Cause of the Financial Crisis

Nowadays, it became a commonplace practice among many American economists and politicians to suggest that it is specifically the Federal government’s failure to introduce regulatory measures, as the mean of preventing banks from providing financially non-credible citizens with mortgage loans, which created objective preconditions for the outbreak of 2007 financial crisis. The close analysis of such an idea, however, reveals it being essentially deprived of a rationale.Advertising We will write a custom essay sample on Cause of the Financial Crisis specifically for you for only $16.05 $11/page Learn More The reason for this is quite apparent – it was namely the Democrats’ preoccupation with ‘combating poverty’ (under Carter and Clinton’s administrations) that resulted in passing of the infamous Community Reinvestment Act (CRA) and in reinforcing its provisions through the course of late nineties, which in turn gave banks a ‘green light’ to qualify socially-unproductive Americans for mortgage loans (Wallison, 2011). Moreover, the Federal government is being simply in no position to regulate dynamics on the American financial market de facto, since it has long ago delegated its monopoly on designing monetary emission-policies to the privately owned Federal Reserve System. Therefore, the suggestions that the government should pass additional bylaws, in order for the financial market’s dynamics to be more predictable, cannot be referred to as anything but the part of Democrats’ sophistically sounding but essentially meaningless rhetoric. In this paper, I will aim to substantiate the validity of this statement at length. Let us elaborate on the actual causes of the most recent financial crisis first. By the year 2006, the volume of so-called ‘non-standard’ and ‘alternative’ mortgage loans, provided by banks to Americans, accounted for 40%. In ot her words, almost a good half of mortgage loans were given to people that would not normally be qualified to receive them. Yet, even though that this particular financial policy did not make any rational sense, whatsoever, through years 2003-2006 American banks strived their best to cease the opportunity to simply ‘give away’ money to those citizens that were simply in no position to be able to afford repaying annual interest rates. Why was it the case? This was because, prior to the outbreak of 2007 financial crisis, the real estate market in America was experiencing a particularly dramatic growth. In its turn, this caused more and more Americans to realize that they could make utterly lucrative profits by the mean of buying houses with bank-loans, waiting for a year or two, without even being required to pay interest on the received loans, and then selling these houses for often twice as much.Advertising Looking for essay on business economics? Let's see if we c an help you! Get your first paper with 15% OFF Learn More Thus, as time went on, a growing number of Americans were beginning to perceive mortgage loans not in terms of an opportunity to buy otherwise non-affordable real estate per se, but rather in terms of an opportunity to indulge in financial speculations. This, of course, caused the growth of the real estate market in America to attain an exponential momentum. Eventually, American bankers concluded that ‘non-standard’ and ‘alternative’ mortgage loans could also be provided to citizens for investment purposes. That is, banks started to sell mortgage agreements and potential profits (which were yet to be obtained in the future) to each other. It is needless to mention, of course, that banks were not financing these types of loans with their own assets, but with largely virtual assets of some third parties. In other words, non-financially sustainable citizens were receiving personal mortgage loan s from organizations that were simultaneously applying for corporate monetary loans, in order to have these loans simply given away to as many people as possible. One debt was generating another debt, which in turn was ‘backed’ by another debt, and so on. Yet, there was an artificially maintained respectability to all of this, as the ‘reselling of debts’ became a widespread practice. The mechanics of how the proper functioning of American economy was being undermined from within were quite simple. The likelihood of a particular mortgage loan not to be returned was evaluated by credit rating agencies, which used to result in security equities being rated according to the extent of their perceived ‘riskiness’. Loan agreements, considered most ‘secure’, were easily sold. Yet, given the continuous boom of the real estate market, even clearly risky loan agreements could be successfully resold to investors. As a result, all the involved parties were able to benefit from participating in the scheme – banks could get rid of legally bounding agreements with private citizens, investors could benefit from making almost instantaneous profits, and private borrowers could close their mortgage loans – hence, qualifying to apply for new ones. This situation lasted for seven years, while resulting in the rapid growth of America’s GDP. Millions of citizens were making huge money out of the thin air, without being required to contribute to the de facto growth of the American economy.Advertising We will write a custom essay sample on Cause of the Financial Crisis specifically for you for only $16.05 $11/page Learn More Nevertheless, the sustainability of the earlier described debt-pyramid was maintained solely by the continual but thoroughly artificial growth of the real estate market, which was attracting more and more investors. In its turn, this growth came because, as of 200 3, Federal Reserve System reduced interest rates down to 1%. This poses us with the question – given the fact that the cause of financial crises has always been the lack of financial liquidy, what caused the lack of financial liquidy in 2007? The answer to this question is simple – it was the FRS’s decision to dramatically increase interest rates through 2006- 2007. In essence, FRS simply followed the classical ‘recipe’ of making a financial crisis, which it had already resorted to during the time of Great Depression. The consequential guidelines for making a financial crisis are as follows: a) Increase the money’s physical volume as much as possible, b) Create loan-agitation by the mean of qualifying even jobless people to apply for loans, c) Drastically reduce the amount of money in circulation and demand borrowers to immediately return their debts. What it means is that, far from being spontaneous, the financial crisis of 2007 was intentio nal and thoroughly regulated, with its foremost goal having been the elimination (due to banks’ bankruptcies) of trillions of ‘excessive’ dollars, printed by FRS without bothering to back up their actual value with any material assets, whatsoever. Therefore, the suggestions that this crisis came because of the America’s financial system having been deregulated simply do not stand much ground. Quite on the contrary – it is specifically because, ever since 1913, FRS exercises a complete regulatory control over monetary emissions in this country, that the financial crisis of 2007 was bound to occur. In this respect, the Federal government’s regulations simply assisted FRS. The validity of this statement can be well explored in regards to the passing of enforcing bylaws to the earlier mentioned Community Reinvestment Act of 1977, â€Å"Bill Clinton†¦ passed laws to enforce the original (CRA) bill. The purpose of the CRA is to force banks to make risky loans to people who can’t afford to repay those loans† (Knight, para. 1). In other words, the government’s meddling in financial affairs, as the part of governmental officials pursuing its ideologically driven and clearly utopian agenda of ‘eliminating poverty’, contributed substantially to the outbreak of 2007 financial crisis.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Apparently, left-wing politicians simply do not understand a simple fact that the proper functioning of the free-market economy cannot be ‘regulated’ and that if it nevertheless becomes the subject of regulations (especially if these regulations are being ideologically motivated), this necessarily results in the economy’s functioning becoming susceptible to crises. There is another aspect to the earlier argument – as of today, the Federal government simply does not have instruments to regulate the functioning of FRS. This is because, contrary to the provisions of U.S. Constitution, which endows U.S. Congress with the exclusive right to exercise a unilateral control over the process of designing this country’s financial policies, this right has been delegated to FRS – a private financial organization, over which the government does not have any control. After all, it is FRS that lands money to the Federal government and not vice versa. Can bor rowers control a money-lending organization? President Kennedy did believe that it was in fact the case, which is why under his Presidency, the U.S. Ministry of Finances issued $2 and $5 banknotes, backed by silver from the National Treasury. This, however, had sealed the Kennedy’s eventual fate. Therefore, the suggestions that the functioning of the America’s financial sector could be regulated by governmental decrees appear utterly fallacious. As the example of CRA’s passing points out to, the government’s attempts to regulate this functioning simply create yet additional preconditions for the country’s richest bankers, who own FRS, to act on behalf of their sense of greed, at the expense of undermining the economy’s vitality from within. As Randazzo noted it, â€Å"Ironically, it was government action (the enforcement of CRA’s provisions) that created incentives for financial firms to be less risk adverse, not a lack of regulation † (2009, para. 6). Thus, we can well conclude that the more a particular ‘progressive’ politician talks about introducing more regulations, meant to apply to the America’s financial sector, the more he or she is being in cahoots with those greed-driven bankers, who are supposed to suffer from these regulations’ enactment – pure and simple. After all, as the history indicates, recently passed regulatory measures (such as CRA), originally conceived to work on behalf of ensuring the American economy’s stability and the ‘underprivileged’ citizens’ well-being , did not only fail at that but they actually strengthened the acuteness of the ongoing financial recession. As the famous saying goes – the road to hell is made out of good intentions. Therefore, it will only be logical, on our part, to conclude this paper by reinstating once again that the introduction of new regulatory bylaws, designed to prevent the outbre aks of financial crises, such as the one of 2007, will not possibly change the situation for better. The reason for this is simple – the periodic outbreaks of these crises can be well seen as the very purpose of the FRS’s existence. However, since the functioning of FRS cannot be regulated by governmental decrees de facto, it means that the government cannot effectively regulate the financial market’s dynamics either. I believe that this conclusion is being thoroughly consistent with the paper’s initial thesis. References Knight, W. (2009). Democrats caused the recession and Republicans tried to  stop it. WordPress.Com. Web. Randazzo, A. (2009). The myth of financial deregulation. Web. Wallison, P. (2011). Hey, Barney Frank: The government did cause the housing crisis. The Atlantic. Web. This essay on Cause of the Financial Crisis was written and submitted by user Maryam Maddox to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

The Bear Came Over the Mountain by Alice Munro

The Bear Came Over the Mountain by Alice Munro Alice Munro (b. 1931) is a Canadian writer who focuses almost exclusively on short stories. She has received numerous literary awards, including the 2013 Nobel Prize in Literature and the 2009 Man Booker Prize. Munros stories, nearly all of which are set in small-town Canada, feature everyday people navigating ordinary life. But the stories themselves are anything but ordinary. Munros precise, unflinching observations unmask her characters in a way that is simultaneously uncomfortable and reassuring- uncomfortable because Munros x-ray vision feels as if it could easily unmask the reader as well as the characters, but reassuring because Munro’s writing passes so little judgment. It is hard to come away from these stories of ordinary lives without feeling as if youve learned something about your own. The Bear Came Over the Mountain  was originally published in the December 27, 1999, edition of The New Yorker. The magazine has made the complete story available for free online.  In 2006, the story was adapted into a film titled, directed by Sarah Polley.   Plot Grant and Fiona have been married for forty-five years. When Fiona shows signs of deteriorating memory, they realize  she needs to live in a nursing home. During her first 30 days there- during which Grant is not permitted to visit- Fiona seems to forget her marriage to Grant and develops a strong attachment to a resident named Aubrey. Aubrey is only in residence temporarily, while his wife takes a much-needed holiday. When the wife returns and Aubrey leaves the nursing home, Fiona is devastated. The nurses tell Grant that she will probably forget Aubrey soon, but she continues to grieve and waste away. Grant tracks down Aubreys wife, Marian, and tries to convince her to move Aubrey permanently to the facility. She cannot afford to do so without selling her house, which she initially refuses to do. By the end of the story, presumably through a romantic connection, he makes with Marian, Grant is able to bring Aubrey back to Fiona. But by this point, Fiona seems not to remember Aubrey but rather to have renewed affection for Grant. What Bear? What Mountain? You are probably familiar with some version of the folk/childrens song The Bear Came Over the Mountain.  There are variations of the specific lyrics, but the gist of the song is always the same: the bear goes over the mountain, and what he sees when he gets there is the other side of the mountain. So what does this have to do with Munros story? One thing to consider is the irony created by using a light-hearted childrens song as the title for a story about aging. Its a nonsense song, innocent and amusing. Its funny because, of course, the bear saw the other side of the mountain. What else would he see? The jokes on the bear, not on the singer of the song. The bears the one who did all that work, perhaps hoping for a more exciting and less predictable reward than the one he inevitably got. But when you juxtapose this childhood song with a story about aging, the inevitability seems less humorous and more oppressive. There is nothing to be seen except on the other side of the mountain. Its all downhill from here, not so much in the sense of being easy as in the sense of deterioration, and theres nothing innocent or amusing about it. In this reading, it doesnt really matter who the bear is. Sooner or later, the bear is all of us. But perhaps youre the kind of reader who needs the bear to represent a specific character in the story. If so, I think the best case can be made for Grant. It is clear that Grant has been repeatedly unfaithful to Fiona throughout their marriage, though he has never considered leaving her. Ironically, his effort to save her by bringing Aubrey back and putting an end to her grieving is accomplished through yet another infidelity, this time with Marian. In this sense, the other side of the mountain looks a lot like the first side. Came  or Went  Over the Mountain? When the story opens, Fiona and Grant are young university students who have agreed to get married, but the decision almost seems to be on a whim. He thought maybe she was joking when she proposed to him,  Munro writes. And indeed, Fionas proposal does sound only half-serious. Shouting over the waves at the beach, she asks Grant, Do you think it would be fun if we got married? A new section begins with the fourth paragraph, and the wind-blown, wave-crashing, youthful exuberance of the opening section has been replaced by a calmer sense of ordinary concerns (Fiona is trying to wipe away a smudge on the kitchen floor). Its clear that some time has passed between the first and second sections, but the first time I read this story and learned that Fiona was already seventy years old, I still felt a jolt of surprise.  It seemed that her youth- and their entire marriage- had been dispensed with too unceremoniously. Then I assumed that the sections would alternate. Wed read about the carefree younger lives, then the older lives, then back again, and it would all be sweet and balanced and wonderful. Except that isnt what happens. What happens is that the rest of the story focuses on the nursing home, with occasional flashbacks to Grants infidelities or to Fionas earliest signs of memory loss. The bulk of the story, then, takes place on the figurative other side of the mountain. And this is the critical difference between came  and went  in the title of the song. Though I believe went  is a more common version of the song, Munro chose came.  Went  implies that the bear is going away from us, which leaves us, as readers, safe on the side of youth. But came  is the opposite. Came  suggests that were already on the other side; in fact, Munro has made sure of it. All that we can see- all that Munro will allow us to see- is the other side of the mountain.