Heading Nowhere Fast

The current economic recession was brought about by many factors of which the average citizen has little or no control over. President Obama has agreed the situation cannot remain untouched, but the current choice of solution is not an effective way to curb the effects of this natural economic cycle. Recessions have happened in the past, and they eventually correct themselves. Although we will receive some relief, President Obama’s Stimulus Package has more negative long term effects than immediate stimulation of the seized up economy. This idea is a poor solution because it goes against the natural cycle of the economy creating artificial demand, increases the national deficit upwards of a trillion dollars which straddles Americans with debt to be paid in taxes, doesn’t implement everything Obama implies effectively, is made out by Obama as the only effective solution, and is shockingly similar to a failed plan that has already been attempted in the past. In order to understand how this is true, one must have a basic idea of how this recession was caused and when it approximately began.

Around late 2001, the United States housing market was experiencing an uptrend due to the surplus of home financing options that could get almost any person with any financial history into a house. The increase in buying sparked home values to generally rise, and to seem attractive as investments to those that still did not own homes of their own. This especially caught the eyes of those with bad credit that could use a home that generated interest income simply by ownership, resulting in the creation of what is known as the Sub-Prime mortgage industry. Sub-prime mortgaging involves banks and other firms taking risks by lending funds to those with bad credit and a history of defaulting on loans or filing for bankruptcy. Their credit scores did not meet the standards set by mortgage giants Fannie May and Freddy Mac, but the loans were given out anyway. Because the demand for loans from these individuals with bad credit was so high, the risk could be offset with the chance of a large return for the firms due to a fixed high percentage interest rate, or a variable interest rate that could increase over time. This impulse in home buying only furthered the inflation of home values, which was beginning to seem like a rapidly inflating bubble. These sub-prime mortgages with outrageous potential returns seemed like amazing investments, and led to investment banking firms such as Bear Sterns and Lehman Brothers purchasing up all these mortgages from the lenders that had created them. Then as one can guess, problems began occurring similar to bombs with timers.