How did Government Deregulation in the U.S.

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Contribution of Government Deregulation in the US Financial Market to the Economic Downturn of 2008 to 2012
Executive Summary
The purpose of this paper is to determine the contribution of the government deregulation of the US market to the economic downturn of 2008 to 2012. It reviews the Great Depression and provide some of the lessons that regulatory bodies and agencies would have learnt from the Great Depression and avoid future financial crisis. It also looks at different forms of deregulation that have taken place over the past years since the depression and how these deregulations contributed to the financial and economic crisis in the United States between 2007 and 2009. The paper also looks at roles the increasing deregulation within the US had played in the financial and economic meltdown. Under this section the paper looks at some of the deregulatory measures that were by the United States that eventually contributed to the financial crisis. It then look at the effects that the deregulation had on economic sectors such as housing markets and securitization.
1.0 Introduction
The 2008 to 2012 economic downturn has been blamed on very many factors. Deregulation has been promoted by the republicans since the 1980s has been blamed for the economic meltdown which has experienced since 2008. It has not been clear whether it is only deregulation of the financial markets to blame for the financial crisis that many countries underwent across the global. Some of the rules which are being enacted tend to favor the independence of the financial firms. Despite the fact that it is almost impossible to determine the exact cause of a financial crisis or economic meltdown, there are some of the common causes of many financial crisis that have been experienced in the past. Some of the factors are deregulation of financial markets, sophisticated financial innovations, excessive executive compensation, low interest rates, subprime loans for the mortgages and speculation.
Efficient markets are vitally important in both economic theory and the real economy (Prentis 23). The efficiency of the market depends on the state and the market. Market efficiency is based on three principles or tenets. One of the tenets is that markets are in equilibrium and unexpected events that cause disequilibrium are only temporary since market is able to self-equilibrate (Prentis 24). The other tenet of market efficiency is that stock prices full reflect all the available information (Prentis 24). It also says that asset prices reflect the intrinsic value of the asset and this makes prices to be accurate signal for making capital allocation. However, this assumption has been faulted by some behavioral economists. The third assumption is that market prices move randomly without any prior price changes (Prentis 24). This implies that investors can earn higher returns than the stock market when there is lower risk. However,...