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In the light of our extensive discussions, analysis and historical perspective, provided in previous eleven parts of this series, we come to the conclusion that current financial crisis and global recession of 2007-2008 happened in three major ways.
First, the world’s leading financial institutions including major banks, insurance companies, mortgage companies, investment banks and business financing institutions went under water. This caused a serious crisis in money supply. The credit and loan markets got virtually frozen and it became extremely hard for businesses and consumers to get credit and loans at any cost. This also caused huge revenue losses for these financial institution, very large unpaid negative balances on the balance sheets of these international financial institutions, resulting into massive unemployment, serious loss in consumer buying power, lost revenue for businesses in general, decreased demand and production of goods and services and shooting up unemployment, resulting into even more losses in GDP.
Second, the booming real estate market seriously crashed bringing millions of homes under water, lost revenues for real estate related businesses, layoff and lost buying power of consumer, resulting in to even a bigger shock to businesses in general.
Third, high unemployment resulted into a decreased demand for goods and services, which brought down the production and selling of goods and services, resulting into decreased revenues for businesses, layoffs, even more contracted consumer buying power, giving even bigger shock to economy. This also reduced the demand for goods and services imported from our trading partners, resulting into the revenue losses to our trading partners, causing unemployment, reduced buying power and decreased demand for goods and services in our trading partner countries. This effected the production of goods and services in these countries and reduced the demand for goods and services exported from our country to these countries. That hurt the production of our export goods and services, causing even more loss of revenue for our businesses, more unemployment, even more decreased consumer buying power and reduced demand for goods and services, hurting the business balance sheets even more.
This picture, first of all, proves that, like it or not, we live in one world, now. Most effects created by anything happening, good or bad, anywhere in the world, hardly remains local, anymore. These effects cross all artificial geographic, national, cultural, religious and ideological barriers.
Now, if your car’s breaks are giving trouble, you cannot solve this problem by fixing anything else. To get rid of this issue you have to fix the breaks in your car. This way, and only this way, you can solve the problem and risks caused by bad breaks in your car. Not fixing anything and not doing anything will not solve the problem, either. If you do not do anything, then, you are risking your life, anyone else in your car and the passengers in other cars and vehicles on road with you.
So, the three major areas of economy which are causing and continuing this crisis, namely, financial institutions, real estate market, and the demand and supply for consumer and business goods and services. Unemployment, on which we see that the most politicians and big media pundits are putting biggest emphasis on, is not the cause of crises. It is a result or symptom of crisis. Since it is just a symptom treating it will not solve the basic problems. Just like treating fever will not cure the infection you have. But treating infection, which is the actual cause of disease will cure fever and all the other symptoms related to infection. In the same way, instead of wasting resources on quick fixes of symptoms, we have to treat the actual diseases. Although, we know, since, it is usually the symptoms like fever and pain, that give most of the discomfort to patients, not actual disease like infection or cancer, patients usually want an immediate cure for symptoms, which is understandable. So, a smart doctor while provides you the temporary symptom relief by Tylenol, Aspirin or Advil or any other medicine, puts a great emphasis on treating the actual disease.
Hence, in this case, unemployment is a symptom in a disease, caused by weaknesses in financial institutions, real estate market and demand and supply for consumer and business goods and services. Now, what a good policy maker will do under these circumstances. Obviously, what a doctor does in case of a disease. That is, while providing appropriate temporary relief for symptoms like pain or fever, he concentrates on treating the actual cause and disease like infection or cancer or coronary thrombosis. Treating these causes, results into the permanent relief of symptoms, as opposed to the temporary relief by treating the symptoms only. Similarly, a good policy maker will, first of all, like a good doctor, realize that doing nothing is not an option. Then he will figure out the best ways to fix the basic causes, while relieving the symptoms, as much as possible, and implement and execute those fixes, so that the problems can be permanently cured.
In this case the first and foremost problem were the biggest and global financial institutions being under water. So, the financial industry needed a fix. There were two major approaches about fixing the financial industry.
1) Government play an active and major role in fixing this problem.
2) Let economic, financial and business forces fix this problem.
U.S. governments, led by Bush and Obama, went for the first option, although they were ideologically, opposite of each other. So, we can conclude, since two ideologically opposite governments went for similar solutions, something beyond ideology should have played a very strong role in it. Logically, those factors can be divided into two major categories.
a) Crisis was severe and required immediate fix. Both governments sincerely thought that this was the best fix and hence went for it.
b) Extremely strong and rich financial lobbies, by lobbying corporate media and sold out politicians, left no option for the government, except to go for this solution.
Now, as we all remember, the corporate media and the politicians, who mostly are mostly corporate pimps, created a great havoc under those nerve racking circumstances. They were telling U.S. public, every second on every major news channel, if this is not done immediately then, we, our country, our nation, our economy and future is doomed for ever.
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