The results of the world financial crisis can be felt six years after its beginning. Indeed, number of scholars consider financial crisis of 2008 to be the most difficult since the Great Depression. The financial crisis began in the sphere of the US housing market in 2007. However, the crisis did not stop in the United States. It has spread all over the world, reaching a new point in 2008. In particular, in September 2008, a range of the American financial institutions, such as AIG and Lehman Brothers, collapsed. According to the position of the financiers it was mainly determined by the default of local economy.
The US housing market is supposed to be one of the key determinants that contributed the development of the global financial crisis. In particular, crisis in housing sector resulted in the occurrence of housing bubbles and facilitated the credit crisis. According to the US housing policy, citizens could get a loan. However, the loans were not paid off. The credit in housing sphere has a number of peculiarities. For instance, the bank gives the family a long-term loan, enough to afford buying a house. The family makes a down payment in order to prove its solvency. The rest of the loan, including the interest rate, is being paid during a certain period. However, the family can live in the house immediately. So, the dream could easily become a reality. At the same time, bank provides a certain period for the loan to be paid. In addition, sometimes this payment is twice as much as it stated at origin of the actual purchase.
During the last decades, the housing market in the United States experienced changes. It was determined by the fact that the US property values grew at a rate exceeding interest rates on mortgages. As a result, the house purchased in installments through the year could be sold for more than it cost a year ago, including the interest on the mortgage.
Thus, it was possible to make money from resale, using borrowed capital. The bank risked nothing, because in the event of late payment it would become the owner of the house. The holder of the mortgage could return the past contributions, but without interest. Thus, the operations with a mortgage have guaranteed growing profits in the banking sector and contributed the expansion of the business. It has captured orbit of a developing segment of the sphere, as well as the stock market on US exchanges.
Banks began to loosen the requirements for the client to obtain a loan. It was made in order to continue the expansion of the mortgage market and involvement of new customers. Down payment and proof of family solvency were not the requirements for the loan any more. So, every citizen of the United States could afford to be involved in this mortgage gamble without risking anything. The banks started making profit doing nothing. Top managers of banks earned the main part of the business income. They received huge salaries and bonuses with the approval of the shareholders of banks.
All these factors contributed the occurrence of so called housing bubble that was waiting to collapse. Temps of economical growth changed because of accustomed natural development and associated internal and external factors. Besides this, multifactor integration also had an impact on the development of the housing crisis. For instance, problem at credit market affected investments. As a result, the terms of deposits were changed.
In the construction industry and the industry of household appliances that constitute a significant share of the US economy and labor market the crisis took its roots from the collapse of AIG. The spread of the crisis in these related areas of the economy has caused the global financial crisis. Holders of shares, which were falling in price, rushed to sell these shares. Savings were withdrawn from banks in fear of bankruptcy, depriving banks liquidity. Liquidity remains an integral part of the money lending. As a result, modern business became unable to provide credits. The depriving of the liquidity in the financial system has resulted in the collapse of the entire economy. It has influenced not only directly associated with the crisis segments affected by the perdition of the mortgage, but other segments as well.
The financial crisis required the adoption of the preventive measures. In particular, the measures were represented by means of state intervention or nationalization of banks. The money could be borrowed under the state guarantees. The government could borrow money from its citizens in the form of bonds, or other countries, increasing the internal or external debt. However, borrowing from population could affect political mood of a nation. If state borrows from another country, it impacts the stability of the national currency. As a result, the change of the stability of national currency can lead to global market changes. In particular, it can cause changes of prices on natural resources and energy, agricultural products, and services.
At the same time, the housing crisis in the United States was determined by external reasons. Free market principles increased the amount of unnecessary buyer requests. Overproduction and over-consumption contributed the development of the appliance of non-renewable natural resources. Over-stimulation could also be achieved with the help of the appliance of a system of purchasing expensive products and real estate under long-term loans and credits. It has created the false perception that people can safely enjoy the unearned benefits.
In addition, developing countries, such as China, India, and Brazil, had an enormous reserve of cheap labor and satisfactory qualifications. Developing countries have acquired advanced technology from the developed countries. They dumped on the international market consumer goods at prices that can not compete with the US and other countries with expensive labor force. Globalization of the world economy held at the initiative of the developed countries of transnational corporations. However, globalization has turned against developed countries and led to the curtailment of the entire industries that migrated to developing countries with a more modest standard of living.
The financial crisis motion pictures “Inside Job” and “Too Big To Fail” are qualitative narratives of the crisis period at titanium bank structure. Each film informs considerable details of the situation during financial fall, but none interprets the real cause of fright that startle top US officials.
“Too Big To Fail” shows interesting facts of the interaction of representatives of the US government, heads of leading banks, as well as representatives of other states. In addition, there are specific episodes related to the possible purchase of assets of Lehman Brothers. Thus, according to the version of the film, the English Barclays did not go to the deal because of the limitations of the controller. While the representatives of the Europe said: “We are not going to import your cancer!” In addition, “Too Big To Fail” provides a chronology of the nervous terms of the crisis, with Treasury Secretary Hank Paulson as the protagonist character who is saving the financial markets against the worst possible odds. The superior analysis of the crisis approaches at the completion of “Too Big To Fail”. It happens when Federal Reserve Chairman Ben Bernanke acutely interpret that what is devastating the economy sector. It is the derogation of credit, such as during the Great Depression. The Great Depression of 1930s was not induced by the reserve emporium collapse of 1929, and the Great Recession of the 2000s was not conditioned by the dwelling wreckage of 2008. Both economic crises summoned by the disintegration of credit system. “We have to bail out the banks, to get credit flowing again,” Bernanke says. The disadvantage of movie is that it is too motion and too patriotic. It does not show real causes; it just slightly mentions them. It focuses on the forces and possibilities for avoiding a crisis in any possible and considerable manner.
Documentary “Inside Job” opens objective view on the crisis without any motion features and criticizes real causes of it appearance. After overlooking it becomes clear why it has happened, and who was responsible for the crisis. “Inside Job” displays that uncontrolled banks adopted unreasoned amount of currency and bankrolled a housing bubble. Banks also substituted homeowners and investors and devastated billions. After all, they made taxpayers pay from their savings for this mistake. During the movie, the storyteller gathers up all facts that were important in crisis occurrence. Picture’s line clearly determinates role of unreasonable loans, financial derivatives and credit bubble. But this causal chain does not open the most meaningful argument that has played initial role in crisis. According to the film, the crisis was not determined by the collapse of loan bubble. The crisis was caused by the decreasing of the amount of controlled dollars the investment banks’ systems.
“Inside Job” also contributes the occurrence of new questions. For example, it is not quite understandable how much has the economy lost, how much profit is obtained as bonuses. But the bonuses are the drops in the ocean. It stated that bubble growth would effects only economy in global negative sense. In fact, ordinary people also received their bonuses in the form of income growth, lower-cost loans, higher production. Other questions include the determining of the motivations for people to take an exorbitant mortgage or regular consumer credit. Nobody forces anyone to sign a credit agreement, the terms of which you do not understand. Economists, bankers, and scientists are calling for the deregulation of markets and the planting of wild capitalism. It is misleading and journalistic trick. In the textbook on microeconomics it is a chapter about market failures. This phenomenon is known for long ago. In particular, in macroeconomics there is no particular answer, because there is no unified theory, and Keynesians continue versus monetarists, neoclassical and many others. In any case to determine the rules of the game in the markets is a problem of a state. One should distinguish between economics and economic advice. Those articles shown in the film are just the views of individuals, policy briefs, rather than scientific articles. What Frederic Mishkin wrote for the money “opinion” does not diminish the usefulness of the textbook in finance he has created. Authorities and regulators are favorable opinions with clear objectives. The picture is not only rich in facts, explanations, and interviews with famous personalities in the world of finance, but also provides a stunning camera work.
Thus, both movies provide an overview of the financial crisis. There are some drawbacks of the movies. For instance, the repurchase market, where the panic was centered, is not mentioned in either movie, though each movie does a fine job of explaining banking conditions leading up to and during the crisis. However, “Inside Job” portrays a more accurate representation of the real events. In particular, “Inside Job” movie provides more accurate understanding what has undoubtedly happened during the crisis of 2008. This picture depends on logical chains and not on personal or emotional views. After watching it a number of questions arise. But these questions are the stimulus for deeper understanding of prospective reasons and possible outcomes.
In order to address the problem, the US government adopted several programs. For instance, the Troubled Asset Relief Program (TARP) was aimed at preventing the falling of the financial investments or loans. It meant that financial administration of US government addressed problems in economic sector by paying for them. The largest component of government measures was taken in autumn of 2008 to rescue the US economy from the mortgage crisis. In particular, the ggovernmental program was aimed at redemption of so-called legacy loans and legacy securities. On the redemption legacy securities used a similar scheme funding, the only source of funds becomes the Federal Reserve System and the fund TALF (Term Asset-Backed Securities Loan Facility).
According to the financiers and economists, there are three main aspect of the crisis. First of them is the problem with the absence of cash and paper money that has to be returned to the citizens. The default of the dollar regulation on free capital market had its’ significant role in crisis evolution. The second aspect is that American loan system had no rules and criteria of loan borrowing. Even with regulated dollar situation progress of non reasoned loan progression lead to the valued problem of insurance and guarantees. If a loan cannot be paid, it should be not realized. Finally, the third aspect is a moral one. Top managers, bankers and economists created illusory vision of credit score system of unfounded bonuses and salaries to earn money from uninformed population.
First two aspects have impact on required sector of industrial engineering. Industrial engineering is an engineering discipline, specializing in the design, research and improvement of integrated systems consisting of people, money, knowledge, information, equipment, energy, materials and processes. Production management is based on the principles and methods of engineering analysis. The application of mathematics, physics, and social sciences are used in conjunction with the methods of engineering analysis and design to predict, identify and evaluate the performance of systems. In the case of lean manufacturing, manufacturing engineers seek to minimize the cost of time, money, materials, energy and other resources. So, industrial engineering can predict and prevent a critical situation with perspective prognosis and required features of economic development.
But from another view there is also different causal line. All these aspects affected branch of industrial engineering by making impulsive need of its development and excessive usage. for instance, people cannot predict future of crisis of even its appearance without the use of productive engineering. Moreover, this type of engineering using mathematical, logical, statistical synthesis providing features to evaluate economic growth or fall and its impact on economy system.
Aspects of default of the dollar regulation and lack of loan criteria affected all related businesses. Default of dollar regulation had influence on insurance stability. At the same time, insurance systems like AIG were related with all productive branches of economy, because every company insured its production. For example, if the insurance falls, electrical industry cannot insure the production of light bulbs and no light bulbs will be manufactured in the future. As a result, economy sector will be deprived of the ability to function properly. Lack of loan criteria affected not only housing sector but credit sectors as well. Slowdown took place in the industrial engineering. In particular, there are several trends determined by the crisis. Credit conditions were tightened within the sector of the economy. Enterprises and particular engineers experienced financial difficulties, including bankruptcy. The worsening of the household sector has resulted in contradictions within house building segment.
The third aspect of crisis was defined as moral or ethic. It also has a relation to the Code of Ethics for Industrial Engineers. The system in which bankers and economists do not care about their customers and only think about personal enrichment is always doomed to a brunt situation. According to the data, banks did not inform shareholders that the bank’s interests did not coincide with the concernments of customers. As a result, bank officials proceed only on the datum-line of personal priorities. In addition, no one thought about the people who bought houses on credit. These people have lost their jobs, residence, and were forced to live in tent towns. According to the Better Markets, income of American households has decreased by an average of 40 percent in 2007-2010.
The Code of Ethics of Industrial Engineering has fundamental principles. In particular, the principles the Code deal with people prosperity that based on notability and capacity. One of the main values recognized by the Code is the guarantee of public’s safety and welfare. As a result, financial collapse of 2008 went against any canons of Code of Ethics for Industrial Engineering. The welfare was a deal of top managers and bank owners. None of them cared about poverty of those who should give loan back and destitutions of economic system. Another canon of the Code of Ethics stated that industrial engineers should have the trust in social community and business relations. Crisis impacted Code of Ethics for Industrial Engineering by evaluating the primary canons as grounded rules changing of which would lead to a situation of total deprivation in economy and business sectors.
The US government expends vast number of currency to ensure that banks provide emergency financial assistance. Attempts by the US government to ensure the stability of the global financial system led to new significant financial costs. At the same time, they are not to be taken as a direct cost, but as an investment, loans, and loan guarantees. In many cases, the government redeemed financial assets such as commercial papers, mortgage-backed securities, or other securities secured by collateral, in order to increase the liquidity of the markets in which business activity fell sharply. Possible political consequences of such forced reduction of government consumption put the temptation to violate its obligations, quietly letting the currency depreciate.
Events that took place in September 2008 have shown that the government should be prepared for major shocks and have to deal with the larger crisis. The US government has taken immediate actions in order to address the crisis. In particular, in the middle of September, the Congress introduced the Law on urgent measures to stabilize the economy. The law was adopted on October 3, 2008 (The Emergency Economic Stabilization Act of 2008).
Many experts believe that actions of the US authorities during a crisis may lead to the depreciation of the dollar and impoverish confidence in the American economic pattern, which grounded on invigorative final require for inexpensive credit.
However, the financial crisis has also impacted different regions of the world. The financial crisis eventually led to perished position of G7 as the principal coordinator of global economic policy and its replacement by G20. In November 2008, the G20 supervisors of state gathered at Washington to develop an international program to stimulate the world economy. On the contrary to the G7, the G20 includes developing countries, such as Brazil, China, and India. Thus, the G20 demonstrates that developing countries deserve the recognition of the new global economic players.
However, the crisis revealed the instability inherent in the capitalist system even in such a developed and advanced countries as the United States. Capitalism is a dynamic process. Innocent victims who are regular people lose their jobs or source of income. During and after the crisis, citizens expect that their government will provide them some stability against the background of general economic uncertainty. Policy makers in developing countries are unlikely to forget this lesson; consolidation and fragile legitimacy of democratic systems will depend on the ability of pro-holders, a higher level of social protection. Thus, another consequence of the financial crisis of 2008-2009 is a new commitment of developing countries to the benefits of intelligent social policy. Before the crisis, those who influence policy making, tended to underestimate the importance of societal defense and social protection programs, preferring strategies aimed at economic efficiency.
Financial crisis in the world is repeatedly occurring. Each time the situation repeats with relentless regularity. Over the past decade the United States faced with several major financial crises, such as the global crisis in the market borrowing of the 1980s or the crisis in the credit market and savings at the beginning of the 1990s. Meanwhile, the 2008 crisis has an entirely different nature. It has spread from one market segment to another, especially those that use the new structured and synthetic instruments. Attack is the basis of chief financial institutions, and some uncertainties remain long. The crisis does not allow normal functioning financial system and even can lead to long-term consequences for the real economy. Financial markets and regulators took a long time to recognize the inevitable impact of the crisis on the real economy. The growth of the real economy requires stimulation for development of lending. As a result, the decline in lending should affect the slowdown. Market instability can reach an unprecedented scale. This entire global financial system built on false premises. And more importantly, misconceptions determine not only the financial market, but also contribute the development of social structure.
Situations that intervene in the world in recent years gave a powerful impetus to the formation of qualitatively different geo-economic and geopolitical foundations of the global financial system. The cause of this impetus is changing the balance of power in the economic world, disappearing of grounded financial structures, and creation of new sources and mechanisms of financial resources. In response to the challenges of the crisis, the government has to adopt revised regulatory methods and instruments, aimed at ensuring stability in the new environment. Thus, there are unique by historical standards opportunities of formation a qualitatively different approaches and mechanisms that can lay the foundation for sustainable development in the years ahead. And if these opportunities not used, we are waiting for a few more turns of the crisis in 2008, perhaps even stronger.