TEN YEARS ON: Learning from the financial crisis

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TEN YEARS ON: Learning from the financial crisis

The financial crisis was a devastating event which occured in 2008; it was the worst economic disaster that has happened since the Great Depression in 1929. It occurred despite the failed attempts of the Federal Reserve and the Trusty Department efforts to prevent it…

But why did they fail?

Why wasn’t the situation managed adequately to prevent it?

What did they need to do to prevent it that they didn’t do? Why did they not do it?

I chose to explain idea 2- ‘Safer lending’ to prevent another financial crisis. This is because if the banks did have stricter rules to do with lending money in the first place, the financial crisis would never have occurred. This leads me to question why the bank did not put in new, stricter rules when giving out loans, when the first signs that a financial crisis started appearing, as it isn’t something which happens over night. Therefore, why they didn’t do something about it straight away? Why didn’t they try to rectify the problems as soon as they started to occur? Why didn’t they attempt to prevent further problems?

I understand that the greater the risk, the greater the reward, but banks shouldn’t be risking people’s money, as the loss is so great that it brought the country to its knees. If the banks did implement rules for safer lending, there would be less of a chance for another financial crisis...and what would the loss be? The bank would simply make less profit. I do not believe this would cause an impact on the general public either, as it would just mean profit margins would be affected, not the economy.

‘Safer lending’ means that the banks/bankers will be restricted. They will be giving out less loans, and if they know that people will not be able to pay it back they will either not give them a loan or they will give them a smaller amount of money instead and then will not pay them any further money until they have started to pay back the original loan. I think this makes it safer because this means banks wouldn’t hand out big lumps of sums to people who might not be financially stable enough to repay them.

This idea should be enforced, because it makes sure that the bank is not giving out money to people that can not repay it, as well as being stricter with their loans. This results in the bank having more money, so the bank can then start to give out larger loans again in the future, once they have learnt to become more strict with their loans, especially with who they are giving them out to. This can help prevent another financial crisis from happening.

This idea can be challenged, as if banks are giving out less loans, then people will start to struggle with paying bills, buying houses, etc. This could mean that there would be an increase in poverty and less people would be able to afford a place to live, as the banks would not be lending them loans. This is where taking more risks would be used, as if the banks did give out more loans, then they would either be getting large amounts of profit, or they would be becoming poorer, because they would be losing money.

However, if bankers did decide to give out less loans, the public would miss out, because they would not be getting any help from the bank, so they would be constantly be getting in debt; especially poorer people, who would struggle to pay their bills. As well as, they would have less people that they can go to if they are struggling with money. Despite this, the bankers would be getting rewards, because the more money that the bank saves, the higher their pay would go up, because the banks would start to become richer with money, so they get more pay in return.

This idea, in my opinion, is not fair, because the financial crisis was not entirely the fault of the public (due to them taking out loans, that the bank knew they would not be able to repay, yet the bank still let them take out the loans). I think that the banks had the majority of the blame for the financial crisis. Therefore the public should not have to miss out from it and the bank should think of another rule that would not affect the public.

Where I have used the BNC skills:

Reasoning- I wrote why this idea should be enforced and I gave reasons for my answers.

Scepticism- I wrote about how this idea could be challenged.

Open-mindedness- I wrote who would benefit and who would miss out from this idea.

Curiosity- I have asked questions, as to why the financial crisis happened.

Storytelling- I used storytelling to communicate my answers across to people.

Comments (3)

  • Olivia-Avatar.jpg Olivia @ the BNC 10 Dec 2018

    An excellent use of the BNC skills, well done! I especially like how you have challenged your own idea and been sceptical in your approach. Well done! What is the thing you have learnt during this Issue that has surprised you the most?

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  • Ormiston-Bushfield-logo-250x250.jpg introspective_bilberry
    Ormiston Bushfield Academy 11 Dec 2018 in reply to Olivia @ the BNC's comment

    What I have been surprised the most about during this issue is that the financial crisis has still not fully recovered. During the period of ten years, you would have thought that the country would have financially climbed back up ‘the ladder’, to the original position that it was in before the financial crisis occured.

    However that is not what has happened…

    Since the crisis, we have slowly started to recover (last year the country was almost the fastest growing economy in the Group of 7), despite this a large amounts of cities in the midlands and the north, and additional parts of Wales and Scotland remain significantly below where they were before the crisis which happened over a decade ago. The recovery of the financial crisis is rarely discussed, but it matters greatly because even with one of the fastest growing economies in the world last year, many places remain significantly poorer than they were years ago. The bank of England now expects slower growth this year, pay to fall and household incomes to fall. The government will need to address these fatal problems, which have existed for a number of years in order to avoid another crisis - especially in the current wobbly climate of pre-Brexit Britain.

    As a result, the country still has problems; mainly ones revolving around the financial crisis that happened over a decade ago....

    But why has it not yet recovered?

    Whose fault is it that the country has still not recovered?

    Do we need to try harder?

    Many questions have come and gone unanswered.... but who is going to give us them answers?

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  • Olivia-Avatar.jpg Olivia @ the BNC 11 Dec 2018 in reply to introspective_bilberry's comment

    This is a great reply which shows ongoing curiosity! Well done. Perhaps you could pose your questions to your local MP and see how they respond?

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