Saturday, July 27, 2019

Did Government Housing Policy Cause the Financial Crisis Essay

Did Government Housing Policy Cause the Financial Crisis - Essay Example This research will begin with the statement that the global financial crisis that started in the year 2008 had serious negative impacts on the investment in most parts of the worlds. The global financial crisis marked a period of failure of many financial institutions, increase in unemployment and reduction of the capacity to invest. In the Gulf Area, most countries that highly dependent on the oil industry faced a period of reduced investment. Therefore, the period saw an increase in the poverty level as investment reduced and the people remained without jobs. The high unemployment rate and the collapse of the financial institutions cumulatively limited the potential of individuals and corporations to invest. There has evolved a controversy on the possible causes of the global recession different authors providing different perspectives on the same issue. While some agree that the government housing policies that allowed the provision of subprime loans and mortgages was the reason f or the issue, some argue that it was caused by the stagnated workers’ income. From the close look at the problem, it is clear that instability in financial income was a major cause of the problem. The government housing policy required that the banks offer cheap loans and mortgages that the people could afford to buy houses as part of its commitment to house its citizens. As a result, the people shifted their attention from investing to purchase of assets such as cars and houses. According to the economist, the result of the government housing policy was the rise in the greed for money that ended up buying dodgy securities. The idea of the author is that the government policies resulted to use of money, not for investment but in the project that did not generate income. As a result, the people could not afford to back debts and the banks and this is the reason why the banking sector went down just before the financial crisis set in. The Lehman brother’s global bank is an example of the banks that failed because of too many defaulted loans. However, statistics show that the house ownership rate only increased by 4% even after this low, indicating only a small difference from the time when the policy was not in play. This shows that other reasons could have been the cause of the global financial crisis.

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