Americaʼs Financial Institutions in Turmoil: Dymphna Boholt's Short History Lesson

Dymphna Boholt here with some thoughts on the recent financial collapse of the American financial institutions. It seems, irresponsible lending practices of greedy American enterprises could cause serious harm to economies around the world.



Americaʼs problems began in the 1990ʼs however; they didnʼt come to fruition until the spring of this year. In 1990 the US government granted power to banks to make home loans to unqualified buyers, just to increase the number of homeowners the USA. Poorly regulated lending practices led to banks offering home loans to people who could not afford them. Greedy corporate lenders were actually lending money to people who had NO income, just to increase their portfolios and manipulate larger bonuses.



With the crushing effects of skyrocketing energy costs, couple with low median incomes, the middle class of the USA began to see their disposable income dry up. Their funds ran out. This caused more and more Americans to foreclose on their homes. Once Fannie May (the institution granted power to guarantee these loans) went under in the summer, banks holding sub prime loans began to collapse.



It wasnʼt just Fannie May and large banks that had stakes in bad loans. Americaʼs leading investment firms like Goldman Sachs, Merrill Lynch, and Lehman Brothers, owned huge amounts of these sub prime loans. Once these loans started going into default at alarming numbers, the worst in decades, the investment firms began losing large amounts of capital, and found themselves going under.



Immediately, on the news of a financial crisis, markets around the World began to fall by 5% and more. The USʼs self made problems caused a chain reaction of sell offs across the globe. Foreign markets began to plunge causing some countries to suspend trading in order to stave off a depression.



Well, itʼs not over. Just this week AIG, Americaʼs largest insurance company, received a second bailout. Currently, the US government owns over 60% of AIG. AIG has assets in nearly every country in the world, including Australia. If AIG canʼt get its act together, you will see some financial troubles coming down the pike locally.



Basically, Dymphna Boholt concludes that the great USA and all their greed and irresponsibility have led to a worldwide economic slowdown. This crisis has shown us one thing. We now live in a global economy. That fact cannot be denied. The US sits alone as one of the last remaining superpowers, but it is time the world held them accountable for the mistakes they make.