US Home Prices Decline Leads to Financial Crisis 2006-2007 - Essay Sample

Introduction

The decline in prices of residential homes in the US is said to be the primary cause of the financial crisis experienced at the end of 2006 and the beginning of 2007 (Pop: 2009: 63). The decline in prices was precedented by a mortgage crisis, whereby people who did not qualify for mortgages were given mortgages, and this resulted in their inability to pay the mortgages that they were required to pay, leading to the financing banks to put their houses for sale so that they could recover the money that they had lent to the homeowners.

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Additionally, mortgage rates were increased, and therefore even those who were initially able to pay their mortgages were overwhelmed by the inflated rates. The combination of the two situations brought about a repayment problem, which led to foreclosures of homes. The foreclosures led to a further decline of the residential properties that had been repossessed.

The decline in prices of property in the US was experienced in other countries of the world, which researchers have termed a transmission effect (Pop: 2009: 64). The securities which were backed by the subprime mortgages were also affected since they also dipped in value, which led to losses for the companies and the people who had invested in them.

Although they had been created to spread risks and to refinance the risky assets, the securities also catalyzed the effects of the financial crisis in the world, since while people invested in them, they too, were used in investments in other countries. This way affected the economic balance of the areas concerned. Therefore, a financial crisis that started in the US created a ripple effect whose effect was felt across the globe.

The Occupy Wall Street Protests

The Occupy Wall Street protests erupted on 27th September 2011, when hundreds of protesters met to occupy Wall Street's public spaces, which represented the United States (Hammond: 2015: 288). However, due to the heavy security deployed to contain the situation, the protestors were unable to occupy the public spaces in the actual Wall Street. They ended up camping in the nearby Zuccotti Park in lower Manhattan.

The main reason for these occupational protests was to call for the government's action in containing the financial systems of the nation that had given too much power to the corporate sector of the country, a situation which led to the economic crises experienced in the US and the rest of the world in 2007 and 2008.

The motivation for the type of protests whereby people met in public spaces and aired their views and only leave the open spaces when their issues are addressed came from similar demonstrations that had been experienced in the world. There were protests like the Arab Spring, Spanish demonstrations, and the protests in Greece, where the power of social media inspired the Occupy Wall Street protests (Hammond: 2015: 288).

The need for people to stand up for their rights, as well as the effectiveness that organized movements to call for action from the government, as seen through the Occupy Wall Street protests, which moved from a hundred people to the demonstrations being experienced across the country with the same grievances being presented by the protestors.

Interconnection of the 2007-2008 Financial Crisis and the Occupy Wall Street Protests

The interconnection of the two events that shaped the recent US history comes in the role that the country's financial systems played in bringing about the financial crisis of 2007-2008. When the US's economic policies gave too much power to the nation's corporate sector, it gave them the ability to dictate how they would operate instead of the government set up these measures.

Therefore, when the corporate sector is left to decide how they will run, they will put in steps that do not hold the good of the society at heart. Therefore, they are bound to establish policies that will help them make more money, with the community's good being the last on the list of what is to be addressed. This way, people who were undeserving of mortgages were given mortgages, with the financial institutions looking to make excessive profits from the interest rates that they had set on the mortgages offered. However, instead of making profits, they ended up creating situations whereby the economy of the US, as well as that of the world, suffered.

The Occupy Wall Street protests of 2011 were a way of people expressing their anger at the financial system in place that supported the existence of firms that did not follow the expected guidelines of borrowing and lending, therefore bringing about dangerous effects on the economy. The financial systems were responsible for these effects.

Consequently, the people were protesting and calling for its disbanding or adjustment so that the government took back the powers that it had given up when it gave the corporate sector the authorities to decide the terms on which they would operate.

Looking back, while the government was supposed to be controlling the corporate sector, it was the corporate sector that was deciding how it would operate. The government was left with no option but to accept the practices that the industry adopted, which ended in financial crises.

Theories of Collective Behavior and Social Movements

Gustave Le Bon proposed the Contagion theory, and it suggests that crowds have a hypnotic effect on the people in them, thus implying that groups dictate the behaviors of their members (Imhonopi et al. : 2013: 81). The shield of anonymity provides the protestors a feeling of power. While they might have been uncomfortable expressing themselves with their identities exposed, they are offered a platform on which they can express themselves without fear of being judged for expressing themselves.

Secondly, the convergence theory suggests that crowds elucidate certain feelings in people. Therefore, just like the contagion theory, it indicates that groups have the power to direct the opinions of the people in them. Consequently, it also asserts that groups are made up of like-minded people intending to address the issues they are faced with. It also suggests that crowds have the power to increase the sentiments held by the members, therefore having the ability to lead people into mass action for them to be heard.

Additionally, the deprivation theory is another attempt by people to identify the reasons behind social movements. Imhonopi et al. (2013: 81) intimate that when people feel deprived of the rights that they deserve, they are likely to come together and agitate for their everyday problems to be addressed.

When people come together due to their everyday problems, they are more likely to be effective in their fight for the rights they are fighting for; therefore, they will most likely achieve the goals they aim to get to.

Marxist Theory suggests that class struggles lead to the formation movements that have been experienced throughout society. People from informal social groups have the same problems. They, therefore, find it useful to come together and agitate for the change in the way society views them and calls for the relevant authorities to address the issues that they experience. It is on these beliefs that communist political ideologies and approaches came to be.

The mass society theory suggests that society is made up of people who feel insignificant to society's existence. Therefore they see the need to form social movements to be recognized and heard as well as being included in the decision-making processes of the society. Furthermore, the structural strain theory is proposed to build on the ideas proposed by the mass society theory, whereby people admit to the problems and mistakes that exist in society and decide to work on providing the solutions to the issues that the society experiences. It is due to this need that the resource mobilization theory comes in, where people pool their resources intending to provide their common goal with the support it needs for it to be effective in fighting for their rights to be upheld. The resource mobilization assists the members to be participants in their societies’ advancement through their contributions.

References

Hammond, J. L. (2015). The anarchism of Occupy Wall Street. Science & Society, 79(2), 288-313.

Imhonopi, D., Onifade, C. A., & Urim, U. M. (2013). Collective behavior and social movements: A conceptual review. Research on Humanities and Social Sciences, 3(10), 76-85.

Pop, C. (2009). The financial crisis of 2007–2008 a review of the timeline and its causes. Studia Universitatis Babes Bolyai-Negotia, 54(2), 55-74.