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Greed and Loans- The Reason for the FInancial Crisis

Greed, is an inordinate desire to acquire or possess more than one needs  or deserves, especially in respect to material wealth. There are no morals or ethical boundaries when your desire supersedes all.  The financial crisis is a prime example of greed. Since the crisis there have been plenty of news articles related to the greed of “Bankers.”

In the time that lead up to the financial crisis, banks were posting record profits and bankers receiving over sized bonuses. With profits soaring, the only thing that mattered was making loans. Loans were being created, packaged as a derivative and sold creating enormous profits. It was the biggest generator of revenue. Sub prime mortgages allowed for banks to make loans to just about anyone.

The problem was, no matter what your financial situation was, there was way to get a loan. At first glance this seems great. It gives everyone the same opportunity of owning a piece of the “American Dream.” Loan programs that were available, included stated income and sub prime loans. A stated income loan, is a loan were there is no financial verification of income. What you state as income, is used and was extended to people of all credit histories. Sub prime mortgages were loans made to less credit worthy individual usually at a higher interest rate. The ARM loan was another loan that was misused during the crisis. The ARM loan was an adjustable rate mortgage that set your interest rate lower than current rate available. Many homeowners got involved with a loan like this because with housing prices climbing at the time, the mentality became “I will live here for a few years and then sell or refinance.” What happened was, the value of the house decreased while the interest rate increased, leaving homeowners under water. Bankers would offer these loans to individuals who wanted to be a homeowner, but would not qualify traditionally. Bankers must have seen this situation as a win-win. They help their customers purchase a home and are rewarded for their efforts. Unfortunately, the only winners were the bankers.

We are now three years removed from the collapse, and still see foreclosure rates at all time highs. These loans were used to prey on the weak who were taken advantage of, but bankers are not to take the full blame. There should have been a red flag raised to the consumers when they were able to use an arbitrary number for income, and not provide verification. How long could fraud like that continue, before it blew up in the lenders face? For the bankers there were no repercussions at the time the loans were being made, they were only booking more profits. Which gave the incentive to loan more. We are now in a time were loans are made less and the guidelines for approval are strict. Banks have went from a time of lending without hesitation to hardly lending. Which now is adding to the burden on or economy. Without the banks lending, a return to a prosperous economy may not be possible. Since greed will always be here, we will see some other form take shape in our economy.