ECONOMIC CRISIS A CAUSE OF HUMAN GREED

Outline

Introduction 1
Economic crisis and greed 1
Failure to regulate 1
Unsustainable economic booms 1
Poor monetary policies 2
Overproduction of goods 2
Cashing in on falling share prices 3
Conclusion 3
References 3


Introduction
As of late 2008, an economic recession span across a series of industrialized nations with several indicators depicting the level of this crisis. The economic crisis has led to widespread unemployment, minimal trading volumes across many nations that depended on exports, increased volatility in a number of economies across the world hence dispelling the myth that economic variables in most world economies had relatively stabilized. Also, the crisis led to unstable financial markets that saw stock prices diminishing. All these challenges led to a number of explanations and debates concerning the issue. The essay shall focus on one of these explanations i.e. that greed is the major factor behind the global economic crisis.

Economic crisis and greed
Failure to regulate
Economists such as Jill Drew, Ellen Nakashima and Anthony Faiola have asserted that failure to regulate certain financial derivatives could have brought on the current crisis. (Bello, 2009)According to these proponents, the 2008 economic crisis was triggered by the collapse of a certain kind of financial derivative known as the mortgage backed security. They asserted that the sitting Federal Reserve Chairman was responsible for this problem since he failed to allow regulation of any derivatives within the market. Any economic expert can agree that financial derivatives are some of the most controversial financial instruments and any failure to regulate them can lead to substantial complications. The latter chairman firmly opposed regulation of futures when the futures trading commission indicated that they were interested in regulating. (Polleit, 2008)

The big question that most people have been dying to find out is what could have accused the Federal Reserve’s chairman to oppose regulation of these derivatives? A number of explanations can be given for such behavior but it is essential to remember that the latter individual could have seen an opportunity to make large earnings. Choosing to oppose regulation could only mean that there would be lesser opportunities in this kind of arrangement and that less earnings would be drawn from derivatives that were regulated than those ones which were not. In other words, the element of greed comes into perspective in this scenario.

Unsustainable economic booms
In the early 2000s, the United States began recording low levels of performance through most of its economic indicators. This was largely because the dot com bubble had burst and there was a need to revive the economy. In response to this matter, the sitting federal reserve chairman decided to lower interest rate levels to an unprecedented amount of only one percent. This led to heightened injections of credit based money into the country’s financial system. The results were a superficial economic boom that could not be sustained in subsequent periods. (Whitney, 2008)

While the actions of the latter individuals were highly to blame for the current crisis, one cannot fail to appreciate the role of investors and stock brokers who were responsible for bringing in the credit based monies and thus cause such a superficial economic boom. The financial stakeholders who knew how the economy works can be blamed for this matter because they were driven by the need to make easy money on investments that had no solid backing. The latter brokers should have known better but decided to act against their better judgment thus leading to the crisis. Greed got in the way of good economic sense for these stock brokers and the rest of the country eventually paid for their actions. (Willis, 2008)

Poor monetary policies
A number of proponents have also argued that the country’s poor economic policies have led to this crisis. Examples of such adherents include Peter Schiff and Ron Paul. According to them, the country is grappling with its current problems not because of free market issues. Instead, they believe that US leaders could have caused this problem. Legislators made the mistake of carrying out the following economic policies
• Community Re-investment Acts
• Expansionary Monetary Policies

In neo-liberal economic policies, the free market has an ability to protect shareholder equity and there is very little need for intervention from other external parties. However, the latter school of thought does not hold water in the minds of the former mentioned individuals. According to them, the country’s politicians had the ability to prevent this crisis if they had not engaged in passing such policies. They were driven by a need to provide quick solutions to the country’s financial problems. This can be explained by a need to boost their image in their public eye and hence heighten their chances of re-election. In other words, the aspect of greed again comes in. Politicians had the ability to change the country’s circumstances through pursuance of long term measures. However, they knew that such measures would not portray them in a positive light to the public. Consequently, they opted for easy policies that gave the public instant gratification but left little room to accommodate future challenges. (MacMahon, 2008)

Here, it can be seen that greed affected the decisions made by leaders in government because they should have exercised greater caution rather than pursuing policies that seemed great in the short term but were detrimental in the long term.

Overproduction of goods
A number of adherents have asserted that the economic crisis could have been propagated by increased globalization. According to them, a number of multinational corporations from the western world redirected their areas of production to Asian countries such as India and China where labor costs were relatively cheap. Consequently, there was a heightened level of overproduction in the world and this brought about deflation. Deflation of prices could be seen throughout the last quarter of 2008 and should have been an indicator that worse things were yet to come. The Federal Reserve found that it had to lower its prices to a level of approximately 0.25 percent.

After an examination of the latter trend, one would wonder who is to blame for the current scenario especially in light of this explanation. Multinational corporations in western nations had been engaging in this practice of off shoring for a period of roughly fifteen to twenty years. Trade regulations being passed should have reflected the fact that the practice of off shoring was unsustainable and that there would be limits to this growth. (Graham, 2008) In other words, policy changes should have minimized excessive overproduction that averted that global crisis. The groups that contributed to this crisis i.e. the multinationals were also the same groups that were deeply affected by the crisis. However, since multinationals (or any business for that matter) is largely driven by the need to minimize their costs and increase their revenue, then one cannot blame them for transferring production to the Asian countries.

However, one can assert that global leaders should have stepped in to place a cap on excessive offshoring or outsourcing. If leaders had been keen on creating a more sustainable environment of business, then the crisis would have been prevented. The main reason behind their lack of involvement in this matter is that they were more concerned with their own political agendas. In fact, a number of leaders tend to make leadership decisions that portray them in a positive light and place other indirect issues on the periphery. In other words, if greater regulation had been exercised in terms of the activities of multinationals then the current crisis would not have occurred. Greed for power caused global leaders to focus on non issues and leave out issues surrounding globalization. This eventually led to the problems being experienced today.

Cashing in on falling share prices
Perhaps the most common assertions made by a number of critics in the western world is the issue of share prices. One of the most vocal adherents to this belief is the Archbishop of Canterbury who asserted that greed among stockbrokers led to the financial of the world. According to him, traders were behaving in such a manner that they seemed like asset strippers or even bank robbers. He asserted that there should have been greater wisdom in carrying out some of the transactions that the latter individuals chose to carry out. (Ettifor, 2009)

In this regard, it is believed that the latter speculation that led to cashing in by financial traders brought about this economic recession. In fact, it has been asserted that these stoke brokers thought they could manipulate or play around with figures without involving the solid rules of economics but this ended up backfiring in their faces. People who invested in those falling shares made their decisions on mutual trust. However, it turned out that stock traders were bluffing and that their sole aim was to get the best or highest income that they could get from these respective areas. The latter stock traders represented the greedy trend in which people want to get money for something that they have not worked for. (Hale, 2009)

Conclusion
The economic crisis has been analyzed through a series of angles. However, each angle has revealed jut how greed was a driving force in making most of the decisions. Politicians were greedy for power and thus failed to enact policies that could alleviate this economic crisis. Stockbrokers went ahead to invest in assets that showed “promise” but were not real; an issue that was largely driven by greed for quick money. Additionally, these same traders created unsustainable economic booms through such greedy practices thus leading to the recession. Lastly, leaders in the Federal Reserve also failed to do their part i.e. they did not allow regulation of some volatile financial instruments since they wanted quicker results. This greed for success by Federal Reserve leaders highly contributed to the current economic situation. All in all, if the parties involved had played their role in a virtuous manner or if they would not been driven by greed then current situation would have been avoided

References

Whitney, M. (2008): Stock market meltdown; Global Research Journal, 12, 3, 79
Polleit, T. (2008): Manipulating interest rates – a recipe for disaster; Mises institute review, 4, 9-28
Ettifor, A. (2009): The US’s financial meltdown – lessons and prospects, retrieved from http://www.opendemocracy.net/article/america-s-financial-meltdown-lessons-and-prospects accessed on 10th February 2008
Bello, W. (2009): Afterthoughts – A primer on the Wall street meltdown http://focusweb.org/afterthoughts-a-primer-on-the-wall-street-meltdown.html?Itemid=92 accessed on 10th February 2008
Willis, B. (2008): US Economy and consumer prices; Free Press
Graham T. (2008): A comparison of limits to growth with thirty years of reality; Commonwealth Scientific industrial Research Organization Report, 6, 72
MacMahon, P. (2008): Market fall continue as 84billion dollar is lost on Black Monday; Johnston Press Publishing
Hale, D. (2009): There is only one alternative to the dollar; Financial Times, 5th January 2009, 16

The author of this article is a holder of Masters in Business Administration (MBA) from Harvard University and currently pursing PhD Program. He is also a professional academic writer. ResearchPapers247.Com>