Every year with a growing population and growing financial obligations, the financial system of the United States keeps expanding at a steady pace. If another financial crisis like the one that occurred in 2008 were to occur again, the American taxpayer would be exposed to a hefty obligation again. The portion of financial systems that are protected by government from loss comprises of $25.9 trillion, which is an astounding amount calculated by Federal Reserve’s “Bailout Barometer”. Though the government has tried its best to downsize the obligation, it has not yielded many results.
During 2009, the total government liabilities comprising both guaranteed and non-guaranteed amounts summed to $42.33 trillion and in 2014 it have increased by 2 percent to $43.14 and of this, the total guaranteed sum was $24.92 trillion. A large part of the guaranteed payments that have to be paid by government in case of a crisis is for fixed deposits, bank deposits, credit unions and government sponsored enterprises like Fannie Mae and Freddie Mac.
Public and private financial organizations have to be more financially responsible. When they are expected to be protected against all losses by government, they will indulge in more risky financial behavior making federal bailouts a frequent practice. This financial safety net should be reduced over a period of time to ensure market discipline and maintain financial stability.
Payments made for managing financial crisis the last time
Last year, the federal government paid around $4.75 trillion through Treasury bills and programs to organizations that were affected by the previous crisis. Though the government has given a large amount of money on doles of this kind, it has also made money on some of its Troubled Asset Relief Programs. However, the officials of Richmond Federation have refuted these amounts and stated that exposure is unlikely to be that much and even if such a catastrophic event occurs, the government exposure is at $26 trillion this time, which would be tough to pay back.
But more than real money terms, people were affected by loss of jobs and inability to find similar jobs immediately. The financial crisis occurred around a broad spectrum of sectors causing the stock market to lose 60 percent in value within a few days. The effect of this downfall was so massive that people are still unable to find full time job opportunities even several years after the crisis. To reduce similar financial crisis situations occurring again legislators have taken corrective action in various sectors.