5. Fundamental reason for the failure of financial systems and economic recession. Specific Government Actions and Interventions – Excessive Monetary Policy Current monetary policy has contributed to some extent to the failure of financial systems and economic recession. For example, US monetary policy since 2002 was too expansionary (Taylor 2009) and was one of the main culprits of the crisis (Jeroen 2010). Policy makers have also lacked accountability, which has failed to encourage optimism about reforming the policy process itself (Adrian & Atkinson 2009). The decision by the US Treasury and the Fed to allow a major bank (Lehman Brothers) to fail led to a system-wide loss of confidence that exacerbated the crisis. The inability of political decision-makers to manage the crisis should be considered as a factor in worsening the crisis. (1) Housing Market Failure - Economics professor Taylor conducted research in 2009 and suggested that the financial crisis was due to policy and government intervention. this led to excess money and contributed to the real estate boom and bust (Taylor 2009). Using information provided in The Economist (October 18, 2007), Taylor reported that the federal funds interest rate was deviating from the suggested rate based on the Taylor rule. – The Fed's interest rate should be adjusted based on economic situations such as inflation and employment levels. The real rate was well below the suggested rate from 2001 to 2006 (please refer to Chart 2), which suggested that monetary policy was too loose. In order to prove that an abnormal interest rate contributed to the failure of housing marketing, Taylor decided to implement the following model to indicate that if the suggested (counterfactual) rate was applied, fluctuations in l 'time...... middle of paper ......? Harvard Business Review (November): 85-92.22. Scott, IE (2009), “Friends or Foes of Fair Value Accounting? http://www.law.harvard.edu/programs/about/pifs/llm/select-papers-from-the-seminar-in-international-finance/llm-papers-2008_2009/scott.pdf, accessed February 4 2009. 2011.23. Sorrnette, D. and R. Woodard 2010. Financial bubbles, real estate bubbles, derivatives bubbles and the financial and economic crisis. Econophysical approaches to large-scale business data and the financial crisis. Retrieved March 5, 2011 from SpringerLink24. Taub, S. (2009). Survey: boards of directors are often blind to major risks, CFO Magazine. Available at http://www.cfo.com/article.cfm/12454618?f=search, accessed August 5, 2009.25. Taylor, JB 2009. The financial crisis and policy responses: an empirical analysis of what went wrong. NBER Working Paper 14631. http://www.nber.org/papers/w14631.pdf