Regulating Interest Rates as a Solution to the Recession

992 Words2 Pages

Today’s financial crisis has deeply impacted all areas of life not only in the United States, but also the rest of the world. Company giants such as Circuit City® and Merrill Lynch® have fallen victim to the financial crisis. One of the biggest industries the financial crisis has had an impact on has been the housing market. Everyday newspapers, journal articles, and television media cover stories regarding foreclosures around the country. To regain financial control of the world and domestic economy, one must begin with the housing market. There are various areas of the housing market, which allow for overhaul and maintain a prosperous future. Regulating bank interest rates and federal interest rates will reduce, if not eliminate the housing market crisis. Most importantly, it will set a new precedence for the housing industry to follow.

First, the banking industry must regulate their interest rates on existing customers. Mortgage brokers offered less than worthy credit home buyers subprime and adjustable rate mortgages (FactCheck.org, 2008). Adjustable rate mortgages, or ARM’s, are more of a problem than a solution. It allows people with poor credit or low income to purchase a home because it offers a lower interest rate initially. The interest rate rises every so often and eventually becomes unaffordable. This will eventually lead to foreclosure, impacting the banking industry that is tied to the United States and world economy. The initial premise of purchasing a home with an ARM was to sell the home with interest in three to five years, normally before the interest rate rises. The banking industry should completely remove the ARM as an option for first time and subsequent home buyers.

This will in turn force people who is...

... middle of paper ...

...nsive to borrow, it will eventually set precedence as the new “fixed” federal interest rate. Most importantly, keeping the interest rate at a moderate level will allow for economic growth in the long term.

In conclusion, the housing market is a very complicated industry in today’s day and age. One cannot continue to cast blame. Solutions are what is needed at this point in time. One solution given was to regulate bank interest rates and practices that have failed the banking industry and the consumer over the years. Another solution given was federal interest rate and government regulation over the banking industry. No one or two solutions that may give the housing market the boost it needs to regain its place in the financial world, but applying various solutions to the housing market will eventually repair and strengthen the housing market for many years to come.

More about Regulating Interest Rates as a Solution to the Recession

Open Document