Central causes of the global financial crisis
By Norbert Tallosi
The global financial crisis of 2007-present caused the largest meltdown of major economies worldwide since the great depression of 1930. It involved the collapse of large investment banks and as a result affected all markets in the western world. A number of books, newspaper articles and media reports have been written in relation to what caused the crisis; due to the vast source of information and discussion on the topic, origins of the crisis could now be misconstrued. All forms of credible information; accurate financial data, statistics and reports are available to draw a conclusion from as to the cause, but greed was a motivating factor through the use of subprime
…show more content…
Subprime mortgages on the other hand did not require any prerequisites of the borrower what so ever. (Kirchhoff, Block, 2004) To make certain that these types of borrowers would qualify; the government introduced a bill granting the down payment to be payed by the government. (U.S. Department of Housing, 2010) Nevertheless, these people with shaky credit and possible history of past defaults were now new home owners, living the American dream. Unbeknown to them it was to be short lived because in 2006 the Fed raised interest rates back close to 6% (Labonte & Makinen, 2008) pushing loan repayments through the roof forcing them to foreclose their properties. So how many people applied and were granted subprime mortgages? In June 2008 there were 27 million subprime housing loans outstanding (Rhan, 2010) leaving the government with a 4.6 trillion dollar debt. (Rhan, 2010) In 2010 after the main storm of the GFC passing, closer review of the types of people who applied for these toxic loans has become evident and a banking practice which was highly used during the GFC has came to light: predatory lending. Lenders forcing loans onto a population vying to live the American dream through home ownership, who in effect, could not afford it.
In its definition, predatory states: as out of greed or to take advantage of consumers (Dictionary, 2010) Predatory lending was rampant during the