Stock Market Essay

“Within days the entire financial system suffered what amounted to cardiac arrest and had to be put on artificial life support” (Soros,157). The effect was felt by many Americans, but the cause of the crisis was not clear. This is because the economy survives on a number of factors. They include government laws and regulations, life cycles of stock markets, people’s willingness to save or spend amongst other things. These factors are controlled by Investors and authorities. According to Hargens, Ruth and Horyatich in their article, The Long and the short of it: The Securities and Exchange Commission should reinstate a price restriction test to regulate short selling, “As the seller does not borrow or arrange to borrow the securities, the seller will fail to deliver the securities to the purchaser when the delivery of the security is due”(595).

They further point out that “ The seller may intentionally fail to deliver the securities to manipulate the price of a security or a seller may intentionally fail to deliver the security to avoid the borrowing cost that is associated with short sales”(595). Moreover, short selling thrives on predictions; at times they spread rumors on a decline of securities of a given company. This causes panic and lack of confidence in a given company. In Fact, Hargens, Ruth, and Horyatich say that “The Security and Exchange Commission stressed that confidence in our markets can be lost through false rumors. In the past years, whenever the country came to the verge of a financial breakdown, the relevant authority always came to help out. However, in 2008, the authorities did otherwise. Companies like the Lehman Brothers went bankrupt as the authorities watched.

According to Soros “An independent money market fund held Lahman paper, and, since it had no deep pockets to turn to it had to break the buck-stop redeeming its shares at par”(Soros,161). Due to the neglect of the authorities, the bankruptcy of Lehman Brothers, which was among the largest investment bank in the United States, caused the panic that spread to the stock market. Hence, housing markets began crumbling and financial institutions began making losses since many people could not pay their loans. The Fed began saving financial institutions that were on the verge of breaking. However, this did not solve the problem. According to Sumner, this move was a misguided monetary policy. In his article, How better Monetary Policy Can Avert The next Crisis, he says that “The real cause of the great Recession lay not in the housing market but in the misguided monetary policy of the Federal Reserve”(116).

At the same time that year, there were sharp declines in the value of pension plans. “The sharp decline in the value of pension funds resulting from the stock market crash may have short and long-run implications on workers preferences for individual retirement saving account such as 401(k) and 403(b) plans, their willingness to reduce current consumption to contribute to these accounts and their and their investment strategies”(Clark,477). The unemployed lot did not have otherwise than to quit contributing to their pension plans. Individually each of these causes could not have caused such great effect on the lives of Americans. However, due to the fact that all the factors occurred at the same time, Americas were caught off guard they were not prepared for such outcomes. At some point, the stock markets are bound to fall.

In 1907, 1929 and 1987 the country reported a financial crisis. So it could be concluded that this was also a normal cycle of the stock market. Americans should learn that it is hard to get to the top, and even harder to stay at the top. So, when the stock markets are doing good , Americans should learn to work hard and make all things that influence the economy work in order to ensure that the stock markets stay on top of the game. p. EBSCO HOST. Web 22nd March 2018 Soros, George. “Reflection on the Crash of 2008 and what it means: An E- book update to the new Paradigm for Financial markets. ”Newyork:2009. Winter2009, Vol. Issue 1, p115-125. p. EBSCO HOST. Web.