When Good Things Go Bad

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Now that the cake is in the oven, the product that people like Michael Burry and Mark Baum in the movie had long been expecting was coming into form – a global economic and financial disaster. When the bubble burst, a plethora of unfortunate events not only in the United States but also in the whole world came into existence. Large investment and commercial banks went bankrupt and some were only bailed out by the government. Mortgage lending facilitators crumbled heavily. Companies that were dependent on credit instruments suffered. And more importantly, a lot of people, both local and international, lost their jobs and homes and were left off wandering and wondering what would happen to them and their families.

However, in order to try to cure the almost spoiled global economy, the US Government had added various servings of standards and policies. One of which is the Homeowner Affordability and Stability Plan which aimed to give financial support allowing the homeowners to refinance their mortgages. This preservative enabled the restructuring of sovereign and household debt. Furthermore, in bringing back the sweetness of the economy, the US government implemented the $787bn American Recovery and Reinvestment Act. This additive served as a fiscal stimulus to boost the economy by cutting taxes across a wide range of areas. Also, through its Dodd-Frank Wall Street Reform and Consumer Protection Act, the performance and transactions of the companies are now keenly monitored. This act changed the financial regulatory environment to prevent the recurrence of the events that may possibly cause another financial crisis. In addition, since different Credit Rating Agencies bear some responsibilities to the financial crisis, policymakers set some rigorous regulations to eliminate flaws in their rating methods and to improve transparency and accountability.

Moreover, to bring back the flavor to the souring economy, the government enacted the Housing and Economic Recovery Act which created the Federal Housing Finance Agency to regulate and oversee the Fannie Mae and Freddie Mac. Also, federal conservatorships, through the transfer of money and loans were put into administrative supervision, was made possible through this law. The supervision allowed for a more transparent market transaction.

Also, the Fed responded aggressively to the financial crisis by employing a number of programs designed to support the liquidity of financial institutions and foster improved conditions in financial markets. One of the most significant efforts is the lowering of interest rates to increase liquidity and accommodate the purchase of long-term securities.

In addition to the Fed, the US Treasury made significant contribution in alleviating the financial crisis through the administration of capital injections into troubled financial institutions in exchange for preferred stocks and equity stakes and implementation of credit easing by purchasing mortgage-backed securities and Treasury bills. Effects of the policies were stimulative in a way that it depended sensitively on the particular mix of lending programs and securities purchases that it undertook.

Various institutions in the world followed suit in implementing similar policies mentioned above in their respective countries that were affected by the financial crisis. Together, these institutions tried to save the spoiling global economy by utilizing fiscal and monetary policies to stimulate consumption and economic growth.

After considering the policies above, it is suggested by the group that a dash of financial literacy should be sprinkled over the working class to improve the palatability of the almost-spoiled economy. Financially literate people will be able to make informed decisions in managing and using their savings. This will create an overflowing flavour of responsibility and accountability in the economy. It will also prevent voracious capitalists and commercial banks from taking advantage of people’s investments.

Different ways to sprinkle this financial knowledge are available such as through workplace seminars, school-based financial education, and community initiatives. Private sectors could also use the vast reach of the online social media sites to spread the taste of financial education. An example of this is the creation of online personal financial investments and savings calculators always available at their disposal. Government initiatives such as financial awareness campaigns are effective if properly packaged in a compelling manner and specifically targeted toward the desired audience.

Finally, for the last touch, scrape off the excess greed and moral hazards around the spoiled economy by implementing public policies that will promote credit and mortgage counselling by commercial banks. This will ensure that providers of loans will fully disclose the expected risks and returns associated with the transactions. Investment banks must also be compelled to regularly inform the investors where their money goes and how it performs. By investing on their human capital through educating them will lead to a healthier economy and an assured economic growth for the whole world.

It all started with the dream to create a tasteful and satisfying economy for everyone. Though fuelled with good intentions, it was mixed with rotten interests and substandard policies, baked in unregulated financial markets and institutions. It resulted into a mouth-watering and delicious-looking economy with a spoiled hollow inside waiting to crumble and deflate any second. And when it finally collapsed, it left a lingering bad taste for all the countries in the world.