preview

How Banks Went Broke : A Look Into The Financial Crisis Of 2007-2008

Better Essays
Open Document
Lawrence Humes
4/28/15
Mr. Donnellan
Period 1

How Banks Went Broke: A Look into the Financial Crisis of 2007-2008

Nobody foresaw what was about to happen to the economy. In the beginning of the 21st Century the economy was at a state of peace and unity. People were taking loans and purchasing houses that they normally couldn’t afford while these houses were increasing in value. The banks were giving out loans to the people to purchase the houses and earning money on the interest of those loans and the commission of the loan. That is when people began to notice the advantages of what could be taken from this economic situation. With a new method of earning money quickly and easily, it is no surprise that everybody began to try…show more content…
Banks were intelligent enough to realize that the people who were taking and asking for loans were unlikely candidates to pay them back. The banks knew that by giving out these loans that the people would result in two ways. One being to actually pay back the loan with interest to the bank, or two, be forced to foreclose their house. Either way the bank didn’t care because they were making money and getting rich either way. If the people actually paid back their loans, the bank is guaranteed profit through the interest incorporated in the loan and the commission made by the sale. If the people couldn’t pay, there still is a great opportunity for the bank to make profit through selling them to investors. Right before the depression the value of homes was steadily increasing. With a person’s foreclosed house, a bank was able to resell that house and potentially make even more money than if the person has paid back his entire loan with interest. For banks, it was a win-win situation. They saw dollar signs in every possible direction and went for it. They did not care how they were making their money, just as long as there was profit within reach. Money is all that mattered to these banks. (Casil)
People also began to buy houses
Get Access
Related
Get Access