Economics

The current economic crisis has had far-reaching and very dire consequences on the countrys economy and key sectors of the economy but perhaps none of these sectors was as affected as the financial one. The crisis saw financial institutions, particularly investment banks, struggling to cope and while some were forced to go under, others had to be bailed out using taxpayers money (Rogers, 2009). The many issues that surround the financial crisis, including the role played by various forces in bringing about the entire crisis, the response, the future prospects of the sector, among other financial issues, form the basis of this paper. The aim is to have a clearer insight into the causes of the financial crisis, the nature of the measures taken to respond to it, the effects of these consequences, and the future of the banking sector in the event of similar crises.

Lending Culture
The culture of banks and financial institutions in this country has always been to seriously vet applicants before giving them loans. However, in the years immediately leading up to the global financial crisis of 2008, this culture seemed to be grossly violated and instead many banks resorted to giving subprime mortgages where beneficiaries were people who had poor credit history and so their ability to repay the mortgages was greatly in question. This happened for a long enough time, with more insurers willing to insure the buyers (Rogers, 2009).

As demand for mortgages soared, the financial institutions, insurers, and the home owners made huge money in the deal by selling these subprime mortgages. But as interest rates rose higher and higher and higher over time, the defaulting on these subprime mortgages increased (Rogers, 2009). The financial institutions suffered and were left with assets they could not lend or do anything with. Fewer people were willing to borrow as the ripple effect spread throughout the entire financial services sector. The Federal Reserve did not intervene to control interest rates, concentrating too much on how the crisis would impact on its reputation instead. If it had sprung into action immediately, then a solution would have been found (Rogers, 2009).

The Role of Government
While it is only wise for any government to ensure that the financial sector is not let to go bust, it was not the right thing to do in this case owing to the fact that the crisis was caused by an oversight  a failure on the part of government agencies, including the Federal Reserve and the F.D.I.C (Macesich, 2000). These two institutions neglected their role and allowed the indecent behaviour of banks and financial institutions to go ahead unabated. Taxpayers are only under obligation to bail out banks which prove by their historical actions and genuine need for assistance that they deserve government assistance. In this case, banks were crying foul and seeking assistance using taxpayers money when they had actually proven that they cared less for the consequences of their actions (Rose, 2009).

In addition, the banks were paying huge bonuses to their executives even when they were struggling to cope financially (Rogers, 2009). Otherwise, banks ought not to be left to go bust because the financial sector is the basis of the economy of the country leaving banks to go bust would result in a ripple effect that would see most or all the other sectors of the economy in a crisis as was witnessed in 2008. In essence, if the government failed to intervene and bail banks out of their financial woes, then the economy would have experienced a much deeper recession due to collapse of many other institutions and key economic sectors such as the stock market and the real estate market (Rogers, 2009).

How to Shield Taxpayers
In order to ensure taxpayers are not forced to bail out bankrupt institutions liker banks, it is critical that the regulatory bodies like F.D.I.C and the Federal Reserve do their work effectively and that banks are made accountable of their actions. In addition, bad lending and borrowing practices ought to be eliminated totally (Rose, 2009). It is ideal to have a significant number of banks under government control but nationalizing all banks can result in a slow economic growth because the government will be liable to making all investment decisions. Instead, troubled banks ought to be put under receivership or to be merged with other healthy ones (Rose, 2009).

The Banking Risks and the Regulatory Failure
Although it is true that financial institutions are always exposed to risks, these risks are well mitigated if the regulatory bodies responsible are able to do their work effectively. This is why it took a very long time for any such a crisis to happen in the country. As such, the regulatory system is in need of overhauling to prevent such a crisis repeating itself in the future (Rogers, 2009).

Conclusion
The banking and financial crisis of 2008 was solely caused by greed on the part of mortgage lenders and insurance companies and partly due to the failure of regulatory agencies to do their work as required. In this case, the government ought not to have bailed the banks out for it was their mistake that they ended up in the crises. Taxpayers ought to be protected from bailing out banks by having stricter regulation of the banks. The regulatory bodies are to be overhauled and replaced if such crises are to be prevented in the future.