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The Subprime Loan Crisis : An Analysis Of The Ethical Shortcomings

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The Subprime Loan Crisis An Analysis of the Ethical Shortcomings Ten years ago the US housing market was booming and with a constant rise in prices there didn’t seem to be an end in sight. It is, however, difficult to know when a peak is reached and for participants to take the appropriate actions in time. Nevertheless, as several studies have shown, measurements which were or were not taken made the bubble worse. Despite warnings from experts, investors and senators, the participants actions on the housing market eventually led to one of the biggest threats towards modern capitalism since the black Tuesday of 1929. Governmental Failures The origin of the financial crises was the burst of the housing market. The ending of the dot com bubble as well as the Enron scandal in the beginning of the new millennium put the US financial situation into a fragile state. To get the country going again the Federal Reserve Board reduced the interest rate to boost borrowing and investing. The historically low interest rate together with other governmental incentives allowed people, who had previously not been able to afford a house purchase, to invest in “the American dream” with so called subprime loans. With house prices constantly rising there seemed to be little that could go wrong, for the home buyers as well as for lenders. This was reinforced by the, at the time, chairman of the Federal Reserve Board, Alan Greenspan, who in his testimony before Congress about the economic outlook
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