Three major crises hit the year 2008 which will always be remembered for its severity. First, it was the food crisis which raised food prices that became unaffordable to many poor people. Then, the oil crisis which brought prices to unprecedented levels. As we now go to the last quarter of the year, there is the global credit crunch which could lead to the failure of the world’s financial system.
For almost the whole month of September, my attention was grabbed by the looming global financial crisis which brought respectable institutions in Wall Street to its knees. No, I don’t profess that I am one of those experts who by now would be touting their different analysis of the situation. But I believe that what’s going on around the world will have an adverse effect on our lives. Yes, even simple folks like us who do not even have anything to do with the current mess the world is into.
Whether we like it or not, we have to accept the reality that we have to face the crisis with whatever little resources we have. To cope with and to hope that we can weather the storm that is about to lash the whole world. We have to prepare for the consequences of unregulated greed.
From a layman’s perspective, let’s try to have an understanding of what this crisis is all about.
What Really Is This Crisis All About?
For every one of us, owning a house of our own is the fulfillment of our dreams. A house of our own is the crowning glory of all our aspirations and perspirations. It is our own sense of security. This is normal for every man in every normal times. But what was strange was the high number of defaults when the global economy is not even experiencing recession. GDP or Gross Domestic Product worldwide is at a respectable level. Unemployment statistics are low.
Why are there a high number of defaults and foreclosures? Why the high number of lost dreams?
The crisis was felt sometime in August of last year when two large U.S. government-sponsored institutions involved in the housing and real estate loans, Fannie May and Freddie Mac, started asking their government for help. Mortgage foreclosure is going up, which means a real high number of borrowers could not pay their housing loans.
With the high number of defaults, come the tumbling down of real estate prices and housing demands. The bubble that was built up through the years of high demand and speculations suddenly burst.
The frenzied competition by banks to be number one lender is coming to an end. Their unrelenting manipulation of every man’s desire created a monster that is turning against them. Banks would be saddled with a mountain of debts that is now worthless. At the same time, investors who helped blowing the bubble with their speculations suddenly realized that what they are holding on to was not even worth anything. They want their money back at all cost.
The Blame Game
With every failure comes the blame game. Depending on which expert you will be talking to, the blame lies on the realtors, the real estate brokers and agents who in their haste to earn their commissions, may have not provided the necessary advise to their clients regarding the debt obligations they are incurring; the mainstream banks who provided and enticed consumers with easy home loans even to those who really could not afford them; the financial wizards and experts of Wall Street who engineered a complex web of financing schemes to buy one another’s debt and seem to erase one another’s risks; and the U.S. government for its failure to regulate the speculative nature of everything that is traded in Wall Street.
Everyone must assume responsibility. The events that preceded this crisis points out that ethics and conventional wisdom in doing business has been sidelined in exchange for a hefty profit. For the consumers, a way of obtaining their dreams without proper self-assessment of their capacity to settle the debts they have incurred.
A little greed is acceptable to make business, but too much of it will bring the whole ivory tower down.
Ethics and The Economy
Let me quote Archbishop Diarmuid Martin of Dublin, Ireland: “The economy has a social function. Economic growth, no matter how important, is never simply an end in itself. It should lead to social equity, to an equitable growth of society and to enhancing the people and the human infrastructures which strengthen society. Economic growth always brings with it social responsibility. Uncontrolled growth has rarely produced sustainability. If I were asked for my description of uncontrolled economic growth I would turn to the biblical insight of the Tower of Babel. The biblical story talks about people who felt that they now had the ability to build a tower which would link heaven and earth. When people think that they can have uncontrolled growth, very often what happens is what happened at Babel -- the tower collapses and the people become divided (Zenit.org).”
The lessons from this mess must be taken seriously. What happened will surely be remembered by all for many years to come. Everyone went overboard; some discipline must again be placed at the forefront. Unfortunately, there is now only one way to go - move downward and live within our means.
Governments are now scrambling for solution. Recession and inflation must be avoided at all cost. One solution that was proposed and about to be implemented is to buy all these worthless assets. Experts say this move could save banks in the short term, others are apprehensive because it will require the public’s fund to bail out even the worst offenders who brought us into this mess. Legitimate productivity businesses are worried there would not be any credit available to drive their operations. People are afraid they will lose their jobs. Additional taxes may be necessary to raise the needed fund in the proposed solutions or to shield a nation from the widening crisis.
Expediency over effectiveness seems to be the only option left to avoid recession, inflation or worse, the collapse of the global financial system. But again, if left unchecked by self-restraint of greed and an honest to goodness soul-searching, the cycle just goes back to where this economic mess started.
