Economic Crisis

September 25, 2008

Our nation is currently experiencing a deep financial crisis due to major financial institutions, investment banks and insurance industry failure.

It all started crumbling like the house of cards beginning with Fannie Mae and Freddie Mac, Lehman Brothers, AIG and others in line with bad loans from the sub-prime mortgage crisis.

The economic meltdown in late 2006 precipitated nationwide housing market decline with saturated equity borrowing.

The entire network in the real estate and financial sector with hedge fund managers, underwriters, financial institutions processing the mortgage applications, mortgage brokers, realtors, homebuyers and sellers were primarily interested and vigorously involved in promoting and wrapping the deal with minimal and/or non-compliance of the standard rules and regulations that are specifically set up to avert such catastrophe.

The housing market bubble eventually burst contributing to credit crunch and massive foreclosures across the nation.

The commercial sectors were also hit in the process due to lenders streamlining measures and Congress legislation in an effort to slow down the escalating credit crisis.

Subsequently the ripple effect was felt in the job market with small businesses and medium size corporations struggling to maintain their credit limit from the sharp increase in interest rates on the borrowings and capital depletion essential for survival in the highly competitive market economy.

Meanwhile, some investors diverted their attention from real estate to stock market for short-term gains and as a result certain stocks earned the preferred status in stock value despite any performance history.

The stock market was warming up with superficially inflated stock prices along with futures trade speculation on oil stocks mostly responsible for the crude oil price elevation triggering the sensitive energy crisis.

At the top level, the monetary authority and incumbent administration as the economic growth and development oversight implemented policies including lowering of prime rates to an unprecedented level in recent times creating opportunities for financial institutions to outreach borrowers with no solid credit history.

The executive branch euphemism to display patriotism through home ownership factored for unscrupulous practices in the housing market debacle.

It has further come to light that some legislators are beneficiaries of personal financial deals as VIP PATRONS of the failed financial institutions such as Fannie Mae and Freddie Mac, Lehman Brothers and more.

However, it does not exclude Presidential contenders’ campaign advisors confirmed to be the financial institutions’ lobbyists/former executives enlarging the oversight conflict of interest.

Hence proving the theory….corruption and cronyism thrives in economic and political systems.

Strategy:

The government proposal to bail out these Corporations indulging in reckless undertakings with staggering $700 billion of American taxpayer’s money is currently debated in the House of Congress.

There is also anxiety over the executive branch cavalier approach for the clean bill immediate approval without tax payer investment protection or oversight for an unprecedented and historic venture.

The irony is the Treasury Department and the Federal Reserve Bank with the primary responsibility to monitor and recommend any regulation in the financial sector is experiencing labor pain after nearly twenty two months gestation and demanding Congress to deliver regardless.

With current Presidential race in process, one has to hope that this situation does not lead to the controversial Pro-Life vs. Pro-Choice debate on the financial crisis.

Congress favoring Pro-Choice to ensure the bearers safety and security would be prudent particularly with taxpayers bankrolling Corporations bailout and their erroneous decisions.

The urgency to regulate the financial sector granting unilateral authority to an individual – the Treasury Secretary with a sum approximately equivalent to Argentina and Chile’s combined GDP arouses legitimate skepticism among legislators on both sides of the aisle.

Some of them reminisce the current administration’s similar demand prior to invasion and occupation of Iraq.

Remedy:

Since the bailout is imminent and crucial for the stabilization of the financial markets, it is imperative for legislators to secure investments with conditional offers.

Several economists and experts have come forward and presented their thoughts and strategies for the existing national crisis.

1. The consensus among all of them is to establish an Independent Oversight with no Special Interests or Lobbyists infiltration posing conflict of interest.

2. Oversight Committee to approve after reviewing the proposal to invest in mortgage-backed securities to relieve the remaining financial institutions from the bad debts burden.

3. These securities purchase price carefully taken into consideration with a set profitable return upon instruments sale would be beneficial. It is also important to identify the buyers and sellers.

4. Open Bid transparency during investments’ sale or purchase is vital for investor confidence and value enhancement.

5. Corporate Executives pay off for poor judgment and weak performance eliminated as a precedence to existing and future Corporations heading in that direction would prevent repeat mistakes.

6. The hedge fund managers subjected to strict scrutiny and ethical standards is vital in addition to management fees and asset allocation determined in a manner to yield nothing less than profitable return to the investors i.e. the taxpayers.

7. Moratorium on foreclosures in bipartisanship agreement would relieve homeowners across the nation.

At the same time, the home owners to be evaluated on individual basis by the lenders with Oversight Committee alongside and encouraged to make payments equivalent to rental payments or interest only on revised mortgage package whatever is affordable.

Again, this offer made available only to the first home buyers dealing with foreclosures.

Successful sales and marketing of foreclosed homes to potential investors could expedite the housing market revival besides helping communities restore social and economic security through property taxes used for funding public school education and other services.

8. External audit on financial institutions listed as risky and brought to public focus would restrict undesirable activities.

9. The firewall resurrected between the commercial and investment banks protects public funds.

10. Sound and solid lending practices in both private and public sector would energize markets.

United States economy has proven record of accomplishments to rebound following crisis throughout the twentieth century.

The United States economy is resilient with a highly productive work force that has risen to the occasion and challenged the market forces acting against it.

The economic boom will resume and prosperity shared by the global markets.

The temporary turmoil in the market will be settled with prudent economic strategy, robust fiscal policy, leadership and confidence of the people of the United States of America.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Economy, Featured 

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