Economic crisis - Essay Example

Financial problems were reported in AIG followed by Lehman Brothers. Why this banking and insurance sector facing more problems than other sectors? Is there any social reasons linked with the crisis? Is it due to the lack of centralized control of government over financial sector? Do the activities of the financial sector monitored properly? Does the volatile share market have any influence in financial sector? Is it linked with oil crisis? A lot of questions can be asked. But the answers may not be easy to obtain.

Is it clear that Lehman’s problems were their own doing? “Looking for ways to save Lehman, Mr. Fuld (the under siege) called blue-chip companies and discussed mergers with a competitor. He sent emissaries to Asia and the Middle East looking for money. And he tried to find a commercial bank to buy the entire company. But none worked”. “Mr. Fuld still works for the bankrupt entity, which has come under fierce Merging with a competitor is the last solution normally the companies will adopt when they fail to manage the financial problems.

So the crisis is there. No doubt about it. Lehman is already facing preliminary inquiries from federal prosecutors who are looking at statements the company made about its own financial condition as well as whether it overstated the value of its commercial real estate holdings. The current financial crisis in America can be attributed to the following things. The Federal Reserve, is making credit cheap. Home buyers, who took advantage of easy credit contributed to bid up the prices of homes excessively.

Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses. Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes. Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed