The Cause of Financial Crisis In 2008
As everybody summarized, the cause of financial crisis in 2008 is greed. The American
economy is built on credit. When the credit went unchecked in America, it got out of
control.
Mortgage brokers or called lenders were so happy to help people who can’t afford a
mortgage, then passed the riskof those sub-prime loans on to others in the form of
mortgage backed securities. They were able to charge an interest for originating the loan.
In this matter, risky mortgages became commonplace because everybody looked it as an
easy job. At the same time, brokers who approved these loans packaged these bad
mortgages with other mortgages and reselling them as “investments.”
For example, I want to buy a house but I can’t afford to pay the monthly payment of 20
years, the real estate agent will say I could go for a 40 years mortgage with 5% down
payment, and apply for more than what I need so that I’ll have an emergency fund. And
while I am at it, I should pay private mortgage insurance (PMI) for a couple of years. Now,
that’s irresponsible and greedy.
Just like that, people have two choices: they could either sell the house for profit right soon
or refinance later at a lower rate to pay it back. The new equity at home means they would