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Economic Collapse of 2008 - Research Paper Example

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The Economic Collapse of 2008 Name of the Writer Name of the Institution The Economic Collapse of 2008 Introduction Every once in a while comes an economic or financial event that stops us in our tracks, puts a brake on the system and challenges present wisdom…
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Economic Collapse of 2008

Download file to see previous pages... When events like this occur, we automatically look back at the control systems that are supposed to alert us and in fact prevent such a fiasco from assuming alarming proportions. In this case, obviously something went wrong somewhere or the signs were ignored. This paper will look at the main factors that led to the collapse, the consequences of the collapse, who should be held accountable for it, where we stand today and how it has impacted on our hopes for the future. Main Factors Which Led to the Collapse It all started with an excess of lending in the sub–prime mortgage sector of the USA. The economy was going well and life was good. It seemed that the good times were here to last and there was no letting up. And then it finally happened. Bankers who had previously considered even people with a bad credit history as good enough for taking a loan now began to cut back on lending in the interests of risk control and compliance. As the economy shrunk and credit dried up, bankers began to call on the sub-prime mortgages and the consumers were left with nowhere to turn to. Imagine their predicament as interest rates rose up and they had to let go of their precious mortgages. It was havoc and pandemonium in the housing sector. As the crisis deepened, even the banks that had not provided adequately for bad debts in the real estate sector were affected. Merrill Lynch and Lehman Brothers in the USA and Morgan Stanley in the UK were institutions that were brought down by the crisis; others have had to sell off, divest and re-organize themselves. For institutions like international banks, who have diversified their investment portfolios across the world in different continents to spread risk, it was inevitable that their holdings were impacted in some way or the other. AIG and Citibank in the USA, Deutsche Bank in Europe, Citigroup in the USA and Standard Chartered in the UK were all offered stimulus packages that have helped them recover rather than join the ranks of the bankrupt companies. To date in excess of 400 small and large banks have had to bite the dust. One contributing factor it seems that too much power had been given to Fannie Mae and Freddie Mac in relation to credit and control over the housing and real estate sector in the USA. The burgeoning housing sector has been hard to control. With their disbanding, and control in the hands of another regulatory agency, things are expected to become better. Another factor that has us bogged down is our insistence on continuing the War on Terror, a war we cannot win so easily. After nine years of fighting in Afghanistan and five in Iraq, we have little to show for it. We are spending millions of dollars per day and the average US citizen is being mired in debt without his consent. The 9/11 attacks were a blessing in disguise to the faltering Bush Administration who wasted no time passing the Patriot Act, creating Homeland Security and terrorizing citizens with different alert levels, racial profiling and enhanced security checks at airports. Bush had famously announced the names of countries he regarded as the Axis of Evil nations in a speech. He vetoed many of the expenses on the War on Terror, over the combined judgment of Congress representatives. The result is trillions of dollars in debt which we cannot possibly correct in our lifetimes. Many have criticized the ...Download file to see next pagesRead More
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