Financial crisis

Credit freeze! Financial meltdown! Wall Street bail out! Rescue plan! These phrases have been constantly drummed into our ears by cable television as it brings to our attention the financial problem that our neighbor in the North is experiencing. This has put us and the rest of the world on edge because the world’s economy is so intricately intertwined that any financial problem in the United States of America could have repercussions elsewhere.{{more}} Further, we are so dependent on the remittances from our families in the USA that we would be affected in some way by their economic woes. From all accounts, the financial practices in the USA have led to the failure of banks and investment companies.

Failure of Banks

In July of this year, we were greeted with the news that the Indy Mac Bank in California had failed, and we saw the reality when television cameras flashed on the long lines outside the Bank as customers waited to withdraw their savings. Only those with less than one hundred thousand dollars were able to retrieve their savings without losses. This is because a total of one hundred thousand dollars is insured by the Federal deposit Insurance Corporation (FDIC). It means that the persons with over one hundred thousand could only retrieve a fraction of their deposit. Since that time, many other banks and financial institutions have gone under, including Washington Mutual, one of the largest banks in the United States.

The Bail Out/ Rescue Plan

According to the Democratic nominee Barack Obama, “there is plenty of blame to go around.” For the last two years, persons have been talking about the down turn in the economy, but despite the many signs, the Bush administration refused to see the writings on the wall and continued to talk about a strong and flexible economy. It was only last December that an admission was made about a tethering economy. For the past week, he has been at great pains to sell to the American taxpayers the seven hundred billion dollars bail out for Wall Street. The bill failed in the House of Representative on Monday, 29th September, 2008. The Senate would next vote on a new version of the failed bailout bill.

Financial Practices

But what is the root of the problem? Many attribute the collapse of banking institutions to the credit spree, the housing bubble, auto loans and credit card lending. Kevin Trudeau, in his best selling book “Debt Cures”, claims that “the credit card companies, the banks, the mortgage lenders, the payday loan companies, the debt consolidation agencies, the debt collector, the entire consumer lending industry is designed to screw the American consumer.” He also blames the government for the credit crunch because it has over the last three decades allowed the consumer lending industry to spiral out of control.

The immediate effect of the plunge in the stock market and the collapse of certain financial institutions is that credit would not be readily available. This is forecasted to have serious effects on the economy, with workers being laid off. Our banking institutions have tighter practices with regards to lending and we do not have a history of credit card usage as is the experience in the United States of America, but the remittances that we have grown accustom to would not be forthcoming.

Ada Johnson is a solicitor and barrister-at-law.
E-mail address is: exploringthelaw@yahoo.com