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Market crisis
The 2008 market crisis that led to the loss of $16.4 trillion American households and wipes out $2 million American retirement savings was a tribute to various causes. However, one significant factor had the greatest contribution to this market crisis. A speculative bubble caused the crisis. The speculation was over real estate. The statistics about home prices indicates that home process went up from 1996 to 2006. An example is the Robert Shiller home price index that increased from 87.0 to 160.6 showing a growth of 65 percent. In 2006, the prices were at its peak. When the bubble busted, the prices went down drastically.
The bursting of the bubble in the market prices can be traced to various reasons. The effects of the post-dotcom crash in 2000. The effects of the crash were adverse since investors deserted the technology industry and moved to real estate industry. In their judgment, real estate sector was the best alternative. There were low-interest rates set by the federal reserves in the 1990s and 2000s. This provided big incentives for buying. Lending standards were also relaxed so people could borrow easily.
The federal government took various measures to correct the situation. One such factor was the development of central bank monetary policies. These policies sought to revise the lending regulations. Stringent lending rules were introduced for banks in the finance sector. The loan rates were also increased so that few people could be able to borrow from banks. The government adopted a financial rescue plan to salvage the financial market. $ 800 billion was injected into the sector.
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