on December 5, 2008 by Adam in Uncategorized, Comments (2)
Who is Responsible for our Financial Crisis?
Who I ask is responsible for the financial crisis of 2008? (If you don’t feel like reading this post but have your own notions of who is responsible then please feel free to comment without reading the below).
This is a very hard question to answer, and I for one certainly do not have a definitive answer. I can, however, provide some clues as to what put us in this situation. The average American consumer saved 10% of their annual income in the 1970s, now the average consumer saves 0%. The national debt is over $10,600,000,000,000!
Going back to personal savings if Americans were able to save 10% of their income and avoid going into debt we would not be experiencing depression today. But going back to the root problem, if rates weren’t so low then people wouldn’t be so enticed to borrow so much. However if rates weren’t raised (which they were before the mortgage crisis) most likely most homeowners would be able to make their house payments.
Tags: Bill Clinton, depression, George W. Bush, gold standard, inflation, Jimmy Carter, Richard Nixon, Ronald Reagan
Roger
December 7, 2008 @ 6:57 am
Actually it all started from the late 1970′s and early 80′s when the interest rate jumped to double digits. The events can be simplified and summarized as the following chain reactions:
High interest rate of late 70′s and early 80′s. ==> Trouble with the Saving and Loan Institutions in the late 80′s to early 90′s due to the fact that their income was from the differentials between the interest they charged on their housing loans and interest paid to the depositers. To keep the depositers, they had to pay high interest, and then charged even higher interest rate on their real estate mortgate. But then the housing market soft but they still had to pay high interest rate to their customers. ==> S&L failures triggled the Government intervention and bailout and the formation of the Resolution Trust Corp (RTC), a government-owned asset management organization to liquidate the “bad assets.” ==> To solve the S&L problem (housing recession) and to combat the recession in the early 90′s, Interest rate then was set to a very low level to stimulate the economy (too low in retrospect) ==> housing bubble starts to form and sub-prime loans and many other mortgage back financial instruments were begining to fly. ==> bubble grew bigger and then “Beng”.
Can’t find a single person to blame.. every one who spends more than their means should bear part of the responsibilities as well.
Adam
December 7, 2008 @ 7:02 am
unfortunately those that were responsible with their money will also suffer from the economic downturn