Sunday, November 29, 2009

The Inner Struggle for Progress as a Main Reason for the Economic Crisis

Every crisis and every success are caused by the very same thing: desire for progress. Progress is what pushes the world towards improvement; however, it is also what drags it backwards. The reason for that is simple: progress involves taking big risks. This fact is often forgotten by the zealous dreamers who look ahead of themselves instead of focusing on real situations. In this sense, I believe that the current economic crisis was caused by something very straightforward: an attempted effort to progress which failed in many ways. Furthermore, there is never only one factor which causes a crisis to appear that is why I think that the two main factors which led to the current economic hardship are people who took mortgages that they could not afford as well as the banks that gave easily too much money, now debt, to customers.
There is no doubt that one of the main reasons for the economic crisis is the unsuccessful attempt of many people wanting to live a better life; therefore, they took mortgages which they could not pay back. The time that we live in is very much influenced by the tendency to consume more, and it is logical for the individual in the 21st century to become a consumer. All of the advertisements on TV channels, on the Internet, in newspapers and magazines aim to trigger the consumer in us, make us want to have more and be successful. Gradually, the natural struggle of the human being towards progress and security led to a tendency of buying more and more real estate. The greater demand for real estate properties created a burst in the prices, a phenomenon referred to as the “house bubble”. On the other hand, the presence of the “house bubble” logically meant that people had to take bigger mortgages in order to purchase a new home. At this point, many failed to evaluate their own financial situation. Consequently, what seemed at first to be a success for the owners quickly turned into a nightmare because people could not pay back the money to the banks. This simply proves that the risk towards progress turned into bankruptcy for both the purchasers and the banks.
The banking system is also an important factor when analyzing the economic crisis because if mortgages were not given so easily, then probably there would not have been so many bank crashes. The main purpose of the bank is to earn income by lending and borrowing money. This automatically means that the bigger the credit that the bank gives, the bigger the interest that the bank will earn. In this sense, just like people want to progress and develop, the bank, being an institution which is run by people, also wants to progress and develop. Thus, many banks sought the opportunity to win more by lending more. As a result they started to give too much money to people who could not pay it back. The greed of the banking system did not only lead to bankruptcy of small financial institutions, but also to devastating consequences for banks with huge capital such as Lehman Brothers. The mortgage crisis that started when people stopped paying their mortgages resulted in bankruptcy for Lehman Brothers, the largest bankruptcy filing in the U.S. history. This example shows that the unjustified risks no matter if they concern a single individual or a huge financial institution lead to severe results.
There are, of course, many other causes of the economic crisis, but they are all united by the very same struggle for progress. The desire of human beings to develop and have a better future is something useful and beneficial, but only when people are able to balance between their inner ambitions and their actual abilities.

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