The College Debt Crisis - Assignment Example

The College Debt Crisis Beth Naef, the most successful investor in the real e business provides a tour of his more than five million dollars-house to the audience at the beginning of the Maxed Out. Wine cellars, massive kitchens, and elevators form important elements for her clients. Beth Naïf narrates to the audience that at that time she is in the process of bringing up a McMansion occupying ten thousand square feet. She concedes that if the government raises interests, her affording a property would be in vain. One of her important driving forces is that, if a person appears like he or she is making money, he or she will. The ravaging of the American Gulf coast by the Hurricane Katrina revealed that the United States survives on both government and individual debt. The nation continues to crumble under the two types of debts. The Maxed Out movie unearths the American debt-format. In this case, each person is comfortable provided he or receives his or her minimum salary in time. Availability of credit eliminates worries among people even those with meager pays. Maxed Out highlights ways through which the modern financial sector works in details. Analysis of the video gives an in-depth definition of preferred customer in addition to explaining reasons behind the poor getting poorer while the rich continue growing richer. It is thoughtfully disturbing and hilarious at the same time painting the actual picture of a national nightmare extremely for people to comprehend. The debt in the mortgage industry resulted to the credit crisis. People came to understand this problem after it started taking a toll on them. Watching the movie about its occurrence brought forth visualization of the problem in a clear way. Using the same video to enlighten the public was advantageous because it was easy to for it to go viral. The advancements in technology improve the speed and the efficiency with which the producers of such information communicate it to the intended audiences. The method is approachable making the delivery of the content effective. The Crisis of Credit animated video is the most in-depth analysis of the financial crush that led to citizens losing money to the tune of trillions of dollars. The video filters the economic crisis into a story that is short and simple to understand because it gives it form. Crisis of Credit is fractional banking. Fractional banking is problematic because the system makes sure that cash is always not as valuable as alternative means of doing business. Equity in value is likely to result to a deleverage state where people prefer to use cash (McLean, Bethany, and Nocera, 2013, 112). Through this, the entire web of the banking system crashes down as much as it has all the counterparty risks. Purely, when financial institutions raise interest rates, they increase the value of cash. The system then turns to favoring lower interest rates that automatically reduces the value for cash. The financial industry crumbled the economy collapsing other sectors as well. The country could come up with immediate solutions to hold banks accountable. It is a clear indicator that the system does not have adequate measures of ensuring that banks remain accountable to the clients and the entire economy. The cause of the crisis was that the banking system was and is still bankrupt. The first of the two options available when the lending system is bankrupt is to maintain the value of the currency and in the process give room to the lending system to collapse. Honoring contracts in this scenario will fix the banks forcing them to go bankrupt (Lepler, 2013, 71). The downside of this situation is that it will lead to high unemployment levels and the economy will contract automatically. The good side of the situation is that keeping faith in the currency cleanses the banking system, which makes it possible to develop many years of economic growth because of the development of a solid foundation. The second alternative is to modify the rules of operations. Only an activist government hinders bankruptcy. The process of retiring assets and monetizing the same assets is one of the methods of changing the rules of the game. The assets include among others corporate debts and mortgages. "I could invest $_10,000___ dollars now and $ 600____ a month at 6%___ interest rate (1- 2% =very conservative investor, 4%=relatively conservative, 6% =stocks/bonds, 8% and higher = moderately to relatively aggressive stocks/mutual funds) until I am 65, 35___years, and have about $_940, 335__ when I am 65 (Geisst, 2013, 64).” The student loan debt continues to skyrocket currently beyond the one trillion marks. What remains mind-boggling is that fifty percent of the debt is in default, deferment, or forbearance. It is clear that one in every two students is not repaying the loan. It is necessary for the society to re-evaluate it attitude towards college. College education is not for everybody. Currently, each one in the society feels that one size fits all (Brigham, Eugene and Michael, Ehrhardt, 2011, 56). The society still holds that getting admission in a blue-collar college as the best alternative for their children. The same society does not understand that in most cases they plunge their children into debts without viable plans by taking the forty-thousand dollar loan to finance their education. The society should find means of encouraging the children to choose the right courses for their careers. It is advisable that people move away from the college for all notions. Students receive loans after graduating from high school without prior knowledge of how to spend money. \It is advisable for institutions to teach financial literacy in high schools to prepare students for management. Youths both school going and school graduates feel that issues such as saving for retirement, calculation of interest on loans, and investing are essential and schools need to teach them. Both the society and learning institutions need to accept that critical skills to the future generation include financial literacy. On the other hand, families need to comprehend that it is not viable to borrow in excess to finance college education. Lending institutions need to make it mandatory for borrowers to demonstrate financial literacy as well as competence in banking to receive a loan beyond specified limits. Ideally, federal laws that govern student loans are a mock of the International Revenue Code because they lack sensibility and are complex. The first problem comes from the acronyms applied in those laws. Works Cited Brigham, Eugene F, and Michael C. Ehrhardt. Financial Management: Theory and Practice. Mason, OH: South-Western Cengage Learning, 2011. Print. Geisst, Charles R. Beggar Thy Neighbor: A History of Usury and Debt. Philadelphia: University of Pennsylvania Press, 2013. Print. Lepler, Jessica M. The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis. , 2013. Print. McLean, Bethany, and Joseph Nocera. All the Devils Are Here: The Hidden History of the Financial Crisis. New York: Portfolio/Penguin, 2010. Print. Read More