Friday, August 23, 2019
Current Economic Problems Facing Our Country Essay
Current Economic Problems Facing Our Country - Essay Example During the last four months of 2008, the financial system was on the verge of a meltdown, many banks in the United States went bankrupt, others had to seek government assistance in order to survive, and yet others had a severe impact on their profitability resulting in mergers and takeovers in the subsequent months. To make things worse, there were rumors that banks would default and people would not be able to recover their life savings. The federal bank had to step in immediately in an attempt to prevent a run on the banks, which could possibly result in every individual queuing on the bank counters to withdraw their savings from their respective accounts (Shiller, pp. 92-94). Otherwise, stable banks can go into default in a matter of hours in this scenario. The federal bank stepped in to guarantee deposits below certain limits preventing a complete meltdown. This was just the beginning of a major change in the lives of millions of Americans who had never anticipated such a situation. In the next few days, the bankruptcy of Lehman Brothers, one of the most renowned global investment banks became apparent. Hundreds of other firms connected to the Lehman Brothers network had to suffer major losses and write-down their loans during the months to follow. One after the other, many banks went into trouble in a matter of just two weeks; the global financial industry had completely changed its dynamics. Bank of America acquired Meryl Lynch and the government had to inject equity into almost all major banks (Soros, pp. 2-4). As a result, in a matter of weeks, the government now owned a majority stake in most financial institutions. Investors lost confidence in the financial system and the number of initial public offerings each month became almost insignificant. The investment banking industry virtually collapsed and went into a wave of downsizing. Many banks terminated their global market operations in order to generate equity injections through sales of their operations elsewhere. The idea of an organization becoming too big to fail became redundant.