Worldy Change

A Halt to Life As We Knew It

Our country was hit with a huge reality check in November of 2008, a disaster that would change our economy for good, a global financial crisis. Who would think that the way we live and run our everyday lives would change on the drop of a dime?  It began in December of 2007 when various systematic imbalances started to flood the country. Even though most believe that the recession ended around June or July of 2009, it is quite apparent that we are still suffering through the hardships to this day. This recession has really made a downward spiral of thousands of peoples lives, making it hard for American citizens to sustain themselves and their families. But the big question on everyone’s mind is who is to blame for this tragedy? How did it get so bad? The banks and the government have managed to pull the whole country into a global financial crisis due to carelessness and greed.

First, the U.S. government made the big mistake to lower interest rates too much after 9/11. Ian Shepherdson, chief U.S. economist stated “The move is to be applauded but there is more to come. The playbook to avoid depressions says rates need to be as close to zero as possible” (new york times). By lowering interest rates by that much it just made it easier for any person to get what they wanted and not have to prove their qualification. The Fed said, “Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets”, meaning that lending standards were lowered to the point to where banks were not even taking into consideration if people had jobs, income, assets, or even credit rating as long as banks were getting the money that they wanted of this whole deal. Another major factor that helped contribute to that issue was simply that the government was not taking charge and overseeing what was happening in the economy (143). Deregulation was allowing companies to grow, merge, and develop in a way that jeopardized the whole economy (142).  

Another that played a large role in this whole mishap was financial institutions. Subprime mortgages were probably the most prevalent in order of causing the recession because they were securitized, which turned into mortgage-backed securities that people could invest in. Then Wall Street created structured finance where they were lending out money without using capital, therefore leaving a small amount of money to leverage and bigger investments. The Washington Post stated in an article that many banks in the country had leverage of 30 or more to 1, which means that for every one dollar they use to invest in these mortgages they are also using thirty dollars of borrowed money to invest. According to RealityTrac Inc, the global financial crisis caused 2.5 million homes to be foreclosed on with millions more having foreclosure filings and by 2009, 1 in 45 homes were in default.

In some parts of the country, home prices fell 32%.

However, even with all the damage that has been done, who’s to say we can’t overcome this obstacle? Simply by helping banks, struggling homeowners, and the unemployed (at least 8 million jobs were lost with 740,000 jobs lost in January 2009 alone). Start by only giving out money/loans to citizens who are well qualified and are in dire need of it because then it slows the loss of saving and homes while also creating job opportunities. Also, helping restore small business and modify mortgages by reducing principals and lowering mortgage payments. Finally, government control, not too much and not too little, but at least enough to make sure everything is kept in proper standards, as well as making sure that the government and banks don’t let careless mistakes and greed get in the way of keeping a well regulated economy. I think this country has dealt with this burden long enough so that in the future we will take what we learned from our past mistakes and keep moving forward slowly but surely.