Financial crisis is not a new word in today's economy. The world's economy has consistently been a victim of the financial crisis, and these cases will continue to happen. The global financial crisis in 2008 relates to the 1930's great depression that nearly brought down the economy of the United States. The actors in the financial sector have grown big and are becoming uncontrollable. These financial institutions have now become tough to monitor and control.
Government and central banks have a duty of controlling commercial structures through proper supervision and regulation of financial market (Flannery 275). Due to the recklessness of regulatory bodies to monitor the financial market, there was absent of responsibility to control the risks associated with maintaining financial stability.
This report aims at finding the causes and lessons learned from the economic crisis from a perspective of social analysis. To successfully undertake this we need to understand the concept of a given ideologies and framework in the society. Ideology is a combination of beliefs, ideas or perception that provides members of the society with an explanation of the community and its activities. Ideas provide a platform for understanding societal problems and mechanisms of addressing such problems (Singh 55).Dominant ideologies and structures help us understand the legitimacy of the society and causes of societal problems like the financial crisis.
Social analysis involves gathering and analyzing information to understand a problem or get an opinion on an issue that affects the society (Singh 75).Among the ideologies raised include neo-liberalism, neo-conservatism, socialism, transformative and hegemony ideologies and the roles they play in causing the global financial crisis of 2008. These beliefs give an understanding of what financial crisis entails.
Review
The economic times dated October 5, 2008, presented an article on the possible causes of the financial crisis (Crotty 565). Among the reasons that caused the crisis include bad lending, excessive leverage, and financial engineering. Among the leading causes of the financial crisis is the excessive leverage that banks offered. For example, a company of net worth $25 million could borrow up to $26 times it net worth which creates a leveraged fund of up to 650 million us dollars. When a small part of this company runs out of business, then it is a big blow to the bank which resulted in financial crisis.
In 2005 to 2007 property rates were increasing in a rapid fashion. Mortgage owners on seeing the possibility of maximizing their profits through getting more commission reduced their lending rates. Many customers received loans with sketchy lending history from banks and this lead to crisis. Banks had interest on loans rise throughout the borrower's lifetime, and some borrowers could skip payments. Depreciation in property rates and mortgage payment defaulters lead to bankruptcy, and this affected the Wall Street.
Mortgage was categorized by quality. The best quality mortgages were pulled together and insured then sold to institutional investors. It provides a more profitable investment were the cartels could receive more profit. A lot of money spent on such investment such that when the rates fell most of the companies involved in such transactions were declared bankrupt and could not perform in the stock market leading to financial crisis.
It is clear that greed, exploitation, and oppression of the fewer privileged members of the society contributed to the creation of the financial crisis. Property and mortgage owners wanted to amass wealth from the increase in house rates hence surpassed critical rule before offering a loan.
Analysis
Neoliberalism advocates for privatization of government properties, deregulation of labor and financial market. It promotes individualism and free enterprise while limiting government involvement in the business (Singh 58).It assumes all individuals compete in a plain platform irrespective of the accumulated wealth of the highly privileged members of the society. Among the pillars that these policies received promotion include free market, economic growth and public interest of the people in the community. Neoliberalism argued that competition and uncontrolled selfishness was of great benefit to the capitalist society and hence should be embraced.
Most of the large companies accepted the neoliberalism ideology as it was an avenue where they would exercise their selfish and expand their business empires. Most of the capitalist argued that government intervention in the management is not necessary because of the self-correction mechanism of the market forces. Implementation of neoliberal ideology across the globe leads to an increase in disparity in wealth and income and this lead to a rising poverty in poverty levels which was in contrast to the neoliberal theories that advocated for an increase in societal wealth.
Neoliberalism was the backbone of global wealth and income disparity which was one of the causes of the financial crisis. This ideology made the poor become poorer while the rich became richer as they got more profits from their investment; this is a clear indication of greed and thirst for power among the liberals. Following the demand deficiency, most households were forced into debt to provide for the growing needs of their families. Foreign countries hence invested their surplus capital in the United States in the process reducing demand in their countries even further.
The desire to get rich is an important aspect in an economical point of view as it fuels economic growth and development. The extreme greed among institutions resulted in financial crisis. Homeowners and mortgage originators agreed to manipulate lending processes for self-interest while bankers were paid a tremendous amount of money to manipulate subprime mortgages. Rating agencies and regulators received a huge paycheck from private institutions hence did not perform their jobs equitably. Besides, many politicians who were in desperate need of popularity and fame forced banks to lend money to uncreditworthy customers creating a global imbalance which later leads to the financial crisis.
One of the most underestimated causes of the financial crisis was the trade imbalance between the developing and developed nations. Through keeping their currencies artificially depressed versus the U.S. dollar many countries including China accumulated an enormous reserve of U.S dollar. These dollars were later recycled and introduced to the U.S financial system. The dollar had to lower its value thereby increasing the number of borrowers.
As many countries invested their surplus capital abroad, many institutions failed to keep up with the pace of internationalization of credit market and the rapid growth of cross-border banking resulting in the financial crisis. Inadequate regulation of the international market made an opening for an investor to manipulate services for their benefit. Through maximizing profits, the investors manipulated the market exchange to favor their activities thus creating the financial crisis.
In Economic, neoconservatives see the market as an important tool in the allocation of goods and services. These conservatives do not advocate for free and fair market structure as it favors market capitalist. Neo-conservatism had a basis of discrimination concerning race, sex or religion (Singh 60).A particular group of people had privileges that allowed them to thrive over others. Conservatives viewed equity and human rights as a breakdown of moral societal order (Singh 61).Neoconservatives use race or sexual orientation to gain privileges to achieve their economic goals and visions (61). This process results in income inequality and an increase in poverty levels in the minority groups in the region. Neoconservatives believe that social democracy and equity are the common reasons for economic and social problems
The result of this move is dismantling of legislation that brings investment in the economy and structural change such as labor standards and employment equity. This inequality causes an avenue for exploitation by capitalist through a price increase of core products which intern leads to financial crisis.
Transformative ideologies seek to change the society perspective on important aspects such as inequality, injustice and ecological destruction (Singh 62). Many transformative ideologies sensitize individuals on divisions based on class with higher level individuals achieving privileges in their business. Transformative ideas provide different opinion on how society should organize itself. The financial conflict resulted from unjust people who want to exploit individuals by race, gender, and social status. A sound financial system should be just, equitable and fair across all societal lines. Everyone in the society must work together to seek social structures that are just. It advocates that people work for their liberation and be well-informed of different types of oppression. Also, it claims that capitalist and dominant oppressive ideologies usually adjust with the current societal trends to maintain legitimacy. The unjust and selfish financial system of the day which focuses on profit taking and ignores citizen welfare results in financial crisis. The federal regulatory Reserve, FDIC failed in its mandate to protect the financial market and this lead to a financial crisis that nearly tears down the entire global economy.
Powerful people have a means of promoting a particular ideology to suit their interests and promote their authority (Singh 67). Such individuals end up creating a condition that can result in a financial crisis out of their selfish self-interest. Avoiding this menace involves reinventing ideologies to involve every member of the society.
Our community lives under pillars of vast economic, social, cultural and political inequalities which if not addressed will lead to another financial crisis in the future. The exploitative and discriminatory systems which hide their identity under popular disclose maintain status quo and fight against alternative methods that can improve the society's welfare(Singh 68).These issues spread the roots in the community and become very hard to part ways with as a result end up creating a crisis that affects the entire globe. These arrangements that aim at protecting individual institutions are known as hegemonic arrangements. These methods lead to oppression and inequality that promotes the development of social problems like the financial crisis.
Hegemonic disclosures urge that the economy is flawed and imperfect, and the superiors should lead the minorities as the minorities are psychologically weak, dependent and easily manipulated. Also, it claims that inequality and competitive individualism are the most efficient way of shaping the society (Singh 68).This ideology leads to the development of aristocrats who amass wealth and own large tracks of land and as a result start exploiting the poor. This system assists the Imperial group, and nations get more riches at the expense of others. The less privileged individuals in the society experience high levels of poverty and as a result, look for loans from a banking institution which exploits them by increasing loan rates and stock exchange. These events lead to a social crisis.
Triangular model is useful in determining how dominant ideologies result in social crisis and how societal structures reinforce these ideas (Singh 78). It looks into how the different ideas constitute to oppression and discrimination and explain how the dominant ideologies manipulate the subordinate group through misrepresentation of data and manipulation of results. In the film the coffee trade, it is clear that the global financial institution, multinational cooperation, and western government have a hidden agenda of exploiting the market for their personal gain (78).
Exploitation is a clear indication of transformative ideology used upon needy individuals. Trade regulations formulated by the wealthy western nations keep people in developing the country in an improvised state. Exploitation and the change of rules on substantial financial sectors resulted in financial crisis. Many cartels corrupted the stock exchange to suit their economic needs while ignoring other people in the society. These selfish acts by the high-end society members lead to poverty, inequality and discrimination that play a role in creating a social problem such as the financial crisis.
Conclusion
This report indicates that the economic crisis was a result of a combination of failures in capital markets, exploitation, and greed of financial institutions. Transparency and reliability are essential to each country surge forward from the turmoil of economic crisis experienced in 2008.Improvement of transparent and reliability levels in our financial institution will play a bigger role in preventing reoccurrence of such events.
The response by several governments globally after the financial crisis is to stimulate their economy (Goodman and Louis 65). Many countries seek to increase international market regulation to increase faith in the market. Social analysis of global conflict has shade light on the root causes of this problem; the different ideologies explained indicate a great similarity to current problems experienced in the economy. Adequate measures have to be taken to ensure the market is free and safe from the exploitation and oppression of capitalists.
Ignorance on the factors that result in global inequality and social problems will help in maintaining dominance and exploitation globally. Without proper mechanisms of fighting financial crisis most economies will be destroyed.
Work cited
Crotty, James. "Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture.'" Cambridge Journal of Economics 33.4 (2009): 563-580.
Flannery, Mark J. "Using the market information in prudential bank supervision: A review of the US empirical evidence." Journal of Money, Credit, and Banking (1998): 273-305.
Goodman, John B., and Louis W. Pauly. "The obsolescence of capital controls: economic management in the age of global markets." World Politics 46.01 (1993): 50-82.
Singh, Chet. "Applying concepts and frameworks of social analysis." : 54-90
