Analyzing the Main Problems Highlighted in the Article
The article under analysis discusses the problem of credit expansion in the United States as the core of the global financial crisis in 2008. George Soros, the author of the article, compares, the mortgage crisis is a bubble that burst and led to the bursting a larger bubble, the world economy (n. d.). According to the economist, the US economy experienced recession because of inappropriate US housing market policies. The so-called boom-bust process was initiated as a result of credit misconception. Specifically, “a failure to recognize a reflexive, circular connection between the willingness to lend and the value of the collateral” generates the consumer’s motivations to refinance their mortgages to get more profit (Soros, n. p). Because credit generated higher demands, the increase in the amount of credit was a logical outcome.
We will write a custom Assessment on The Worst Market Crisis in 60 Years specifically for you
301 certified writers online
As a result of the mortgage crisis, a rigid misbalance occurred between the profits produced by the United States and the resources the country consumed. In particular, the U.S. economy has swallowed other economies, which marked the global crisis development. Moreover, the process of globalization allowed the United States to absorb world savings and consume even more than it was produced. According to Soros, the U.S. government encouraged the consumers to borrow money, which was a kind of a moral hazard (n. p.). As a result, risk managers faced serious challenges while trying to understand how to take control of the credit expansion. The risks were impossible to calculate because of introducing more generous terms and sophisticated instruments for providing credits to debtors.
A chain of the event presented in the article explains the reasons and underpinnings of the development of the 2008 global crisis. Once again, the moral factor and negligence of the responsibilities for the consequences led to the impossibility to take control of the overall process of the credit expansion.
Introducing Sustainability and Viability of Your Plan of Action
Regarding the reasons for the financial crisis, the action plan on improving the situation should be oriented on regulating the credit process. In particular, the U.S. government should have taken responsibilities for the analysis of financial resources and banking investments produced by the developing economies. Hence, the foreign investments made by China and Saudi Arabia have led to a decrease in bond profitability. To avoid the problems in the future, the United States polices should focus on the analysis of financial strategies of providing credits with appropriate interest rates. The risk analysis should also be carefully considered to predict the crises in the future.
The sustainability of the action plan will be based on a careful diagnosing of the pre-conditions and underpinnings of crisis development. Because Soros views the global crisis because of inappropriate credit expansion, the solution should be premised on a more careful study of the credit history of debtors, interest rates identifications, and amount of credits (n. p.). At this point, the amount of the credits should correlate with the financial possibilities of debtors as well as the overall situation within banking process.
The validity of the action plan consists of managing the risk more carefully. The global crisis should also influence the reevaluation of the globalization process. In particular, there should be a radical reconstruction of the global economy to suppress the U.S. aggressive credit policy and encourage the development countries to introduce their policies.
Soros, George. “The Worst Market Crisis in 60 Years”. The Financial Times. 2008. Web.