Turning the American Dream into a Nightmare

Introduction

“Turning the American Dream into a Nightmare” is a book authored by Oonagh McDonald. The book explores the causes of the financial crisis and global meltdown that has been witnessed in the world recently. The author, Oonagh McDonald has an outstanding experience in financial markets. She is a former labor member of parliament and a former affiliate of the United Kingdom financial services authority. Aside from her career as a politician, McDonald has also worked in various fields. She has taught in various institutions of higher learning, worked as a researcher, as well as a management expert. At the moment, she is the spokesperson for Labor on Economics and Treasury. Thanks to her expertise in the financial field, McDonald carried out the financial research in a pursuit to establish the determinants of the financial crisis that affected most European countries and the US. This paper examines Oonagh McDonald thoughts on the financial crisis as she expresses clearly in her book “Turning the American Dream into a Nightmare”.

Summary of the Book

The main purpose of the book is to analyze the causes of the financial crisis in the United States of America. According to McDonald (2012), the major root of the financial crisis (that hit the US and the world, at large) was caused by the housing policies that were promoted by Fannie Mae and Freddie Mac in 2008. The government advocated for the implementation of the policies stipulated by Fannie with the intention that they would boost the nation’s rate of recovery from depression. Consequently, Freddie was established in order to offer viable competition to the policies adopted by Fannie. The upheavals generated from the failure of Fannie Mae and Freddie Mac policies resulted in vigorous public debate on the providence of proper guidance, with the purpose of informing the public on better methods of the financial crisis prevention in the future.

The financial crisis was brought about due to the sale of low quality mortgages that were being offered to the public for purchase by the fore-mentioned organizations. The low quality mortgages on sale amounted up to 14 million dollars giving rise to the financial nightmare that affected the USA and most European states. In this book, Oonagh McDonald shows how the government of the USA promoted the financial crisis that the country experienced in 2008. For instance, she explicates how the government promoted subprime and other low value mortgages led to the global meltdown in the form of the financial crisis.

Analysis and Evaluation of the Book

McDonald explores the causes of the financial crisis and global meltdown that were postulated by the sale of low quality mortgages in the USA. The book, for that reason, explains the role played by Fannie Mae and Freddie Mac in the resultant the financial crisis. The major reason behind the establishment of Fannie, by the government, was to accelerate the rate of recovery from depression while Freddie was proposed in order to offer genuine competition to the policies adopted in Fannie. Furthermore, McDonald explores the effects of public policy on the provision of housing mortgages for loans that was implemented in the 1990’s. The financial crisis was partly instigated by the political decisions that were undertaken by the government of the USA.

This was exemplified by the presidential speech that was addressed to the nation by President Bill Clinton in 1995. This gave rise to the establishment of National Home Ownership Strategy (NHOS) whose main mandate was to look after the welfare of the low-income earners. The president wanted to help poor families who could not afford homes due to the low income. The political appointments to the senior government positions made it easier for the politicians to encourage citizens to take up the low quality loans. The legislature is responsible for changes in terms of bank lending interests that led to the development of the financial crisis. The book also brings into light the accounting scandals in government departments in 2004 and 2005. The lack of oversight in the dealings undertaken by the government institutions and subsequent lack of political will constitute the seeds that bore the financial crisis and consequent global meltdown.

According to Oonagh McDonald, the major causes of the financial crisis that was witnessed in the United States of America and the world in general is due to the negligence of the financial market players such as bankers, rating agencies, investment banks and derivatives (McDonald, 2012). The collapse of Fannie Mae and Freddie Mac is immensely credited with the emergence of the financial breakdown in the USA. This is partly due to the negligence of the regulators of the financial market who became cheerleaders and promoters in the development of financial crunch. McDonald also argues that the political ideologies played a key role in the advancement of the financial breakdown. The political appointments to senior government positions without proper merit brought about this development. This implies that the appointees were able to manipulate the public into making decisions that favored taking up of low quality loans hence causing the financial crisis.

In addition to the collapse of Fannie Mae and Freddie Mac and political ideologies as cause of the financial meltdown, the housing policies adopted by the government of the USA played a part in the global meltdown, in 2008. This is because the policies advocated for the ownership of homes through the taking up of low quality loans offered in the market. Additionally, the policies supported the lending of mortgage loans to the citizens who could not afford adequate finance to own a house. The inability to pay back the mortgage loans when they matured contributed to the worsening nature of the financial status in the global market.

The author believes that, Freddie was launched by the government with the intention of offering competition to the policies advocated by Fannie. McDonald also reveals how the housing policies adopted by the government of the USA played a key role in the financial crunch, in 2008. Furthermore, the book describes how the good intentions and the influential political negligence converted the American dream into the financial nightmare that the country experienced. The consequences of politically driven lending are clearly captured in this book. The government was supposed to be regulators in the financial industry, but it emerged as one of the cheerleaders in the financial breakdown. In addition, the misplaced ideology that ownership of homes is always worthy prevented thorough scrutiny of the policies presented by Fannie Mae and Freddie Mac, two organizations that had the backing of the government. This consequently led to the collapse of the Fannie Mae and Freddie Mac, which was the major cause in the financial disintegration in 2008. The book remarkably focuses on the negative effects of low income lending ideology as the major determinant of the financial crisis, despite the possibility that political ideologies played a major role in the financial crisis.

The effects of the financial crises have resulted in negative consequences not only in the USA, but also in the world in general. Primarily, the advent of the financial crisis in the USA resulted in the development of a blame game amongst the regulators involved. For instance, some companies, such as of Fannie Mae and Freddie Mac, have been implicated in the financial scandal. The effects of such a negative publicity resulted in tarnishing the global image of the company. This implies loss of clientele base and consequent extinction from the financial market. Secondly, some regulators such as the government, derivatives, bankers and rating agencies have been drawn up into the muddy financial indignity. While some avoided the blame that was being credited to them, some organizations were not that lucky. As a result, they were held responsible for their part in the advent of the financial crisis. This meant that their public reputation was smudged irreversibly hence the loss of revenue and market share.

Countries around the globe have experienced the consequences of depression in the economies because of the financial meltdown that begun in the USA. At present, due to economic depression, the economic growth halts and is stunted, and the common citizens remain poor. This means that the dream of many American citizens owning up homes becomes more and more difficult. At the same time, the increase in the rates of taxation as advocated by Fannie means that the citizens have to pay more. This further diminishes their chances of realizing their American dream.

The consequences of the financial meltdown are still reverberating around the globe. It is, therefore, important to review some of the policies that can be implemented with the intention of remedying the financial crisis. In line with the review carried out by Oonagh McDonald, the remedy to the global the financial crisis rests in having reliable and strict financial regulators in the market. Such regulators should be responsible for regulating the business activities carried out by the financial institutions such as derivatives, commercial banks, rating agencies and government organizations (McDonald, 2012).

In order to put an end to the blame game that arises in case of a financial problem, it is necessary to come up with a consolidated regulator to oversee the activities of all the financial stakeholders. This implies that the commercial banks, the derivatives and the rating agencies among others are regulated a single regulator. This enables the consolidated regulator to supervise the actions of all the stakeholders involved. Any organization that violates the regulations imposed by the consolidated regulator is held responsible. This, therefore, discourages violations of the rules and regulations in the future by various organizations, hence aids in the promoting sound financing in the financial market. Establishment and implementation of more strict rules and regulations by the governments would go a great length in remedying the negative effects of the financial crises. Such rules would make it harder for organizations such as derivatives to sell low quality mortgage loans to the public.

Conclusion

The author examines the causes and the effects of the financial crisis and global meltdown that resulted from the sale of low quality mortgages in the USA stock market. The American dream was a plan that was proposed by President Bill Clinton in 1995 during his presidential speech to the nation. The theme of the speech was about establishing an organization that was referred to as the National Home Ownership Strategy, which had the responsibility of looking after the welfare of the American people. Contrary to the expectations of many citizens, this dream turned out to be a nightmare because of the negligence of most of the stakeholders. This culminated in some organizations becoming cheerleaders in the advent of the financial breakdown instead of being the financial regulators in the market. The book also explores the role of the Fannie Mae and Freddie Mac policies in the financial meltdown that was experienced in 2008. The purpose of launching the policies stipulated in Fannie was to facilitate the transition of the nation from its low levels of economic depression. This, therefore, called for expansionary measures such as a reduction of interest rates in order to induce investment.