A Change of Plans is Needed

In the past four years the world has changed. Economically, the world has a slowed down gross production rate from around three percent in 2007, in 2009 it dropped to negative .8 percent. It is now 2011. We need to start changing our changing our plans of development so that we as people of the world can prosper. The global economy has decreased significantly, hurting citizens in different countries by lost of jobs, houses and in some cases, food. With this economic crisis, people changed the way they lived their lives while trying to figure out how they are going to not only survive today but how to rebuild their lives for their future. Though this crisis is no doubt the fault of free-trade and the deregulation of financial institutions, we as a nation, can learn from this grave mistake by taking control back to how banks, institutions and trade is practiced.

             Freedom is deeply rooted into American culture. That is of course how we started as a nation; we wanted freedom from our mother country. We want things done our way, and not have someone hanging above our heads monitoring our every move. Over the past three decades, banks and financial establishments have had an enormous amount of freedom of how they do business thanks to deregulation and free trade. Without government interference, financial institutions have advanced substantially, having multiple corporations in different countries, broadening their client base, and more importantly their pockets. Free trade, which gives a vast amount of products to different countries, also creates competition within countries. By corporations having little taxes on where they create their goods, businesses seek poorer countries that will manufacture products faster and cheaper while therefore creating fewer jobs for their own country. Ralph E. Gomory, a leader of science and technology, stated to US House of Representatives in 2008 that “ In globalization, jobs leave the country altogether and only the corporate profits remain” (Gomory 183). With fair trade and globalization working together corporations are reaping absurd benefits while those who consume and produce said products are left with less than quality product and unfair wages respectfully. With many companies outsourcing jobs, unemployment rates are increasing in America thus hurting our economy, and our standard of living. “This makes for good corporate profits, but it leaves American workers behind” (Gomory 183). If the government stepped in to help regulate how free trade and international businesses are being practiced there is less chance that this recession we are currently in will happen again.

Thanks to deregulation, banks and investors use a system of securitization that compiles debts, loans, and anything that involves regular payments into packages that seem appetizing to buyers, all while not knowing exactly what they are selling. By selling these securitizations and derivatives (contracts based on a certain type of trade), for a low or high-risk payout, financial institutions have made trillions of dollars on selling overpriced mystery bags. Banks have also used subprime mortgages to maximize their earnings by giving low interest rates –initially- to unqualified homeowners. But when interest rates rose and many could not keep up with their payments, banks ended up with essentially voided contracts that held no monetary value, fueling this economic crisis. But all of this could have been avoided if governments regulated how financial institutions can practice their business. People who lost their life savings are (rightfully) questioning institutions values and are skeptical of trusting them again. Joseph Stiglitz, a prominent economist argues that “If financial rules are allowed to vary widely from nation to nation there is a risk of a race to the bottom…” (Sliglitz 157), meaning that companies will have less rules to increase their business (money) against competitors, which will weaken the financial system. Stiglitz also states “We need to restrict excessive leverage and other risky behavior. Standardization of financial products would enhance transparency…[which] could help decide which products were safe for institutions to use…” (Stiglitz 157). By government regulation, we would not only be helping financial institutions stay afloat, we are also helping the people who are investing their savings, making sure that they being protected this time. Within this crisis it has become apparent that banks cannot regulate themselves without major consequences for the people. Having government oversee how banks are performing their jobs consumers will rebuild their trust and the economy.

   Deregulation of financial institutions has caused this global economic crisis, showing how too much freedom can create chaos. With the government not regulating how businesses can practice, banks and financial institutions have grown so big that they lost control of what they were doing and ultimately had to burst. In this recession, people cannot help stimulate the economy because of the “traumatic losses of jobs, incomes, creditworthiness, homes and wealth…” (Schor 210). The government needs to step in and help rebuild our financial system so that we as a nation can further our advancement economically to sustain a better future.

Works Cited:

Johnson, June. "Chapter 4: Trading Financial Risk and Jobs." Global Issues, Local Arguments: Readings for Writing. Boston: Longman, 2010. 138-212. Print.