Mounting unemployment rate, depleting economy, dwindling foreign reserves, plummeted exports & trades and poverty are some escalating issues which we have been encountered from last 1 and half year, which not only broken the back of the officials but also throw the whole world including the government into a severe distress.
No one even think that the world’s economy as whole can plunge as badly as it did recently, but truly it was the current financial crisis tsunami which suppressed cruelly the people and other officials to think in this manner as well. A large number of people are still unaware with the term financial and credit crisis. From an Economist view point, a financial crisis occurred when a conflict disordered the money supply and wealth of the economy, or in laymen terms it can be said that, when a shortage of cash and liquidity prevails in the economy, it is referred to as financial or credit crisis (Krugman, 2001). The term financial crisis is applied to a number of scenarios or situations where the financial institution of a country abruptly looses a large part of their asset. The world suffered enormous number of severe financial crisis after the World War II but not a single one resulted in shrinking the world economy in an offense, like the current financial crisis did (Krugman, 2001).
Before the arrival of the current financial turmoil, the world’s economy as a whole was stagnate and was moving with a good pace. Almost all the economical indicators like balance of payment, Foreign Direct Investment (FDI), trade surplus, consumer price index and underestimated unemployment rate showed green signals in the long run for the economy. The main prospective of this study is quite straightforward. We have to criticize the working of the Banks in the current economic downturn. The critical includes the ethical criticism and the motivational criticism as well. We will first define the financial crisis, like how it came into being and what sort of threats it has left on the economies and on the banking sector as well. Let’s start our analysis.
The Origination of the Current Financial Crisis and Economy of US: In July 2007, confidence of the peoples tumbled from the real estate market and mortgages, known as sub-prime mortgage crisis, from there the United States (U.S) market plunged in a severe recession. The mortgage crisis hit badly, the two biggest mortgaging firms Fenny Mae and Fredrick Mac and suppressed them to be default. Because of the default of the two giant mortgaging companies, the moral and confidence of the investors tumbled and the people were reluctant to invest in the real state sector, then the cash shortage occurred in the market in the year 2007, which pushed more industries towards the brink of the bankruptcy.
In September 2008 financial institutions of USA suffered a severe loss first time after 2 to 3 decades, and urged the giant investment bank namely Lehman Brothers and Morgan Stanley to be bankrupted, which had made the economy and financial environment a very difficult time for the economy of US as well as the economy globally (Sorkin, 2008). American International Group (AIG) had insured many billion of dollars of securities and loans pledged held by a number of banks around the world and after its failure, the money they have rendered became worthless. As per an estimate the banks pledged over $50 billion in credit with the company which have been lost after the bankruptcy of the biggest group of USA, which urged the liquidity crunch to come on the screen. Before the financial crisis tsunami hit the world the United States of America was dominated the world with its strong economy and currency. A number of countries in Asia, Middle East, Russia and Europe were indulged with USA in exports and imports business and by the tumbled or deteriorated situation of USA; the said countries also envisaged a negative impact on their economy and from there the financial crunch spread globally like a forest fire. American economy are mainly emphasizes on credit, albeit every household borrow money homes and car loans recurrently that’s why the country didn’t imposed any limit on the credit cards of the enterprises and not even on the individuals, which induced the major lending and investing institutions to envisaged a deeper recession, which was the worst after the World War II great depression. Citigroup is one of the victim of the severe financial constrain (Appelbaum, 2009). The group recorded the biggest loss in the financial year of 2008 in its corporate history and slashed 30,000 to 40,000 jobs across the globe. Hundred of thousand of jobs had been lost in USA as well as from the world, as every industry cut down its workforce to condense their expenses. Due to the dominating power and instinct of the USA, the country must influences world’s economy as a whole and leaves a positive or negative impact on the economy with respect to the fluctuation in the economy of USA. More precisely we can say that the current economical crisis and sharply decreasing US economy are the two sides of a same picture, as the USA plays a decisive role to viable the financial crisis. Nevertheless Obama, administration came up with a stimulus package of $787 billion to keep the economy back on track. The Government of USA took some brutal action to broaden the Income Tax slab for the corporations to 50 percent and imposed a limit on the remuneration of the Executives to $500,000 per year (Sorkin, 2008).. After having a look over the commencement and major causes of financial crisis and its consequences on the US economy, now let’s take a look over the different dominating economies to get an idea about the impact of financial crisis on a particular economy and its consequences. The economy of United States’ is inevitably the essential for society. However, throughout the history, as the economy has grown, serious consternations and imbroglios have come up, but no one was as severe as the current financial crisis, which totally leaves the economy stifle.
The poverty rate of the country nowadays is extremely high; the minimum wage criteria are not at all adequate in providing for a family or any other jobless person, and the mounting factor of discrimination and inequality, which can be seen in all over the employment frontier made the life wretched for the country. Also, many businesses are loathing enabling employees to form unions within the premises of the organization. These problems in today’s time have led to sombre dispute for change in the economy. However, it is easier said than done. “Making Ends Meet,” As mentioned earlier that the poverty and the low minimum wage are a big problem in the economy, which is continuously escalating from last few years and the current economic downturn prolong this thing up to a discretionary level. The unemployment and poverty rate has remained largely unchanged since the year 1960. It has been observed that through estimation that approx 32.2 million Americans live below the poverty line (Sorkin, 2008). These people are also having scarcity of sufficient funds to help their families. According to the statistics, an enormous number of Americans are struggling to stay financially stable and sustainable. No doubt, low income for the less wealthy, the minimum wage is simply not enough money to make ends meet. The poor people of the country working full time outrageously but cannot even make enough to bring them above or completely extract them out from the poverty line. Factually speaking that almost in every economy there are a numerous people going in poverty, due to the adverse effects of the current financial crisis tsunami. The problem is not persisting with the poverty; the problem is the quantity of the peoples, which constrains too many people to stay in that category than there ever should have been. It is true fact that, if the people of the country have not enough money to fulfil their basic necessities, so how they going to invest their money and contribute to country’s economy. The other mounting problems envisaged by the economy such as discrimination, inequality and the prevention of forming unions is also should not to be taken lightly. According to my perception, discrimination is the largest presumable issue in the economy. It is preventable because it involves the factors of social change. Discrimination among gender, age, ethnicity and religion are all discriminated against in some part persist in the economy, and this particular thing escorts to inequality within the labour force of the country. For instance, it has been observed that, in some businesses, men are paid more than women, and some African Americans are denied employment or are left as a last resort when hiring. And it could all be prevented if there were no prejudice. The government of the USA has to cautious enough to mitigate these factors and elements from the country; otherwise it would be cent percent chance that the economy will completely dwindle in a severe recession from the excretion would not be tranquil