The Organization of Economic Co-operation and Development (OECD,) presented its analysis of the American financial crisis in the summer of 2008 as "The turmoil faced by the financial markets is increasingly showing signs of calming down. "
Contrary to this optimistic forecast, the U.S. banking system was immersed in a major crisis that affected the developed economies due to financial globalization. The historical giants of banking and insurance, Lehmann Brothers, AIG or Fannie Mae in the U.S. and the bank of Dexia in Europe have already borne the brunt of the neglect in recent years on Wall Street - a carelessness that led the banks to grant loans to adjustable-rate households with little or no solvency.
[...] In addition, governments must act to redefine the rules that govern financial markets and introduce more regulation Looking to the past to reform the future This is not the first time that the U.S. government has successfully 'saved', a sector of its economy. In 1907, the influential JP Morgan Bank, provided millions of dollars to prevent the spread of the crisis in banking markets, in collaboration with other banks and financial institutions. This was called the Knickerbocker Trust. In 1971, the federal government authorized a loan of 250 million U.S. [...]
[...] The proponents of the liberal market ideology point to the resilience of the banking system and its ability to adapt in situations of crisis. This ability to improve and evolve in order to survive in adverse situations may be perceived as financial Darwinism. The emergence of the State introduces a moral hazard that is detrimental to the functioning of entire market. A. The crisis in the U.S. banking system: Its weaknesses Although the U.S. banking system presented a seemingly stable image, its breakdown had many ramifications The American banking sector boasts of names such as JP Morgan, Citigroup, Goldman Sachs, Bear Stearns, Merrill Lynch, Morgan Stanley, some of the oldest and most prestigious financial firms in the world. [...]
[...] On one hand were the supporters of free markets, and on the other, those who proposed intervention and rescue by the State. In the current scenario, only the US is in a position to restore the trust in the financial markets, through the magnitude of its actions and the extent of decisions. The pure liberal orthodoxy must give way to logic for a moment and recognize that the "cold monsters" are sometimes quite useful. However what the banking sector needs is to go beyond the emergency set-up. It needs to be purged [...]
[...] The Republican candidate for the White House, in March 2008 John McCain, the Republican candidate for the White house said: have always been committed to the following principle: the government should not support and reward those who act irresponsibly, whether they are big banks or small borrowers”. II. The continuing slump in capital markets, the evaporation of confidence and the contagion of the crisis throughout the world call for a comprehensive revision of rules regulating the sector The banking system seems paralyzed by the lack of confidence. Tetanization of the system has led to the freezing of credits and stiffening of the economy. The problem is both financial and psychological. [...]
[...] The Paulson Plan represents the second stage of an operation to rescue the U.S. banking sector. It was the result of a law passed in July 2008 by Congress, which provides significant support for non- creditworthy households and a line of credit limit for Fannie (the Federal National Mortgage Association) and Freddie (The Federal Home Loan Mortgage Corporation) for about 50% of real estate mortgage loans in the United States. The Paulson plan proposes to redeem the banks and their financial assets which are today worthless (some in the U.S. [...]
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