Recession! Recession!! Recession everywhere!!! The reason
why we are here in a very unfortunate moment is our greatest economic fall of
2008. That event has not only affected us, but also the whole world. Millions
of people have lost their jobs and houses have been foreclosed. That crisis was
created by the government’s failure to regulate some investment banks like
Goldman Sachs, Merrill Lynch, Lehman Brothers and other firms, who didn’t care
about the economy. They just cared about their profit. But those actions have
affected all of us. In my point of view, the economic crisis was caused by the
capitalist system. Capitalism is where the productions are owned and operated
for profit.
The first and most important
cause of the crisis is lack of government interference, and this is the worse
part of a capitalist economy. On Sep 15th 2008, Lehman Brothers (U.S
investment bank) went bankrupt and there was also collapse of the world’s
largest insurance company A.I.G. (Sorkin, Business). This event triggered the
global financial crisis. It was caused by a poorly regulated financial
Industry. After the great depression, President F.D.R implemented some recovery
plans and the American Economy grew without any major financial crisis. The
financial industries were tightly regulated. Most regular banks were local
businesses. Investment banks were small partnerships. Since the 1980’s, the U.S
economy has had several financial crises because the investment banks and other
industries participated in the stock market and there were lack of government
monitoring. In 1981 President Ronald Regan chose Merrill Lynch C.E.O Donald
Regan as Treasury Secretary (Wikipedia). And some of his decisions such as the
deregulation of savings and loan companies totally failed and cost taxpayers
$124billion and cost many people their life savings. Furthermore the continuous
deregulation cost $5 trillion dollars on the next decade. Former Governor of
New York Eliot Spitzer said “In the absence of meaningful federal action given
the clear failure of self-regulation; it has become necessary for others to
step in and adopt the protections needed.”(Interview with Charles Ferguson: Inside Job Documentary). Since deregulation, the biggest financial
firms like J.P Morgan, Credit Suisse and Citibank have been accused of
defrauding customers, laundering money and committing other crimes several
times.
There was no government
supervision to prevent the mismanagement of the financial sector. Regarding the
real estate industry, in the old system when a home owner paid their mortgage
every month, the money directly went to their local lender. Because this is a
long time matter, lenders were careful about that. During deregulation a new
system developed. Mortgage lenders sold the mortgages to investment banks and
the investment banks combined their thousands of other loans like car loans,
student loans etc. to create COLLATERALIZED DEBT OBLIGATIONS or C.D.O’s and
sold the C.D.O’s to investors. Now the homeowners paid their mortgages, and the
money went to the investors all over the world. In this system lenders were
making money so it didn’t matter to them if the home owner could repay or not.
The mortgage lenders started making risky loans and investment banks didn’t
care because if they could sell more C.D.O’s, they could increase their profit.
In that system anyone could get a home loan. As a result the sale and price of
the houses skyrocketed. During the
financial rise, Wall Street were alerted from International Monitoring Fund (IMF)
and some international leaders. But they didn’t care about that and they knew
this crisis was going to happen. Subprime loans became ticking time bombs, and
finally the market crashed and caused the biggest fall in history.
Political appointment of Business
heads is one of the reasons for this economic fall. President Ronald Regan chose
Donald Regan (C.E.O Merrill Lynch) as finance secretary then we saw a rise and
fall of Wall Street. President G.W Bush chose Henry Paulson (C.E.O Goldman
Sachs) and we have seen the biggest fall ever. The reason they were chosen as
finance secretaries might be because of party fund raising during election, but
the decision of rewarding them with this vital post of the country was a
totally wrong decision, because they came from Wall Street and were lenient to
those whom they supposed to regulate.
In
a capitalist system we see that, government does not interfere in most of the individual
or business decisions. I think government needs to monitor at least some of the
management and solve these kinds of financial problems as soon as they start. That’s
how they could have prevented the biggest fall in American history; because
financial industries would not have been able to sacrifice the public good for
more profit.
Works cited:
Farguson, Charles Dir. The Inside Job
(Documentary, Sony Pictures September
2010)
Sorkin,
Andrew Ross. " Lehman Files for
Bankruptcy; Merrill Is Sold"
New York Times. 15 September 2008. <http://www.nytimes.com/2008/09/15/business/15lehman.html?pagew
anted=all>.
Sorkin, Andrew Ross. Too Big To Fail.
Penguin Group (USA) 2010
Wikipedia
(http://en.wikipedia.org/wiki/United_States_Secretary_of_the_Treasury)
