2008 Economic Crisis

Topics: Subprime mortgage crisis, Mortgage, Loan Pages: 2 (487 words) Published: March 30, 2013
The economic crisis began when the U.S. government subsidized mortgages for families and individuals who could not afford to buy homes. By doing so, the demand for housing skyrocketed, resulting in increased home values. Meanwhile, mortgage companies and banks celebrated their financial incentive to provide loans to anyone, regardless of credit history. The combination of falsely inflated home prices and “generous” bank loans burst the artificial bubble of prosperity Americans were enjoying. As home prices dropped, many homeowners realized that the money they owed on their mortgages was more than the actual value of their property, resulting in unpaid loans and bankrupt financial institutions. These seemingly invincible investment firms, especially Goldman Sachs, were at the center of the financial meltdown. Goldman continued to knowingly package and sell mortgage loans to smaller banks, despite the failure rate. To this day, Americans ponder why such a trustworthy institution contributed to a financial meltdown for the sake of profit. Goldman Sachs, one of the largest and oldest investment banks in the world, was charged by the Federal Government with corporate fraud for knowingly managing a hedge fund filled with hazardous subprime mortgage deals. Subprime lending is a risky investment, as the borrower usually has poor credit and could prove unable to repay the loan. A first time home buyer could take out a loan beyond their financial capacity, with virtually no money down. Goldman's radical trading techniques allowed the firm to weather the financial crisis better than other banks: the group's big bet that securities backed by home loans would fall in value generated nearly $4 billion of profits in 2007. But as the firm used clients’ capital to invest in these shaky (and shady!) mortgage deals without their permission, the SEC discovered Goldman’s wrongful doings as the financial crisis spiraled downward. Ultimately, Goldman Sachs committed fraud in the...
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