Central Causes of the Global Financial Crisis

1295 WordsFeb 3, 20116 Pages
Central causes of the global financial crisis By Norbert Tallosi The global financial crisis of 2007-present caused the largest meltdown of major economies worldwide since the great depression of 1930. It involved the collapse of large investment banks and as a result affected all markets in the western world. A number of books, newspaper articles and media reports have been written in relation to what caused the crisis; due to the vast source of information and discussion on the topic, origins of the crisis could now be misconstrued. All forms of credible information; accurate financial data, statistics and reports are available to draw a conclusion from as to the cause, but greed was a motivating factor through the use of subprime…show more content…
(Kirchhoff, Block, 2004) These home loans came with higher than usual interest rates and due to stressful periods in people’s lives; paying high lawyer fees during divorce proceedings or extensive medical bills due to prolonged illness, people signed for the loan anyway. (Knowledge@Wharton, 2008) With an inflated rate of return, in a few years these loans became unserviceable. Why did financial institutions lend a product with such high interest knowing that some people would eventually default? They proceeded because it made them money from loan fees when initially writing the loan. (Knowledge@Wharton, 2008) The lenders would make their money on fees and then sell the mortgages to other Investment banks like Fannie Mae and relinquish full responsibility. (Knowledge@Wharton, 2008) If the loan went into default, it would be the Investment banks problem not the original lenders. (Knowledge@Wharton, 2008) To avert the snide practice of predatory lending in the future, the U.S government implemented legislation to curtail it. (Kirchhoff, 2004) Once again, why would lenders complete such practices if not for greed? Lenders took advantage of vulnerable individuals, during a crisis point in their lives and weak financial regulations, passed by Government. (McLaughlin, 1999) However, predatory lending was just spot-fires in a much larger problem.
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