Central Causes of the Global Financial Crisis

Topics: Subprime mortgage crisis, Subprime lending, Mortgage Pages: 4 (1295 words) Published: February 3, 2011
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 mortgages and predatory lending. The U.S Government’s risk-averse policies on banking regulation gave way for reckless bankers on Wall Street to make quick money by exploiting the population; selling the ‘American dream’ which created the largest housing bubble and national debt to date. This essay looks at two types of banking practices practiced during the GFC by investment banks and lenders which contributed to the economic downturn: subprime lending and predatory lending. All Americans wish to achieve the ‘American Dream’. The definition of which could differ to individuals but during a press conference by President George W. Bush he clearly relates the American Dream with home ownership. “Right here in America if you own your own home, you're realizing the American Dream” (G.W Bush, Remarks by the President on Homeownership, St. Paul AME Church Atlanta, Georgia USA, June 17, 2002). In 2003 the Federal Reserve dropped interest rates to 1% (Labonte & Makinen, 2008) this caused America to start spending big and the American dream of home ownership; instead of being a myth and something which has been unachievable by millions in the past, all of the sudden was in their grasp, enter subprime mortgages. Prime mortgages were...

References: Dictionary.com. (2010) Dictionary definition of: Predatory 01/16/2011 Retrieved from:
G.W Bush, Remarks by the President on Homeownership, St. Paul AME Church Atlanta, Georgia
USA, June 17, 2002
Knowledge@Wharton (02/05/2008)
Marc Labonte & Gail E. Makinen. (10/29/2008). Federal Reserve Interest Rate Changes: 2001-2008.
CRS Report for Congress 01/10/2011 Retrieved from:
Sue Kirchhoff. (12/6/2004). More U.S. home buyers fall prey to predatory lenders USA TODAY.
01/16/2011 Retrieved from: http://www.usatoday.com/money/perfi/housing/2004-12-06-
U.S. Department of Housing and Urban Development. (11/15/2010). Annual Report to Congress
Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund
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