes Mr Obama wants to abolish "tax relief for the rich" of G Bush government law and decrease the tax to the "middle class" whose income nearly $250000 However, Mr McCain reversed his previous position, he wanted decrease tax for the rich, which he said would help small businesses and create more jobs Therefore, he attacked the 12 ''swine'' politics, a game played by congressmen to take money from the people to benefit their constituencies On the other hand, Mr Obama emphasized that the government should encourages people to sign up for private health insurance and pension benefits instead of depending on the government Nevertheless, he has also suffered pressure from within the party because they want him to solve the lack of medical care, pressure from unions that want him to work hard to protect American jobs Furthermore, he suggested that expanding health care to all children could cost at least $100 billion a year But many entrepreneurs also concerned that he supports the renegotiation to include more provisions recognizing workers' rights Finally, Senator McCain also have to satisfy two opposite factions, many traditional Republicans believe in small government, low taxes, and a balanced budget But the incumbent Republican government has increased the living standard, especially on defense, and decrease taxes so many Republican businessmen resent the argument that uninformed homebuyers should also be supplied However, the rest of Democratic believe that the big banks and irresponsible shareholders during the crisis should be abolished rather than saved by the Treasury Department From all of the polices did by the government we can see, the shortcoming that the US government faced in the process of bailing out the economy in 2008 is the disagreement of government employees and the president when it has to fully meet the needs social security, health, employment and economic demand etc., of the residents 5.3 Suggestion for the government After the policies proposed by the US government to restore the economy, we can see some good progress next year as follows: According to IMF, the US economy is unlikely to recover before 2010 One of the main reasons for the slow recovery of the world's leading economy is that consumers tend to save money instead of spending According to economists, consumer spending accounts for nearly 70% of the value of the US economy Therefore, as the proportion of consumer spending put into saving increases, the rate of economic development will slow down Some economists believe that the scope of the financial crisis is deepening, so they call on the government to come up with a second economic stimulus package, after the 787 billion economic rescue packages USD was approved last February However, the plan was encountered with fierce opposition from Republican congressmen They think that the increase in the unemployment rate proves that the first economic stimulus package has failed Last June, employers had to cut 467 thousand workers, one of the reasons that pushed the unemployment rate to 9.5%, the highest level in nearly 26 years Congressman McConnell, the minority leader in the Senate, thinks the idea of a second stimulus package is worse than the first 13 In conclusion, despite using a large amount of capital, the US still faces difficulties when it comes to recovering its economy in restoring the auto industry, increasing jobs for the unemployed Although it is not possible to restore the economy and develop immediately, the US has partly prevented the failure of big banks as well as housing problems 14 Conclusions After the currency crisis, the stock market in the US as well as in Europe, Asia, and Southeast Asia have to lend themselves to enormous effects At that time, the governments of other countries also announced to lower the economic growth target in 2009 Monetary tightening and slowing global demand dampen consumer and investor confidence, which harms the region's manufacturing and exports sectors In general, the negative effects on the countries that suffer are the rapid acceleration due to economic recovery, low employment, up or down prices such as housing, monetary The echoes of the 2008-2009 global financial crisis are still there and through that, countries need to learn lessons for themselves The first lesson to be learned is that each country's economy must ensure macroeconomic stability, which is a prerequisite for mitigating the impact of the crisis In addition, countries need to have strong financial institutions that cannot be compromised for any reason Moreover, it is necessary to develop a sound monetary-financial policy framework The fact that governments store large foreign currency reserves is not beneficial to the operation of the financial system and the global economy This only helps to limit, but not guarantee, a country can stand firm in crisis, when international trade declines, import prices rise sharply and investment capital is withdrawn Instead, countries need to insure themselves against crises by building a sound economic-financial policy framework In the world, there are currently some signs showing the risk of a new financial and monetary crisis if countries not take timely preventive and preventive measures 15 Reference: Asian Development Bank Report: Global economic crisis and emerging economies: negative effects and losses (March 2009) Austin Murphy (2008), An Analysis of The Financial Crisis of 2008: Causes and Solution, Small Business Administration – SBS Publication, USD Financial Times: "US consumer prices slide 1.7%" December 17, 2008 Michel Beaud and Gilles Dostaler (2008), Economic thought from Keynes, Tri Publishing House, Hanoi The 2007–2008 Financial Crisis in Review (2021, January 11) https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp 16 Investopedia  ... worse and worse Financial crisis occurs when financial markets crash caused by adverse selection and moral hazard become acute in financial markets, rendering these markets incapable of capital... withdraw money, leading to bank bankruptcy as in the case of Bear Stearns- the firstclass bank in US financial market The Fed''s easing monetary policy, which began late last year to avoid an economic... that stipulates that an asset will become liquid, cash, at maturity Imagine that the debt package is a "cocoon" with many layers, inside containing many types of real estate credit debt The real