These low interest rates made it easier and more affordable for people to become homeowners. The demand for houses increased and housing prices skyrocketed faster than people’s income. Thousands of new mortgages were packaged as mortgaged backed securities and CDO’s, which sold to Wall Street for hungry investors foreign and domestic. The problem was that Wall Street was not regulating the loans they bought and everyone was being approved with stated income, non-verified sub prime loans and even loans with negative amortization. Eventually what should have been declined mortgages started to default and everything began to collapse.
Investment banks were left with hundreds of billions of dollars in loans due to the fact the market for CDOs collapsed. Two major investment banks such as Lehman Brothers and Bear Stearns were out of business in 2008. As a result, American spending declined, foreclosures dramatically increased, and substantial decreased in personal wealth. Many financial organizations conducts unethical business practices because they failed to respect human dignity, in the sense that such behavior hinder the moral privileges of other human beings.
This economic turmoil started with home loans and the credit card industry. We have a generation that never understood how to use credit properly and we now have higher claims of bankruptcy than we have ever had as a nation. The recession started because our nation was growing too fast for itself, people were taking out loans for homes they could not afford and the banks were letting them. We also have had a huge credit issue lately; I have even seen it personally with my parents, their interest’s rates have all gone up. Real credit cards, not debit with a credit logo, are a huge responsibility, which many people have proven they cannot handle.
Many had unknowingly lost all of their money. To add insult to injury, many brokers even called in loans, forcing some to use their entire life savings on to pay them off. Upon seeing the news, some investors jumped out of windows because they had lost all hope of recovery. As for everyone else, they yelled, roared, fell to the floor; the police were called into the stock exchange to keep control. By the end of the day, Dow closed at 212.33, 16.4 million stocks had been traded, and a total of $14 Billion dollars were lost, 185 billion in today 's money.
The foreclosure rate is still a big economic problem, not to mention the increasing unemployment rate. The unemployment rate has reached nearly 11% this year due to bank failures like AIG, JP Morgan, and Goldman Sachs, which have really hurt the economy. To add onto that, American car companies like Ford and General Motors have gone into bankruptcy which have depleted the number of jobs available in the United States. People are losing their jobs, have come up empty when it was time to pay the mortgages. Sadly, they are sunk in debt and can’t find work in order to support their families.
Would our small, financially challenged country really be able to stand on its own feet against the bigger countries in the global market? For over 300 years we have been part of Great Britain’s success but now in a time of economic meltdown, people have a growing want for independence. To start, let’s take a look at why our country can’t afford (and will never be able to afford) independence. The credit crunch occurred when our banks were forced to cancel debts after them carelessly giving money to people who could not repay their loans. This forced the government to use public money, to keep the banks afloat and resulted in decreasing our budget by billions of pounds (also causing inflation levels to rise).
These rates increased due to many of the banks experiencing the effects of the growing economic delay, which principally led to the forfeit of many monthly home payments. Without the revenue of the millions borrowed returning to the lenders, the banks tacked on ... ... middle of paper ... ...riod to recover from an unexpected incident, such as losing a job. If the government wishes to increase economic spending, then the Government Home Loan Option can be offered to the general public, Public Home Loan Option, with a slightly higher fixed interest rate than that of the foreclosure victims and thirty to forty years to pay off the mortgage. This will result in an increase in home and property sales, causing an increase of the number employed in the construction industry and timber industry. With the Government Home Loan Option, the government will be able to re-attain their money with interest, tax payers are not footing at the expense of American greed, and the government will invest in a calculated business proposal instead of simply loaning out tax payer’s money to corrupt businesses.
The housing market became flooded with homes for sale, because the homeowners with variable rates and interest only loans could not continue to make their payments. (Greenspan) The rise in the number of homes for sale caused further lowering of home values. Keeping in mind that the main reason for the mortgage crisis is the high number of defaulted home loans, which triggered foreclosures and sell offs. The other four contributing factors include high-risk loans, the bust in the housing market, mortgage fraud, and speculation. High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given.
Record high unemployment, declining home values, and a recessionary climate have plunged the housing industry into a downward spiral. It started with lenient mortgage guidelines that allowed millions of people to achieve the American Dream of owning their own home. Eventually they ended up living beyond their means. Adjustable rate mortgages came due and realizing that they could not afford the jump in mortgage payment, homeowners began to put their homes up for sale. There weren’t enough buyers to keep up with the supply, and mortgages began to go into default.
This raises the question: how do we solve the foreclosure crisis? The foreclosure problem is complex. Firstly, many people have been taking out loans to pay for houses they cannot afford. As people saw the value of homes increase in the 1990s, they bought expensive homes hoping the price would continue to rise. However, this practice left millions of families with large loans and mortgages that they could not afford when the house market fell, thus leading into delinquency and into foreclosure.