The Global Financial Meltdown of 2008 was triggered by a lot of contributors; but the top contributors were Banks, Mortgage Corporations, and the people. Banks and Mortgage corporations have blindly trusted people and gave out loans that couldn’t get paid back for many reasons; some from the people, and some from loan sources. Mistakes were made from loan givers that led to the 2008 Global Financial Crisis; and to prevent those mistakes in the future, the rules and regulations for loan giving should be stricter.
The biggest mistake was from loan sources; giving out home mortgages blindly to people who lost their jobs or didn’t have jobs. According to June Johnson in his book, “Global Issues, Local Arguments,” “‘Household debt hit a record 133 percent of disposable personal income by the end of 2007.’ When the poor-risk buyers could not make their payments on subprime mortgages, banks and institutions around the world left holding assets they could not liquidate (turn into cash)” (141). Mortgage Corporations were racing in marketing their loans to people and started giving out loans without properly checking the financial status of the loan taker. After those mortgages are not paid for, the houses the consumers buy are repossessed by the loan sources. The houses are then resold with a cheaper price than the original.
And to make the problem more complicated, house prices have also went down. The article, “Seven Lessons From the Financial Meltdown,” by John W. Schoen, suggests that the financial services industry were marketing the idea that house prices never go down, but “(d)espite recent signs of life in the housing market — home sales have bounced off extremely depressed levels — prices are still falling in many parts of the country” (Schoen). This fall in house prices made the loan givers sell the houses cheaper than the cheaper original price, which was a real loss.
Another mistake was the Mortgage Corporations greed; with more loans, comes more interest. The list above shows 25 of the top loan givers with the loans made between 2005 and 2007. It was getting wild and out of control. Some of them went bankrupt, and some of them got sold to other mortgage corporations to prevent bankruptcy. And also, they got assisted from the government and the Troubled Asset Relief Program (TARP) (Dunbar). Greed was the reason behind those large amounts of money in the list. Blindly trusting people to pay back the loans and almost running out of money because in the long term, they will get their interest back. But that wasn’t the case with most of those people with loans; most of them couldn’t pay back. Then the corporations turned to the government for assistance.
Looking at this mistake from another point of view; people who buy more than they can afford was the cause for the Global Financial Crisis. In the article, “The Politics (and the Economics) of Mortgage Relief,” posted in The Red State website; I read, “Many people took advantage of an extreme lapse in underwriting standards during 2005 and early 2006 to buy more house than they could afford” (Cianfrocca). People sometimes under-calculate their financial status and when loans are easy to get, they will go right ahead and buy the best for themselves. Everybody wants to be living the good life and the American dream. I don’t think the mistake is from the people, but it is from the Bank or corporation they got the loan easily from.
The rules and regulations for getting a loan shouldn’t be easy; that’s a good way to avoid a similar future crisis. In the article “Who’s Behind the Financial Meltdown,” by John Dunbar and David Donald, a discussion on how loans are given to anyone. “Subprime borrowers are generally people with poor credit who may have a recent bankruptcy or foreclosure on their record, according to the Federal Reserve” (Dunbar). Giving these people loans can only lead to them not paying the loan back and later became the financial meltdown. Changing the rules and regulations in order to be stricter will prevent people with bad credit history from getting loans which will not be paid.
Banks will try to strip people from their money any way they can. Giving out loans is one way of making their money. But if they get greedy, a global financial crisis can happen just like the one in 2008. The government should put some regulations in order for these corporations not to mess up and try to get some help from the government. When a person messes up, it’s his life; but when these corporation mess up, it’s a national issue. It affects everyone; the people who buy more than they can afford, and the honest people who pay for other peoples mistakes.
Works Cited
Cianfrocca, Francis. "The Politics (and the Economics) of Mortgage Relief | Redstate." Redstate | Conservative News and Community. Eagle Publishing, Inc., 31 Mar. 2008. Web. 28 Apr. 2011. <http://archive.redstate.com/stories/economy/the_politics_and_the_economics_of_mortgage_relief>.
Dunbar, John, and David Donald. "Who Is Behind the Financial Meltdown?" The Center for Public Integrity. The Center of Public Integrity, 06 May 2009. Web. 28 Apr. 2011. <http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1286>.
Johnson, June. Global Issues, Local Arguments: Readings for Writing. 2nd ed. Boston: Longman, 2010. 141. Print.
Schoen, John W. "Seven Lessons from the Financial Meltdown - Business - Eye on the Economy - Stocks & Economy - Msnbc.com." Msnbc.com - Breaking News, Science and Tech News, World News, US News, Local News- Msnbc.com. Msnbc.com, 15 Sept. 2009. Web. 28 Apr. 2011. <http://www.msnbc.msn.com/id/32544407/ns/business-eye_on_the_economy/>.
