Financial Crisis around United States - Essay Example

The paper "Financial Crisis around the United States" is an outstanding example of an essay on macro and microeconomics. There are various factors that have led to the current financial crisis of the United States and have caused a severe recession in the entire economy. The problems include:

Fall of the rate of profit: In recent decades the rate of profit of the entire economy has been declining significantly. In accordance with the Marxist theory, there is reduced business investment and economic growth leading to unemployment, higher inflation, and a lower real wage.

Attempt to restore the rate of profit: The capitalists are trying to restore the profit rate to its earlier and higher levels by increasing the general prices of commodities causing a reduction of real wages and retirement pension benefits as companies strive to maintain their budgeted cost and profit. Workers have been forced to work harder and faster on jobs and others been laid off to increase the profit and rate of profit. It is devastating because economic growth is achieved at the expense of the workers (Financial Crisis Inquiry Commission (US), 2011).

Failure to examine the creditworthiness of borrowers: With the new mortgages securitization system, the appraisal of credit risks and worthiness of the mortgage customers are ignored because of the mortgage-based securities are complicated. The system consists of thousands of mortgages examining credit risks tedious tasks. However, the assessment is done on bond rating, which is not efficient as it is mainly intended to make more money on processing fees.

The burst of the housing bubble
The general housing prices stopped increasing and instead, it has been declining. This has reduced the value of the securities linked to real estate pricing. Therefore, the house owners are unable to service their mortgage rates. As a result, mortgages have increased sharply due to delinquencies and defaults (Calverley, 2009).
Search for the new borrowers: In an attempt to restore the rate of profit, capitalists are spending their much income on luxury consumption in order to find low-wage areas of other continents to invest instead of expanding businesses in their own countries. This has contributed to the financial speculative bubble as employment continues downsizing in their countries.

Bankruptcy: Most companies are declaring bankruptcy in accordance with bankruptcy provision in chapter 11 that allows them to remain operating and renegotiate their obligations. As a result, workers get exploited especially when these companies cut down their wages and other benefits (Robinson, 2012).
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