Aina news talk project

The Economic and Financial Crisis in USA

Our group was composed by Darius, Je and myself. We chose this topic because first, we are interested on Economics, and second it is a current issue that has a great impact on most of Americans and even on many economies worldwide. We tried to collect the opinion of two Economics Professor at SIU, using interview techniques. We asked them several questions about the causes of the crisis and its characteristics, the impacts on different sectors and actors of the US economy, the reaction of US Government faced with the crisis, the results of these actions and the lessons that can be taken from the crisis.
The origin of the financial crisis was the easy lending policy run by banks before 2007. This policy consists on lending money to people who do not give sufficient guarantee of reimbursement. Mortgage loan has increased dramatically because the prices of housing have risen and was very profitable, so there was a rush to invest in that sector. Banks contributed to accelerate the process by easy lending, guaranteed by houses. They also expected to make profit on the housing bubble even if their clients will not be able to pay back. Many people couldn’t pay back their loan and tried to sell their houses at the same time. Consequently, the prices of housing fell down and banks could not recover their money back. Between, banks have sold the mortgage to other financial investors (Hedge Funds) and then transferred the failure.
The crisis has led to the collapse of many banks and financial institutions in the US and caused trouble in the banking sector. US Banks became very cautious with lending and that had a great impact on economic activities depending on lending such as housing and industries. Private Companies were forced to cut jobs and expenses because the demand for goods and services has decreased. The US economy was in recession and households situations have been seriously affected because many people lost their jobs.
To respond to the crisis, the US Government tried to save some important banks from bankruptcy, by injecting directly money into them, in order to support their losses. Some big companies also benefited from this stimulus package. In addition to that, the Government tried to reduce the impact of the crisis on small businesses and households by cutting taxes.
The result of these actions was a positive economic growth during the three last months of 2009. However, the unemployment rate is still very high. According to Economists, the employment is the last thing that recover from the crisis. The trend would probably maintained until the end of 2010.
What are the lessons that can be taken from this crisis? First, banks and consumers have to be more careful with lending. Economists recommend reforms that make the financial sector more transparent. The degree of sophistication of financial instruments should be reduced and their valuation reviewed. The US should reduce the level of its debt, public and private, because countries that were not accumulating debt suffered less from the crisis.