Forum explores causes of the current financial crisis

jaci.bjorne

n informational forum describing the U.S. government’s role in creating the downfall of the global economy was held in Jamrich 104 on Wednesday.

During the Economic and Financial Crisis of 2008 forum, the Economics Student Association discussed and showed videos about how the crisis started, what could have been done to prevent it and what can be done in the future to keep from making the same mistakes.

The lockdown of the financial market was brought on by the government allowing some banks to fail and some to continue operating, said Robert Doepker, senior economics major.

“After Lehman Brothers’ financial records came into question, other banks started looking over their shoulders wondering who might be next,” he said. “When the Feds allowed Lehman Brothers to fail but helped AIG, they simply added to the fear by making bankers wonder who was going to be rescued and who was going to be allowed to fail.”

After the failure of multiple U.S. banks, the federal government proposed a bailout plan to help get the remaining banks back on their feet, Doepker continued.

“The bailout plan was introduced to Congress with the objective of stabilizing the banking system at the estimated cost of $700 billion,” he said. “Instead it stabilized individual banks rather than the whole banking system by simply pumping capital in banks.”

Three weeks after the failure of Lehman Brothers, the global stock market crashed, said Keith Voorheis, junior economics and political science major.

“Essentially, this stems from the fact that confidence was lost in the American market,” he said. “This is not just an American epidemic; it is global, because so many global markets are dependent on American markets.”

For students, this economic crisis could mean no longer receiving student loans, Voorheis said.

“With the crisis, the market stopped, you might still be able to get some, but you’ll have to have a really good credit score and they’re not going to give them out as easily as they used to,” he said. “Two years ago, there were 130 companies giving student loans, today there are 20.”

A factor that helped to cause the financial meltdown, but could have been prevented was an idea put in place during the Clinton administration to give all Americans houses, said Frank Mumford, senior economics and business major.

“Basically they wanted to give houses to people who couldn’t afford it, who couldn’t make monthly payments, who couldn’t save their money to even put a down payment on the house,” he said.

Oil prices have also played a role in the instability of the American market, causing food prices to go up; and Congress has had plenty of time to try to prevent the crisis, Doepker said.

“According to congressional records, Congress had testimony on the dangers over a decade ago,” he said. “Several Congressmen wanted to know why they had never been advised on the potential dangers, when in fact, many of those same Congressmen were the same ones who received this testimony. So yes, this was preventable, and yes, they knew about it.”

The government is not the only one to blame for the state of the market; individual Americans did their part to start the downward spiral, Voorheis said.

“The blame goes all around, it’s not just Wall Street, it’s not just Main Street, It’s both,” he said.

As Americans, we need to learn how to save for our futures, stop living beyond our means and plan for the future generation in order to prevent such a crisis from happening again, Voorheis added.

Another way to prevent a future meltdown is to educate ourselves and the younger generation on the importance of savings, said Mumford.

“I think education on how to save money would really help,” he said. “In Japan, the savings rate is at 16 percent, here we are at negative 1.3 percent.”

Attending the forum, with interest in the current state of the economy was Lauren Veale, sophomore elementary education major.

“I just wanted to be more informed about the current economic crisis and see if there is anything I can do to save myself from a financially troubling situation,” she said.

She said although she feels more informed about the U.S. market, she wishes they had covered a little more during the forum.

“With the upcoming election, I would have liked to hear about what the current presidential candidates are proposing to solve the problem,” Veale said.