Different levels of analyses adopted in this research shed a new perceptive light on the reality of reporting the financial crisis in 2007 in which business journalists were troubled by a plethora of slanted opinions that never coalesced into a coherent examination of the problem. Comment discrepancies and all kinds of implausible interpretations from high-ranking financial pundits might partially explain why despite a large number of business stories issued during the crisis the media remained baffled and uncertain about the length and depth of the downturn. However, that financial journalism put aside investigative reporting, as well as the fact that it could not adopt a critical view about the functioning of the system and identified …show more content…
Between 1999 to 2004, more than two dozens of US states ranging from North Carolina to South Carolina, California to New York passed various forms of anti-predatory lending laws stipulating a lower interest rate threshold requiring credit disclosure (Starkman, 2014:202) in an effort to respond ferociously to lawless lending practices at Wall Street and hold Wall Street originators of MBS to account. Critical, hardest-hitting investigative stories were prevalent during this time. When the US Federal Trade Commission (FTC) conducted cases against the most notorious names in the subprime lending industry, i.e. Citigroup, JP Morgan, Delta Funding Corp., etc., many business newspapers also considered abusive lending their central beat and published a wide range of delicately-told stories going into the dubious and execrable practice of Wall Street banks in impressive depth (“Easy Money: Subprime Lenders Make Killings Catering to Poorer Americans. Now Wall Street Is Getting in on the Act”, BusinessWeek, 4/24/00; “Along with a Lender, Is Citigroup Buying Trouble?”, NYT, 23/10/00; “Fed Assesses Citi Group Unit’s $70m in Loan Abuse”, NYT, 5/28/04; etc.) . These articles put individual banks engaging in the foray of subprime lending under the spotlight with real information about secret sources of money and the compensation culture that
The world is full of financial hardship, and American society possesses a great deal of controversy concerning lending. Unfortunately, short term lending, such as payday loans or title loans, creates a structural void within American society. According to Wikipedia, “Structural inequality is defined as a condition where one category of people are attributed an unequal status in relation to other categories of people” (wilipedia.com). When working class Americans apply for a payday, the unequal status between upper and middle class possess a bigger separation financially. The never-ending process of a short term financial fix becomes lifelong debt. Thus, middle class society becomes lower class society. Eventually, working class society will struggle to say above the poverty line. In addition to an imbalance in society classes, short term lending targets consumers who life paycheck to paycheck. In Rigging the Game by Michael Schwalbe, the author explains the reproduction of inequalities. Schwalbe discusses the different kinds of capitals human, social, and cultural (10). The three capitals unknowingly shape Americans social system. Many businesses capitalize on these capitals knowing no laws or regulation exists to stop them from capitalizing on individuals who no faults of their own were born into these unfair capitals. As a result, short term lenders possess the ability to have extremely high interest rates and outrageous fine print penalties because there is little
Predatory lending has caused many conflicts in the American society. Victims who fall for predatory lending are
The bursting of the housing bubble, known more colloquially as the 2008 mortgage crisis, was preceded by a series of ill-fated circumstances that culminated in what has been considered to be the worst financial downfall since the Great Depression. After experiencing a near-unprecedented increase in housing prices from January 2002 until mid-2006, a phenomenon that was steadily fed by unregulated mortgage practices, the market steadily declined and the prior housing boom subsided as well. When housing prices dropped to about 25 percent below the peak level achieved in 2006 toward the close of 2008, liquidity and capital disappeared from the market.
Even though Countrywide stopped offering subprime loans 4 months ago, the company is still in the forefront of the subprime mortgage lending and foreclosure crisis.
On October 3, 2008 President George W. Bush signed the Emergency Economic Stabilization Act of 2008, otherwise known as the “bailout.” The Purpose of this act was defined as to, “Provide authority for the Federal Government to purchase and insure certain types of trouble assets for the purpose of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes” (Emergency Economic Stabilization Act). In my paper I will explain and show the relationship between the Emergency Economic Stabilization Act of 2008 and subprime lending, the collapse of the housing market, bundled mortgage securities, liquidity, and the Government 's efforts to bailout the nation 's banks.
The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.
As competition increased between savings and loans, banks, and credit unions, banks were eager to attract loan applicants in order to increase revenue and compete with other financial institutions. Jack S. Light, the author of Increasing Competition between Financial Institutions, said in his book that “commercial banks are diversifying their assets toward higher percentages of mortgages and consumer loans, and thrift institutions are seeking authority to diversify their loan structures. Moreover, mounting pressures are working toward, and have partially succeeded in, changing the authority of thrifts to include third-party payment accounts similar to commercial bank demand deposits.” (Light) Because of this eagerness to bring in new clients, they were willing to give out loans without checking into the financial stability of the borrower or the business that was requesting the loan. Unfortunately since the banks didn 't look into their clients’ financials adequately, many clients defaulted on their loans because they could not afford the payments, especially when balloon payments started.
The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were
In 2008 America’s financial system was brought to a stand still as decades of negligence and financial decisions caused our economy to sink into the worst recession since the great depression. Cultivating a problem worse than America has seen in roughly a century points one finger not at a particular cause, but a string of events that finally gave way. Now, eight years later our economy is still recovering, and time has allowed us to look back at decades of mistakes to try and connect the dots of the perfect storm that collapsed our financial market in 2008. In 2009 Brookings Institution, one of Washington’s oldest think tanks, concluded there were three causes that resulted in the crisis. Economists Martin Baily and Douglas Elliot stated that the results of government intervention in the housing market, the influences Wall Street had on Washington, and global economic forces were the three main causes of the economic collapse. They believed that a housing bubble inflated when Fannie Mae and Freddie Mac, two government-sponsored enterprises, intervened in the housing market. The banking industry was called out to be blamed for years of manipulation of our political and financial systems. Lastly, Baily and Elliot cite the global economy and the existence of a credit boom throughout European and Asian nations. Low inflation and consistent growth throughout the world economy spiked investors’ interest in acquiring riskier investments, which encouraged
Michael Hudson tells the stories of victims with many compelling storied who were tricked into signing up for risky high-cost loans, as well as the greedy lenders who scarified the lives of their victims to gain as much money and power as they could. Hudson begins his story with an explanation of deregulation and the resulting emergence of subprime mortgage lending firms in California. Roland Arnall was a pioneer of the S&L industry, and Hudson traces how Arnall’s lending operations grew into the nation’s biggest subprime lending empire, Ameriquest.
In the early-2000s, Moody’s, one of the leading credit rating agencies in the world, evaluated thousands of bonds backed by so-called “subprime” residential mortgages—home loans made to those with both low incomes and poor credit scores. When housing prices began to fall in 2006, the value of these bonds disintegrated, and Moody’s was compelled to downgrade them significantly. In late 2008, several commercial banks, investment banks, and mortgage lenders that had been
The company’s incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan’s value, versus 0.20 percent on loans one step up the quality ladder. For years, a software system in Countrywide’s subprime unit, sales representatives used to calculate the loan type that a borrower qualified for, did not allow the input of a borrower’s cash reserves (Morgenson, 2007).
One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage
This matter is subject to a deeper analysis. It can be looked at from a number of perspectives including anthropological, cultural and psychological. The paper design is presented in a form of a case study which aims to present to the reader the case and has a goal to teach the reader with key issues which were responsible for the financial crisis of 2008 i.e., over landing subprime mortgages, speculations which led to inflated prices and eventually burst the housing bubble causing the banks to be stuck with large amounts of toxic worthless assets etc. The case study gives a concise explanation and the analysis of the ethical/unethical conduct at Bear Stearns which brought it to its demise. It uses this company example to present the key learning objectives to the reader. The strategy used this besides presenting the findings in the case study form also uses narrative research technique which gives an insight of the Bear Stearns’ culture and its business. This case study by no means gives the opinion of the author and solely bases its conclusions on the materials used to design the paper. Therefore, the conclusions are built upon deductive reasoning based on the information available about the financial markets and bout Bear Stearns.
According to the work examined in this study the global recession that occurred in 2008 and 2009 was partially a result of the financial industry's failure to be responsible for the decision it made in using financial instruments that were risk and very complex in nature. The culture of corporations were constructed on risk-based rewards instead of rewards that resulted in value for stakeholders. The financial risks that banks took on were not well comprehended by the public or regulators and the mass media also failed to understand the risks that the banks had entered into with certain financial agreements.