Finance and Economic Situation
The current global financial has spawned a renewed attention among economists and policymakers to discover its causes and to come up with probable solutions. There were a number of fiscal crises that have taken place in the 20th century, a significant number of which elicited panic that the whole economy was at the brink of collapse. Countries previously affected by financial crises seem to be rebounding, with increases in credit ratings and returns of foreign capital. Despite the lessons learned from the past crises, it is expected for history to repeat itself. Moreover, not even the world’s largest economy is immune from this dreadful fate.
The meltdown in the U.S. mortgage industry commenced the series of unfortunate events, which led to the massive economic crisis. The observation that real estate prices would rise encouraged financial organizations to loosen their standards to borrowers. However, this economic slowdown was not contained in the mortgage industry. Months after the initial signs of such slowdown, bigger financial institutions have been hit of what has become a global financial crisis. It was like dominoes falling one right after another: The demise of Lehman Brothers tipped to the rush sale of Merrill Lynch to Bank of America, followed by the federal takeover of AIG.
Now that the U.S. government has granted a $7-billion bailout, the U.S. financial market shows promising potentials of recovery. Yet, none can be of infallible certainty as to its sustainability.
It is important to recognize what is happening and to take basic steps in the restructuring of the institutional foundations of the financial economy. These include taking short-run remedies to put a halt at least to the continuing detriments of the crisis and to employ long-term changes that would reduce, if not totally eradicate, the risk of another global financial crisis.
Mortgage servicers (who in many cases are also the original...