Current Economic Problems Facing Our Country - Essay Example

Current Economic Problems Facing Our Country A society integrates into the environment in order to sustain itself, and we as individuals aim to integrate into the society to establish ourselves as successful members of the society. Any changes in the external or internal factors affecting the society have a direct impact on the majority of the members of the society in which we live. Current economic situation is one such factor that has had a very strong influence on the lives of millions in the country. During the last four months of 2008, the financial system was on the verge of a meltdown, many banks in the United States went bankrupt, others had to seek government assistance in order to survive, and yet others had severe impact on their profitability resulting in mergers and takeovers in the subsequent months. To make things worse, there were rumors that banks would default and people would not be able to recover their life savings. The federal bank had to step in immediately in an attempt to prevent a run on the banks, which could possibly result in every individual queuing on the bank counters to withdraw their savings from their respective accounts (Shiller, pp. 92-94). Otherwise, stable banks can go into default in a matter of hours in this scenario. The federal bank stepped in to guarantee deposits below a certain limits preventing a complete meltdown. This was just the beginning of a major change in the lives of millions of Americans who had never anticipated such a situation. In the next few days, the bankruptcy of Lehman Brothers, one of the most renowned global investment banks became apparent. Hundreds of other firms connected to the Lehman Brothers network had to suffer major losses and write-down their loans during the months to follow. One after the other, many banks went into trouble in a matter of just two weeks; the global financial industry had completely changed its dynamics. Bank of America acquired Meryl Lynch and the government had to inject equity into almost all major banks (Soros, pp. 2-4). As a result, in a matter of weeks, the government now owned a majority stake in most financial institutions. Investors lost confidence in the financial system and the number of initial public offerings each month became almost insignificant. The investment banking industry virtually collapsed and went into a wave of downsizing. Many banks terminated their global market operations in order to generate equity injections through sales of their operations elsewhere. The idea of an organization becoming too big to fail became redundant. Many firms had to lay off thousands of their staff in order to maintain profitability or to minimize losses. This triggered an economic crisis that would then affect the lives of many jobless people. As individuals lost jobs, they realized that their ability to consume had been restricted largely as they had mortgages payments to make and a family to maintain. One particular family deeply affected by this crisis was mine. My father is a financial consultant and just before the financial crisis, he was working with multiple organizations on several projects. He lost his most important clients as soon as the crisis began; most projects discontinued as institutions went bankrupt. In short, we lost our source of income and since he never anticipated this to happen, we had never saved enough. A typical American family consumes more than it earns today expecting a higher future income to pay for the debt accumulated in the early years. This was exactly the way my father was planning to do, we had purchased a nice new house for which we had to pay mortgage dues over the next thirty years. We had four cars, one for every individual in the family all purchased through car loans. Father would pay the mortgage, car loans from his income and he would save enough to take us on a vacation every few months. Life seemed perfect, father also managed to contribute towards my sister’s university tuition and me. I took a student loan to cater for the balance of the tution, which I would pay once I graduate and land my dream job. My mother quit her job to spend more time with the family and was expecting another child in the next few months. Everything seemed to be a disaster since the day the crisis began. Father had little work to do and he could not even pay the mortgage bills. I was thinking of taking a break from studies and look for a blue-collar job in order to support father. It seemed as if things would never return to normal. I do remember that my mother always told me that things do not always remain the same. They change and they change for good. I could not understand how to cope with the situation and how could this happen so suddenly. My parents remained calm and they promised us that everything will be fine and we will manage to come out of this situation. We had to go through drastic changes in our lives for the next few months. Father had to re-locate in order to work on one of his older clients. This way he could manage to pay for the mortgage. My mother decided to join her office again soon after my brother was born. My sister and mother worked out a schedule to take care of the baby. I decided to continue with my education and took a part time job at my university to pay for tuitions. Since then, things seemed to look better. I realized that life was not the same but the desire to survive and the will to continue to make the best out of the situation made it much easier. My parents never lost hope and worked hard to maintain the family. A strong family structure can make a huge difference which face with such situations. Life does change but if you work hard, you can survive the worst. After this experience, I am a changed person and I see the world differently. I have learned from the mistakes we made and I have certainly become more resilient to such difficult circumstances. At an individual level, we can all make a difference and together we can bring about a change in the economy. We have to learn to restrict excessive consumption and to encourage saving for unexpected situations. After the crisis we have cut down our expenditures significantly, which has surprised me, as I never thought we could survive with no savings during such a crisis. We decided to rent our house and moved to a smaller apartment in order to help sustain ourselves. Not only did we stop taking any vacations but we also decided to get rid of two of the cars. If we had planned ahead of time and saved during the good years, we would certainly not have to make too many sacrifices today. My father could have waited and looked for some work in the town. It is all about the choices we make, if we consume more today we have forgone a part of the future expected income, which will cover our current expenditures. Individuals in our economy need to focus on reducing current consumption and save for the future. We can aim to buy a small apartment without personal savings instead of taking a mortgage to live in a larger home beyond our current means. We can always buy a larger house when we have enough savings in the next few years. We also need to stop using our credit cards and instead rely on debit cards. This will keep us in our limits when we shop or go for buying grocery. We must take a step and make a difference for our society and for our future. Work Cited Shiller, Robert. The subprime solution. Princeton University Press, 2008. Soros, George. The new paradigm for financial markets. Perseus Books Group, 2008. Read More