It can be gathered from the behaviours of those involved in the financial system — from the banks to the investment bankers to the lending companies — that what supported their greed was a system that would enable them to create mechanisms that would look like they were helping people. The root of the credit or the financial crisis was founded on the basic notion that every person or family wants to buy a home; this can be extended to the other credit-related issues such as every person would like to be able to spend.
The availability of credit and loans to the population can be regarded as one of the basic financial services that works well in societies driven by capital, thus, it is only natural that these institutions would find ways to make their respective businesses more dynamic. As can be seen in the previous discussion on sub-prime lending, the foundations of its creation already demonstrate a sense of greed especially as at the end of the day the victims of this scheme are those who cannot afford those houses in the first place.
Because of the presence of a system that would enable a more aggressive lending market predatory lenders would emerge; as a result, more and more people would fall into the trap of signing obligations they cannot afford. What makes this worse other than the lack of examining the qualifications of the potential home owners as to their capacity to pay their loans, such activity is further encouraged through securitization which generally makes it okay to sell more high-risk mortgages because these were found as investments among other institutions.
Although this behaviour may be seen as simply a strategic move for the players in the industry, the criminal aspect can be found in two levels: how the arrangement itself (sub-prime, even no doc and low doc) is deceptive to the potential homebuyer and at the same time, it seems that this arrangement puts the homebuyer as an accomplice in this kind of arrangement. This is to say that both parties know the homebuyer cannot afford to buy the house in the first place, and in basic terms this already defies the fundamental agreements in making a sale.
Usually, if credit is granted, common practice goes that the entity who is given credit to somehow enters into an agreement that the loaner will pay that amount; an example is that when a consumer signs a purchase made through the credit card there is the promise of payment. With the sub-prime lending agreement, there is no guarantee at all with this promise of payment, and in a way, the financial institutions work with the homebuyers to get into the system because apparently, once they are identified as “risk”, the “risk” can be sold to another financial institution.
Hence, the criminal behaviour is that although the scenario is localized there is a greater chain of effect that takes place as many institutions, both local and foreign, have stakes in these financial institutions that are actually involved in this mortgage arrangement. As a result, another level of criminal behaviour is that institutions like Freddie Mac, Fannie Mae, the Lehman Brothers and even the Royal Bank of Scotland have overlooked their responsibility to its investors given the risks they are taking with its business decisions.
This is criminal in itself especially with the damages their decisions would bring to their shareholders and up to a greater extent, the local and the global economies. Bibliography 1. Articles/Book Steve Chocheo, ‘Foreclosure Fallout: Subprime Lending Crisis Adds to Banks’ Insurance Headaches’ (2008) 100 ABA Banking Journal 1. Benton E. Gup (ed. ) Too Big to Fail: Policies and Practices in Government Bailouts (2003). Michael Sherraden (ed).
Inclusion in the American Dream: Assets, Poverty, and Public Policy. (2005). Gregory Squires, ‘The New Redlining’ in Gregory D. Squire (ed. ) Why the Poor Pay More: How to Stop Predatory Lending (2004), 1, 3. William Streeter. ‘Subprime, Whose. Responsibility? ’ (2007) 99 ABA Banking Journal 4. 2. Other Sources Edmund L. Andrews, World Bank Says Global Economy Will Shrink in ’09 (2009) New York Times, <http://www. nytimes. com/2009/03/09/business/09bank. html? _r=1&hp> at 22 April 2009.
Aled Blake, ‘Fall of a Giant Will Create Shockwaves for Millions; Meltdown Monday Has Seen More Turmoil in the Markets with US Investment Giant Lehman Brothers Collapse and Rival Merrill Lynch Taken over by the Bank of America. Business Correspondent Aled Blake Looks at the Effects of the Crisis’, Western Mail (Wales), 16 September 2008, 25. BBC, US rescues giant mortgage lenders (2008) <http://news. bbc. co. uk/2/hi/business/7502310. stm> at 22 April 2009. Aline van Duyn, Deborah Brewster, Gillian Tett.
The Lehman Legacy: Catalyst of the Crisis (2008). Financial Times. <http://www. ft. com/cms/s/0/ea92428c-9887-11dd-ace3-000077b07658,dwp_uuid=5e34aac4-8ae9-11dd-b634-0000779fd18c. html? nclick_check=1> at 23 April 2009. Jonathan Jarvis. The Crisis of Credit Visualized (2009), Global Issues, <http://www. globalissues. org/article/768/global-financial-crisis> at 22 April 2009. Bonnie Malkin, Financial crisis: Australia and New Zealand guarantee all bank deposits (2008), Telegraph <http://www. telegraph. co.
uk/finance/financetopics/financialcrisis/3187662/Financial-crisis-Australia-and-New-Zealand-guarantee-all-bank-deposits. html> at 22 April 2009. Jonas Moody, Global Financial Crisis Claims Iceland (2009) Time <http://www. time. com/time/world/article/0,8599,1874036,00. html> at 22 April 2009. Time, 25 People to Blame for the Financial Crisis: Fred Goodwin (2009). <http://www. time. com/time/specials/packages/article/0,28804,1877351_1877350_1877328,00. html> at 23 April 2009. Times Online, Royal Bank of Scotland poised for biggest loss in UK bank