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The Sub Prime Mortgage Crisis Of 2008

1155 words - 5 pages


The Sub-Prime Mortgage Crisis of 2008 has been the largest financial crisis to take place since the end of the Great Depression. It was the actions of individuals and companies that caused this crisis. For although it could have been adverted, too much money was being made by too many people in place of authority to think deeply on the situation. As such, by the time actions were taken to attempt to rectify the situation, it was already too late. Trillions of dollar of tax payers’ money was spent trying to repair the situation that was caused by the breakdown of ethics and accountability in the private sector. And despite the government’s actions to attempt to contain the crisis, hundreds of thousands lives were negatively affected before, during, and after this crisis.
The Warning Signs

Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to listen. Sheila Bair, former Chairperson of the Federal Deposit Insurance Corporation, said, “It's very, very difficult in Washington to get political will to move anything when everybody's still making a profit out of it” (Bair). So even though people could see the danger of sub-prime mortgages, nothing was done to stop it.
The Causes

The amount of lending that was taking place in the market place was one of the main causes of the crisis. Lending money to people and taking risks is an important part of a capitalist market, however the lending must be done wisely. Large companies were lending money to each other and they all have debts that they would never be able to pay off and had to constantly refinance. These debts tied the companies together, and by the time the housing bubble popped every company was so interconnected that the failure of one could destroy all the others. However, the thought that one of the large companies might fail never occurred to anyone. As such there was a lack of accountability because people underestimated the danger these companies were in and did nothing to stop their risky lending habits. People were given mortgages they would never be able to afford to repay but those mortgages were...

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