Ap Gov the Flaw

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Weixin Luo 01/01/13 AP Government, P5 Mr Mansfield The Flaw The documentary movie “The Flaw” identified income inequality as the flaw which caused the financial crisis in America. The movie argued that the widening gap between the rich and the poor contributed to the credit boom as wealth was accumulated in the top 1% of the American population. I agreed with the analysis in the movie and the explanation by the famous economists and distressing house owners. As a result of capitalism, the unequal distribution of wealth led to the conclusion that the rich get richer. The wages did not grow proportionally with the increasing costs of living standard as promised, and the middle class started to invest money they did not have, which was encouraged by the banks. As the income inequality grew, the government promoted easy credit for less wealthy Americans in order to sustain their spending power. However, the profit from the easy credit eventually went to the the top 1%. The activity of refinancing on the house mortgages encouraged people from middle class to borrow more and more money on an existing mortgaged property. As more house owners went underwater and credit bubble grew bigger, the assumption that “free market would correct itself” was proven to be wrong. The economy built on shaky credit became vulnerable and the bubble had to burst. The instability of the economy was worsen by the asset investments made by the top 1% who needed to put their additional money somewhere. Therefore, when recession occurred, the economy collapsed easily and the middle class was hit the hardest.

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