Who Is Responsible for Current Financial Crisis - Essay Example

?The current financial crisis is considered by many to be the worst crisis in the financial sector since the Great Depression because it has not onlyaffected the United States but its effects have also been felt globally. This crisis has threatened the collapse of some big financial institutions and it has made governments use up large amount of money to bail out these institutions before they collapsed (Christopoulos 22). It has also affected many people, with some losing their jobs when the companies for which they worked either collapsed or cut jobs in order to stay afloat. Others have been evicted from their homes because they have been unable to pay off their mortgages or debts. In addition, there has been a very big decline in business activities, which inevitably led to a slowing down of the economy. Many theories have been discussed concerning the causes of this financial crisis, moreover, why its impact has been so large for it to affect negatively people from diverse backgrounds. Although many of these theories sound logical, none of them even attempts to capture the real reasons why this crisis happened. In this matter, it is our opinion that this financial crisis has come about due to weak policies from the government as well as the greed of corporations in their bid to make more money. In this paper, we set out to prove our stand by discussing in detail the governmental and corporate causes of the crisis. Government policies on handling financial institutions had a direct hand in the financial crisis happening. This is mainly because the government failed to regulate adequately the activities of banks and instead gave them a free hand in conducting their activities, even though these activities proved to be harmful to the economy. Furthermore, during the Bush administration, there was a strong bid by Republicans in Congress to force banks to lower their lending rates so that most people could have their own homes by taking more affordable mortgages (Holtzman 95). This had a direct hand in triggering the current crisis because many of these people ended up not being able to pay their mortgages and this led to a lack of liquidity, which created a panic. Enterprises such as Freddie Mac, which are government sponsored, were encouraged to buy securities, which were backed by mortgages, and some of these happened to be very risky ventures (Wallison). The government also helped to trigger the financial crisis when it misinterpreted the looming crisis as one, which was concerned with liquidity. To solve this problem, it responded by giving out a lot of money to people so that they could have more money to spend and in the process make the economy start to move again. However, things did not happen as predicted and instead, many people who got the money chose to save it instead of spending it. This government solution now became a problem because nothing happened as it had been expected to work. The financial crisis was something that could have been avoided and its occurrence was caused on a large part by the corporate greed, which aimed at gaining more profits through the taking of risks, which were dangerous (Chan). The ineptitude of the regulators of the financial sector to stop these tendencies by banks to take risks further made the situation worse and this almost led to a near collapse of the financial system. Those who were supposed to regulate the financial institutions lacked the morality to oversee and take action against those institutions that they were supposed to be in charge of supervising. These regulators, as well as the politicians who were allied to them chose to ignore the regulations and instead let the financial institutions do whatever they wanted to do (Sanchez 521). Those who headed the very large financial institutions practiced things that were illegal in their line of work and all this brought about the financial crisis because their attempts to make profits illegally came to fall apart. When this happened, instead of taking responsibility and dealing with the situation themselves as professionals, they showed just how much they did not know about the damage that they had caused by letting the financial crisis take place. The weakness of the leaders in some of the financial institutions caused some of them to collapse and others nearly did so if it was not for help from the government to keep the afloat and to maintain the confidence of their investors. Another possible cause of the financial crisis could be the policies that were put in place by Alan Greenspan, the former chairperson of the Federal Reserve. Greenspan encouraged policies, which brought about very low interest rates and this encouraged many to borrow money even though they had little or no savings and many had no jobs or any chance of getting any (Trumbull). To add to this, Greenspan while at the head of the Federal Reserve was very much opposed to policies which would regulate the financial sector and in this way make it secure from those actions which brought about the financial crisis. When the financial crisis came, many people were in huge debt with no savings and with very little chance of them being able to repay these debts. Many were driven to poverty while others had to move out of their homes and go to live with their parents so that they could be able to afford their basic needs. In conclusion, the current financial crisis could have been avoided if only those people responsible for financial institutions had taken the right steps to prevent it from happening. Many other companies would have remained stable and their employees would have been able to keep their jobs. The financial crisis that is being experienced now can be said to be due to the fault of the government for failing to regulate the financial sector, and the heads of major financial institutions who took unnecessary risks that brought all this about. Works Cited Chan, Sewell. "Financial Crisis was Avoidable, Inquiry Finds." New York Times: A.1. Jan 26 2011. Christopoulos, Apostolos G., John Mylonakis, and Christos Koromilas. "Measuring The Impact Of Financial Crisis On International Markets: An Application Of The Financial Stress Index." Review Of European Studies 3.1 (2011): 22-34. Holtzman, Richard. "What's The Problem, Mr. President? Bush's Shifting Definitions Of The 2008 Financial Crisis." International Social Science Review 86.3/4 (2011): 95-112. Sanchez, Manuel. "Financial Crises: Prevention, Correction, And Monetary Policy." CATO Journal 31.3 (2011): 521-534. Trumbull, Mark. "Causes of the Financial Crisis? Commission Ends in Hung Jury." The Christian Science Monitor: 12. Jan 27 2011. Wallison, Peter. "Government-Sponsored Meltdown; Fannie Mae did Not Contribute 'Marginally' to the Financial Crisis. it was the Source of the Declining Mortgage Underwriting Standards that Brought Down the System." Wall Street Journal (Online): n/a. Jul 12 2011. Read More