Posts Tagged ‘economic crisis facts’
The Economic Crisis
The global economic crisis began in September 2008 with failure of certain large US-based financial firms and the insolvency of many companies. The root cause of the crisis was the subprime mortgage crisis. The lack of regulation and risk control in the US financial sector spawned the sub-prime crisis. Banks, in their ongoing greed for profit, began lending huge amounts to people who could ill-afford such loans. In addition, the loans were poorly secured and the mortgage did not cover the value of the loans. These “toxic assets” soon made banks insolvent. Banks closed down or went into liquidation and the economy began spiraling into disaster.
The source of the problem is therefore the lack of regulation. If the market was appropriately regulated and the regulations enforced, banks would never have been allowed to lend against assets that did not cover the value of the loan. Being certainly the seat of capitalism, the United States has always preached de-regulation. The market was supposed to correct all abnormalities by itself. This current crisis has shed light on how false this capitalist theory has proved to be. An appropriate level of regulation is always necessary to ensure that everybody behaves as they are supposed to and no one acts against the public good. In any case, the economic crisis has already crossed the doorstep and is well into the house. While we need to stimulate the economy back on track (as President Obama is proposing), we also need to bring the right dose of regulation to the market so that such a thing does not repeat in the future.
