| THE US AND GLOBAL FINANCIAL CRISIS ARTICLE BY ROSALIENE BACCHUS |
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The subprime mortgage crisis that hit the US economy in June 2007 escalated to new proportions in August-
September 2008 with the collapse of the mortgage companies Fannie Mae and Freddie Mac; global financial
giants Bear Stearns, Lehman Brothers, Merrill Lynch; and America’s largest insurer American International
Group (AIG). On September 25, 2008, federal regulators seized and sold another casualty: the bankrupt
Washington Mutual Bank, America’s largest savings and loans bank. The ensuing chaos not only hit global
stock markets but also consumers, businesses, states, and governments faced with constraints on credit and
loans.
Since the week of September 21, 2008 the US Congress battles over the terms of a proposed $700 billion
bailout bill to stabilize the financial services industry, whereby the government would buy so-called toxic
mortgage-related debts. These toxic debts are complex financial products termed CDOs or collateralized debt
obligations – home mortgage debts packaged with other high-risk debts and sold worldwide. The challenge is
to formulate a plan that will prevent the US from plunging into a severe depression, while providing safeguards
for handling the assumed debt and protecting US taxpayers.
In his address to the UN General Assembly on September 23, 2008 in New York, Secretary-General Ban Ki-
moon alerted world leaders that the global financial crisis puts development financing and goals at risk. He
called for restoring order to the international financial markets and “a new understanding on business ethics
and governance…” (see Footnote 1)
Two days later, Germany’s Finance Minister Peer Steinbrueck told members of the German Parliament that
failed American banks and financial firms will scar the world economy. “Wall Street and the world will never
again be the way they were before the crisis,” he said. He further warned that the US could lose its status as
the world’s financial superpower (see Footnote 2).
For American workers and businesses, the meltdown on Wall Street puts more strain on a slowing economy.
Unemployment in August 2008 has increased by 0.4 percent to 6.1 percent, bringing the number of
unemployed persons to 9.4 million. The highest job losses were in manufacturing (-61,000) and employment
services (-53,000). Over the last 12 months, unemployment expanded by 1.4 percent, laying off 2.2 million
workers (see Footnote 3). Consumer bankruptcy filings, with a total of 96,413 filings, rose by 29.2 percent when
compared with August 2007. ABI Executive Director Samuel J. Gerdano expects bankruptcies to exceed 1.1
million by year end (see Footnote 4).
While exports in goods and services continue to fuel the US economy, they still lag behind imports, resulting in
a trade deficit of $62.2 billion in July 2008: Total exports amounted to $168.1 billion compared to $230.3 billion
for imports. The highest deficits recorded were with China ($24.9 billion), OPEC ($24.2 billion), and the
European Union ($11 billion) (see Footnote 5).
As the world’s leading importer of goods and commercial services, with 19 percent and 11 percent share
respectively (see Footnote 6), the US plays a vital role in stimulating global trade. Failure to restore order to
financial markets would decelerate world economic growth and trade expansion.
Footnotes:
- United Nations Radio, September 23, 2008.
- Deutsche Welle, Germany, September 26, 2008.
- Bureau of Labor Statistics, US Department of Labor, September 5, 2008.
- Press Release, American Bankruptcy Institute, September 3, 2008.
- Foreign Trade Statistics, US Census Bureau, September 11, 2008.
- World Trade Organization: Statistics 2007, April 2008.
Article published in the Guyana Journal, Guyana Journal Publication, Inc., New York, USA, October 2008, p.11.
Reprinted with permission.
