Essay About Financial Institutions And Federal Reserve

U.S Crisis 2008
During the year 2001 and 2002, the United States was on the edge of deflation. This forced the Federal Reserve’s decided to put interest rates at 1% in order to stimulate the economy. At that moment, financial institutions in the United States borrowed billions of dollars from the Federal Reserve, taking advantage of the low interest rate, and spread the funds in the American credit system, primarily in the mortgage markets. Everything was going perfectly and banks made easy money because the business was simple due to borrow at 1% and lend at 5%. But not only banks tried to take advantage of low interest rates. Like financial institutions, many middle-class buyers required for loans to buy houses and enjoy cheap money. Unfortunately, the happiness did not last long. Then came the years of great economic prosperity, from 2003 to 2006, and the Federal Reserve normalized its interest rate, placing it above 5%. This meant that those who were over-indebted, now had to pay 400% more interest than before. As a result, many debtors could not pay their credits, delinquencies rose to historic levels, hundreds of people lost their properties, banks no longer had any way to get cheap money from the FED and losses reached the financial institutions. Faced with the US crisis, government started to intervenes due to the responsible of ensuring economic stability in a democratic nation. But simply observing democratic societies where free market has grown, we can realize that these are the world’s countries with more regulations on the private sector. Clarifying that in democracy, these regulations maintain the private sector linked to the legal system. Quite the opposite of what happens in socialist nations, where governmental action seek to eliminate the private circle. It was in democracy and in the countries with free market, where the Rule of Law born and the legal theories reached their maximum progress. Those who believe that liberalism is suggesting a free society without