Financial crisis is an economic status where there are extreme difficulties. One of the economies that experienced adverse effects as a result of the crisis is the United States. The country faced extensive challenges that influenced the livelihood of the entire nation. However, it remains a challenge on who was the main cause of the financial crisis that left the economy of the United States immersed to extensive depression. The main groups that have been associated with the crisis are the government, Wall Street investors as well as American homeowners. Some analysts argued that the government was unable to control the financial market. Wall Street was blamed for lack of self regulation. Also, homeowners were extremely ignorant of the kind of mortgages they signed leading to adverse analysis on them as extreme contributors towards the financial crisis. However, each of these groups played some role in the advance of the financial crisis.
There are various activities that the government had allowed into the country that led to the rise of the financial crisis. There are some activities were taking place in the nation and were aimed at exploitation of the citizens of the United States. One of the actions that the government undertook leading to massive influence was the process of limiting banks’ activities as well as increase the cost and taxes for these banks. This was an announcement that was made by President Obama after the Massachusetts election that had proved to be extremely challenging. The government believed that these banks would have been a key player to the Great recession that was overshadowing the economy (Camdessus, 1999).
The other element that would have been major proprietor of the financial crisis through the government was ignorance in revenue collection for the government. There were no reliable measures put in place to ensure all individuals in the country paid tax for any business they carried out in the country. It was realized that various companies had avoided paying tax to the government for a long time. This is an indication that the government had become comfortable of the economic status of the country at the moment. However, lack of reliable taxation system was a major loophole through which the country lost excessive funds. This paved way for the major financial crisis that was experienced in the country as well as to the globe (Morgan, 2013).
Big banks were major contributors of the situation in the United States. Banks which are governed by the banking authority of the United States were far behind their roles. Instead, they were supporters for various ill financial activities that dearly cost the economy. Most banks mislead their clients through fraudulent securities. Clients were convinced by their banks to buy certain securities which had no value at that economic moment. Banks were well aware of the worthless securities that they were selling to their clients (Porter, 2013). This was one of the strategies through which banks were trying to make extensive earnings from the falling economy.
Previous administrations had also played critical role in the influence of the status of the financial crisis that had engulfed the country as well as the world. Being the superpower for the world, any problem with the administration would have led to the extension of the financial crisis. During the George W. Bush tenure, the nation was operating on budget deficits as well as deficits in trade. All these deficits required extensive funding. During his administration, Bush reduced taxes as well as financed wars without lowering spending rates for the government as well as raising revenues for the government. Immediately after getting powers from Bush through general election, President Obama was unable to settle various issues that were surrounding the economy. The Obama administration continuously ignored issues such as low taxation rates as well as the increasing unemployment rates in the country. Although, President Obama tried to come up with exclusive improvements for the economic status, there are some expenses that he was unable to cut especially on the war wages (Porter, 2013). Therefore, he was unable to energize the economy following the exclusive demerits that led to the existence of the financial crisis.
Republican and democratic politicians were part of the blame that would be passed to the government. They were not keen enough to educate the public on the dangers that were to take place on the basis of the incentives that they encouraged their followers to give in to. The politicians pressurized the mortgage companies and banks to facilitate ownership of homes by minorities in the country. There were regulations that had been passed stipulating that through the department of Housing and Urban Development approximately 55% of the loans that were extended by Freddie Mac and Fannie Mae had to benefit borrowers those who were below or in the median level of income. The chairman of the Housing Financial Services Committee of the Democratic Party was ready for the support of subsidized housing cost (Camdessus, 1999). He is among the large number of political leaders who were in business of assisting the public but was leading them to extensive trouble.
The other element that faces blame over the financial crisis is the Wall Street, which is the financial district for the New York City. This is a section of the United States that host various business activities. Therefore, it is a critical pillar of the economy of the United States. Being a home to various businesses extensive blame has been passed to the street. It is believed that there were several activities that were taking place in the street that attracted the financial crisis that was witnessed in the country.
One of the activities that had engulfed the United States is the irresponsibility of bank regulators operating in the Wall Street. There extensively high risk loans that were extended to the business people as well as companies in the Wall Street at the moment. The highly risky lending strategy that was highly embraced by the Washington Mutual Bank was the main challenge (Morgan, 2013).High risk home loans were extended to citizens who operated in the Wall Street. The bank had an idea that the high risk loans that were extended to individuals to purchase homes would earn the bank large interest in return.
Wall Street supported shoddy lending where mortgage companies such as the Long Beach Mortgage Company also took advantage to extend fraudulent home loans to the American people. As these companies approved loans for the public, there were extremely high chances of individuals being unable to repay their loans since there was an extended problem of economic imbalance in the economy. The financial system of the country had been adversely polluted where Washington Mutual Bank together with the Long Beach Mortgage Company had offered approximately $77 billion in high risk home loans (Morgan, 2013). Following the fame of Wall Street to the global business, it was used to sell securities to the entire globe. This led to the pollution of the financial system through mortgage supported securities, which later attracted extensive loss as well as high delinquency rates.
The Washington Mutual Bank also securitized delinquent loans to individuals without disclosure of the analysis given by their regulators on the possibility of the development of the banking system. Being aware that these loans would not attract any merits in future the bank extended the fraudulent claims filled loan to the society.
In Wall Street, destructive compensation was also supported where the Washington Mutual Bank had a compensation scheme that rewarded loan officers and processors for bringing in large volumes of high risk loans. Loan officers who overcharged borrowers or hiked stiff prepayment penalties were well compensated by the bank (Camdessus, 1999). This is an indication that there was the ill motive that the management of the bank had, over the activities that were taking place in Wall Street.
Also, to some extent the public would have been blamed for the alarming levels of fraudulent activities that were taking place in the country. In most cases, as these activities fashion up to cause the intended purpose in the economy, the agents of the activities target individuals. Therefore, they would use any enticing message to ensure they win the public to their ring. One of the elements that these people need to do is to identify the need among the clients.
In this case, the banks had identified that need for housing in the United States was common in all citizens in the country. Therefore, banks were looking for an ample platform over which they would exploit the available market. This led to the use of Wall Street which was known to be the home for business in New York as well as to the United States in extension to the entire world. Upon approach of the citizens by the Washington Mutual Bank and the mortgage company, there was explosive positive reaction to the incentives promised to the citizens (Porter, 2013).
On realization that there was an easy way to acquire a house in the expensive housing market of the United States citizens flocked into the bank as they sought mortgage loans. There were claims that were spread to the public indicating that this was the cheapest and best moment for the public to own houses. The public had been carried away by the offer to a point they could not realize there was extensive scam behind the scene.
The public was ignorant of all principles that make it possible for one to qualify for certain levels of loans as well as mortgages. They lacked adequate financial knowledge that would have forewarned them of the challenges that they were about to face in the name of accessing loans to assist them in acquiring homes. The remained ignorant of the previous expensive nature of loans and mortgages. Lack of knowledge was major contributor to them falling into the economic ditch (Markides, 2012).
However, through the above analysis it may be identified that the three parties may not be blamed to the same extent. The body that carried the heaviest burden is the government. All policies that operate in the country are government influenced. This means that the government needs be aware of the activities that take place in the country and be ready to work for the realization of the economic dream of a country. There are various elements that make the government the most suitable for the blame.
One of the elements is that they are the policy makers for the economy. There is no way the government would have allowed the bank as well as Mortgage Company in the country to operate under fraudulent securities. As a developed economy, the government of the United States needs to be extremely keen on the banking system of the country. This means it has to be conscious of all activities that took place through its banks. There is no way that these activities were taking place in the country without recognition by the government.
Wall Street being a major economic hub for the country must have been filled with adverse governmental policies. The government has recognized the street following massive businesses that are carried out in the street. The government would have paid close attention to the activities that were taking place in the region and work towards elimination of the factors that would have promoted the fraudulent financial activities.
Also, the government is the protector of the citizens of its country. The government had not prepared the country of the challenges that were likely to come up as a result of entry to any financial activity that seemed ill to the society. There was no extensive financial education that was spread to the public in the aid of securing the society from the frauds that they experienced. Bank policies would have been formulated accordingly to protect citizens from exploitation by banks in the name of mortgages (Porter, 2013).
Nevertheless, the government of the United States may play critical role in dealing with the problem in future. For extensive success, the government needs to focus on both economic growth as well as economic stability. These may be achieved following exclusive economic plan.
The first step that the government would undertake is the affirmation of the economic performance overseeing committee. This is a committee that would aid in monitoring all public activities as well as policies and ensuring that there is economic stability in the economy. It would ensure that all sectors were ready to ensure stability through protection of individuals or parties from exploitation by others. The committee would also eliminate all parties that would be out to take advantage of others in the economy (Jones, 2011). There must be long term and short term goals set for the committee to make the individuals achieve supremacy for the economy through the ability to identify the economically supportive policies.
The government also needs to make the rule very clear on the policies that would hinder economic development. All activities that are to be undertaken in the name of improving the livelihood of the citizens of a country must be defined through significant policies and must be in line with the economic goals of the country. For example, housing is a major requirement in the United States and for any organization willing to extend the merits over acquiring a house must come up with a favorable and realistic plan that suits all government policies and conscious of economic development (Markides, 2012).
The government may also fund development through being directly involved in certain development activities. The government needs to come up with a housing policy that will be funded by the government to assist the public in accessing adequate housing facilities. Banking systems need be controlled through government policies (Jones, 2013). These will fasten economic recovery as well as economic development for the country.
Whenever a problem comes in an economy, the government will always find itself fixed to the blame. Financial crisis was a major economic challenge to the economy of the United with the banking system of the country playing the most critical role. The government, Wall Street business individuals as well as citizens shared a portion of the blame. However, the government who is the master for all exclusively acquires the highest blame following the inability to contain the ill activities that were taking place in the economy. However, there are several steps that may be undertaken by the government to ensure economic stability and development for the country.
Works Cited
Camdessus, Michel . "International Financial and Monetary Stability: A Global Public Good?." International Monetary Fund 1.1 (1999): 1-8. Print.
Jones, Dow . "What the SEC Is Doing to Prevent Another Financial Crisis - WSJ.com." The Wall Street Journal - Breaking News, Business, Financial and Economic News, World News & Video - Wall Street Journal - Wsj.com. N.p., 26 June 2011. Web. 26 July 2013. <http://online.wsj.com/article/SB10001424052702303936704576400060053826734.html#printMode>.
Markides, Costas . "How to Avoid the Next Financial Crisis - Businessweek."Businessweek - Business News, Stock market & Financial Advice. N.p., 1 Aug. 2012. Web. 26 July 2013. <http://www.businessweek.com/printer/articles/64610-how-to-avoid-the-next-financial-crisis>.
Morgan, JP. "Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable - Forbes." Information for the World's Business Leaders - Forbes.com. N.p., 31 May 2013. Web. 26 July 2013. <http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/print/>.
Porter, Eduardo . "Solutions Remain Elusive After Financial Crisis - NYTimes.com." The New York Times - Breaking News, World News & Multimedia. N.p., 31 May 2013. Web. 26 July 2013. <http://www.nytimes.com/2013/04/24/business/solutions-remain-elusive-after-financial-crisis.html?pagewanted=all>.
