Globalization is not always beneficial

Globalization is not always beneficial

07/05/2014 | Alfonso Martínez Solís (Alumno UC)

When people have knowledge about what is happening abroad, they see these situations as not negatively affecting their lives, but they are making a big mistake. Therefore, I will describe in a simple way the reason why they are wrong. Leopoldo Abadia in the TV program “Buenafuente” describes this phenomenon and in some parts of his interview he describes what I am going to explain.

Perhaps, part of this recession is linked to the greed and the false belief in the rising housing prices, which was led by the financial institutions.

This situation began in EE.UU. due to the fact that interest rates were very low and that was why banks needed to lend money to people in order to continue do business. The aim of the banks was to provide mortgages for everyone who asked for them, even to those when there was no expectation of seeing the money returned.

Why did banks not care that customers were not returning their capital? As I said at the beginning of this piece, banks had the false belief that housing prices would continue to rise. If a person without financial resources receives 100 thousand dollars on loan in order to buy a flat, banks know that these customers won´t pay it back. However, that property would have a value of 120 thousand dollars in the future and therefore banks would make a profit. According to this method, banks needed more liquidity and they did not have capital, therefore their solution was to find wealth around the world.

In order to find the capital around the world, banks made some “packages” in which they introduced all types of loans including the mortgages (mortgage-backed securities, MBS) that people without resources were buying. These “packages” were (and today still are) selling around the world and banks decided to buy them without knowing the consequences. As time went on, banks realized that these products were not profitable and distrust began to grow between them. Consequently, Euribor, which is the interest rate that banks included the Eurozone provide, started to rise.

Therefore, this phenomenon, which began in EE.UU. lending mortgages to people who could not afford them, has affected everyone in the end due to the fact that most of the mortgages that people pay in Europe are related to Euribor which is previously mentioned.

Therefore, we can say that people who have mortgages in Spain and in the rest of Europe, part of the fees that they pay are destined for the American banks because they provided a great amount of capital to people without resources.

In conclusion, I consider that globalization is necessary. However, on some occasions, globalization makes people pay for the mistakes of third parties.

Nota: Este artículo ha sido elaborado por Alfonso Martínez Solís, alumno de la Universidad de Cantabria, como una de las actividades enmarcadas dentro del programa de capacitación lingüística, dando su permiso para la publicación del mismo en FxM Noticias/OIE24 News.

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