The Financial Crisis: Miss-Diagnosis And Reactionary Responses

The financial crisis that began in the fall of 2007 continues well into 2010, and has proved to be one of the longer lasting periods of financial disruption in decades. The initial causes of the financial crisis were perceived as simply a traditional liquidity crisis by policy makers and it was treated as such using standard discount window and emergency lending activities. Policy makers lost more than a year in dealing with the crisis because of that misdiagnosis and belated discovered that there were major solvency issues in most of the US largest financial institutions.