Subprime Mortgages

The one thing that has been blamed for the world's current economic problems is the subprime mortgage crisis in the United States. It wasn't just that people took on mortgage loans they could not really afford, but that they were encouraged to do so by lenders who should have known better. Furthermore, international banks parcelled up mortgages, and they were traded as mortgage backed securities.

Banks seemed to believe that they had found a never-ending source of easy money, as evidenced by the massive bonuses they lavished on themselves. To say that there was a lack of control would be an understatement as there was no sensible regulation. Banks were sucked in, Governments were sucked in, but it would seem that the general public in the form of taxpayers were the final suckers. International banks had to be bailed out using taxpayer's money.

As mortgage backed securities were devalued because of falling house prices, initially in the US, world banks began to see the error of their ways. However, it was too late to stop the rot and many of them had to be bailed out with public money. You could not blame the subprime mortgage crisis on the people whose only requirement was to own a home of their own. But many of them were trapped as the unsustainable rise in house prices went into reverse. It meant that many of those who has been persuaded to buy a home they could barely afford, were trapped in negative equity, where their mortgage loan exceeded the value of their property.

Surely someone should have seen it coming. But greed had almost become endemic. There were massive bonuses available and bankers wanted to share in the spoils. The higher up the managerial ladder you were, the more you got, and the rewards seemed to spiral onwards and upwards. Talk about 'manna from heaven' but it was all too good to be true. In fact it wasn't good at all. When the bubble burst, as all bubbles eventually do, the US subprime mortgage crisis affected global banking on a vast scale.

Now, poor old Joe Public has to foot the bill, and will have to do so in some countries for generations to come. There is a good case for getting some of the beneficiaries to pay back some of the spoils, but it won't happen. Capitalism isn't defunct but it has had a terrible shock. There is no doubt that it will recover eventually, until the next time that everything is sacrificed, in the absence of regulation, to unbridled greed.

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subprime mortgages
subprime mortgages