The current financial crisis is considered by many to be the worst crisis in the financial sector since the Great Depression because it has not only affected the United States but its effects have also been felt globally. …
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It has also affected many people, with some losing their jobs when the companies for which they worked either collapsed or cut jobs in order to stay afloat. Others have been evicted from their homes because they have been unable to pay off their mortgages or debts. In addition, there has been a very big decline in business activities, which inevitably led to a slowing down of the economy. Many theories have been discussed concerning the causes of this financial crisis, moreover, why its impact has been so large for it to affect negatively people from diverse backgrounds. Although many of these theories sound logical, none of them even attempts to capture the real reasons why this crisis happened. In this matter, it is our opinion that this financial crisis has come about due to weak policies from the government as well as the greed of corporations in their bid to make more money. In this paper, we set out to prove our stand by discussing in detail the governmental and corporate causes of the crisis. Government policies on handling financial institutions had a direct hand in the financial crisis happening. This is mainly because the government failed to regulate adequately the activities of banks and instead gave them a free hand in conducting their activities, even though these activities proved to be harmful to the economy. Furthermore, during the Bush administration, there was a strong bid by Republicans in Congress to force banks to lower their lending rates so that most people could have their own homes by taking more affordable mortgages (Holtzman 95). This had a direct hand in triggering the current crisis because many of these people ended up not being able to pay their mortgages and this led to a lack of liquidity, which created a panic. Enterprises such as Freddie Mac, which are government sponsored, were encouraged to buy securities, which were backed by mortgages, and some of these happened to be very risky ventures (Wallison). The government also helped to trigger the financial crisis when it misinterpreted the looming crisis as one, which was concerned with liquidity. To solve this problem, it responded by giving out a lot of money to people so that they could have more money to spend and in the process make the economy start to move again. However, things did not happen as predicted and instead, many people who got the money chose to save it instead of spending it. This government solution now became a problem because nothing happened as it had been expected to work. The financial crisis was something that could have been avoided and its occurrence was caused on a large part by the corporate greed, which aimed at gaining more profits through the taking of risks, which were dangerous (Chan). The ineptitude of the regulators of the financial sector to stop these tendencies by banks to take risks further made the situation worse and this almost led to a near collapse of the financial system. Those who were supposed to regulate the financial institutions lacked the morality to oversee and take action against those institutions that they were supposed to be in charge of supervising. These regulators, as well as the politicians who were allied to them chose to ignore the regulations and instead let the financial institutions do whatever they wanted to do (Sanchez 521). Those who headed the very large financial institutions practiced things that were illegal in their line of work and all this brought about the financial crisis because their attempts to make profits illegally came to fall apart. When this happened, instead of taking responsibility and dealing with the situation
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