Question

Identify some ways to effective use the funds so as to avoid the big mistakes of bailouts during the Great Recession?

Answer 1

The great depression resulted from the housing crisis in the United States and the end result was that banks had little or no money left with them as the value of the underwritten assets declined way beyond the price of the loan itself.

For example, if we mortgaged our property to obtain a loan from the bank and if the value of the property declined up and above the value of the loan, in that case, the bank would not be able to recover its debt.

Considering that in the Great depression we needed to bail out major companies and provide them with reliefs, it is important that the situation does not arise again.

For the same, optimum utilization of funds is necessary. The government can utilize the money and keep market demand intact. This is done by increasing minimum wages, relaxing taxation and ensuring more investment in the economy by infrastructural growth and development.

The biggest mistake during the time period was to provide direct assistance to companies which reduced the prices of the asset which they owned. Instead the key is to strengthen the existing markets and to ensure that risky investment portfolios are clearly identified and negated as far as possible.

The spending should thus go towards infrastructural development, strengthening the market and ensuring that banking standards are set in a manner that losses do not accumulate for the business owners respectively.

Please feel free to ask your doubts in the comments section if any.