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"The U.S. since then has implemented regulations, do we need to implement more to make sure this never happens again?" - katelynhl01
Policy Response to the Great Recession
After the 2008 financial crisis, it only seemed rational for the government to employ policies to try to mitigate risks in risky investments and limit the power of banks with the end goal of never repeating the losses that were made. Before such preventative and proactive policies were enacted, the carnage of the economy needed to be dealt with. So the initial step was a stimulus package. The Troubled Asset Relief Program, or TARP, involved the United States Treasury distributing a total of 441.8 billion dollars to bail out banks, salvage the auto industry, stabilize the American International Group, and protect homeowners (U.S Department of the Treasury).
At a cost of $441.8 billion it is apparent that the U.S. would not want to repeat such a catastrophic event. So, what regulations were implemented to accomplish this? In 2010, congress passed the Dodd-Frank Act thus limiting the amount of risk that a bank can take on as well as protecting American citizens from predatory lenders (National Archives and Records Administration).
Does This Truly Prevent Future Recessions?
While some bank power is limited, we cannot say definitely if the Dodd-Frank Act will prove effective in the long term. Regulations can only prohibit certain actions; meaning, that it may not lead to the desired outcome as corporations may find ways around such rules. Unexpected events are also bound to happen, leading to economic downturns. COVID-19 for example caused much economic loss and resulted in government spending at a level that has never been seen in history. So, in the end while we now have the knowledge of what caused the 2008 recession and have put in place restrictions to attempt to curb such activity, this does not mean that we live in a society that is immune to such economic catastrophe. We must be aware, and proactive rather than enacting more regulations blindly to try to stop a recession of the same variety that occurred before. In the future, economics will likely not follow the same paths to recession that it has taken before.
Resources:
National Archives and Records Administration. (n.d.). Wall street reform: The dodd-frank act. National Archives and Records Administration. https://obamawhitehouse.archives.gov/economy/middle-class/dodd-frank-wall-street-reform.
Troubled assets relief program (tarp). U.S. Department of the Treasury. (2021, March 9). https://home.treasury.gov/data/troubled-assets-relief-program.
