One of the policies enacted following the financial crisis is the Housing and Economic Recovery Act of 2008. This policy can be regarded as the most important housing legislation enacted in a considerable number of years. The Act implemented several programs that would control the disturbing number of foreclosures that were taking place in the United States. A noteworthy component of the act was the tax credit given to first-time homeowners. The tax credit was to assist the new homeowners to avoid foreclosures (Snyder & Ekmekjian, 2013). They had to repay the tax credit, which would enable the housing market to bounce back from the contraction in the short-run. However, in the long run, the credit risk transfer would not function well in weak economic periods (Snyder & Ekmekjian, 2013). However, mortgage guarantors were encouraged to build equity in housing downturn to ensure that they would still be in business even during weak economic periods.
The other policy is the Federal Reserve expansion of the regulatory agency authority. During the post-crisis period, this policy was enacted to expand the regulatory powers of the Fed, which led to the consolidation of the institution’s influence in Washington. The expansion of the regulatory agency authority was a reflection of the belief that the New York branch did not succeed in its quest to oversee major banks before the financial crisis (McBride & Chatzky, 2018). The short-term economic effects of the enactment of this policy revealed that interest rates remained negative, in spite of the continued growth of the economy. For this reason, the economy would face the risk of deflation. However, the policy saw the end of quantitative easing, a factor that invited criticism to the policy’s potential to weaken the dollar, fail to reduce the unemployment rate, and to stroke inflationary pressures (McBride & Chatzky, 2018).
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The third policy considered is the Federal Reserve powers to intervene in a market crisis. Federal Reserve interventions during a market crisis is essential for providing desired safeguards to the economy for the benefit of every American, while providing essential protections to the taxpayer. In the short-term, the Federal Reserve interventions assist in breaking down the effects of liquidity (Neely, 2004). In this regard, crises produce uncertainties that call for the additional liquidity in the country’s financial system, a responsibility that rests upon the Federal Reserve (Neely, 2004). On the other hand, the underlying causes of a financial crisis can attract long-term economic effects. In this light, the economy can be affected negatively, as the resources that could have been used to cater for other needs can be used for something else such as the provision of more security. The Fed has to use its resources depending on the prevailing economic conditions, which can affect some of the sectors of the economy.
The fourth policy is the Trouble Asset Relief Program (TARP). The short-term effects of this policy on the economy of the nation relates to the provision that the bailout package can assist in the improvement of the short-term financial stability. However, this package can also bring forth negative impacts on components such as fiscal deficits, government debt, as well as inflation (Van Aardt & Naidoo, 2010). In determining the implication of this policy and the long-term impacts of the same, the effects on the economy depends on the extent to which the injection can create sustainable levels of economic output, investments made domestically and from abroad, compensation, as well as employment levels (Van Aardt & Naidoo, 2010).
References
McBride, J. & Chatzky, A. (2018). The role of the U.S. Federal Reserve. Retrieved from https://www.cfr.org/backgrounder/role-us-federal-reserve
Neely, C. J. (2004). The Federal Reserve responds to crises: September 11th was not the first. Review-Federal Reserve Bank of Saint Louis , 86 (2), 27-42.
Snyder, T., & Ekmekjian, E. (2013). What are the impacts of the home buyer's tax credit on housing and the economy? Research in Business and Economics Journal , 8 , 1.
Van Aardt, C. J., & Naidoo, G. P. (2010). The economic impact of the Troubled Assets Relief Programme (TARP) in the USA: an assessment of the level to which an optimal allocation of funds occurred. Southern African Business Review , 14 (2), 46-64.
