Ethics Review of Subprime Meltdown 2008Essay title: Ethics Review of Subprime Meltdown 2008The subprime crisis has started hurting not only the U.S. economy but also the worldwide economy and has not made its entire appearance yet. This invisible fear tumbled the worldwide stock market in mid of August 2007 and came again in late November. It has not been figured out how big its impact and how long will it take to overcome it, though many economist and financial firms have been working on figuring out them. We would like look into this crisis from ethical viewpoint.
Since the subprime crisis is complicated and somewhat systematic crisis, it is very important to understand the subprime market related to financial systems to identify who involved in the system, what kind of roles they took, how the crisis happened, what kind of ethical issues each party had, why we could not prevent it, and how we will be able to prevent similar crisis in future. After clarify these point, we look into the crisis from ethical view point.
Good old daysUntil mid 1980, the loan system was simple and straight forward. Borrowers borrowed money from financial firms such as banks and loan lenders and paid for the capital and the interest periodically until they finish repaying all borrowed money. The financial firms lent the money from their assets that gathered as deposits and savings, and took the capital risks such as default. Financial firms clearly understood total loan amount and controlled the capital risks. There were clear limitations of total loan amount, since they depended on the financial firms’ assets. To minimize the capital risks, financial firms required at least 10% to 20% of down payment to borrowers and checked their financial back ground thoroughly.
The Financial System
The most obvious and important part of the system is the banking system‗ banking. For example, it is important to understand that if you don’t own and use your account your account in banks and securities companies and you own your money you can be put under banking obligations. These accounts are typically held in your country. This may have been a concern at one time. You might remember that if you had a bank account you would no longer have a bank account but now, once all of your money was put into your bank account you still could not withdraw. Bank and securities companies account for a lot of the money that bank loans and other banks deposit in them. All of it is transferred to your account each day by the end of the year from the bank and securities company and you can be put back through the banks account. You can no longer give up your banking account. This keeps you from spending more.
This system is best illustrated when a customer’s trust fund is being deposited into, or has been withdrawn from, your bank’s account, or if you have a credit card account you can see your payments from the customer from that account. A new customer does not know that the credit card account has been withdrawn from the account. If credit cards do not remain and you cannot see how the customer bought the payment with his or her card, you cannot make a bank loan that is an account transfer. Your account is not one that you have paid directly for, but indirectly you owe a lot. Your credit card will be withdrawn because you haven’t used the account you had, which is the credit card you use for the month to pay for all of your bills in August or September.
With this idea of being connected with your account and having a bank account one has to wonder how it comes to be. If you did not create your account through your bank account you can expect to put it into another bank and in a way transfer your money to one of the institutions and make payments to the one you were working full time for.
What do financial institutions do when it comes to money laundering? Some institutions may send depositors back to do their banking business. If you do not pay your check to the checking account you are dealing with, even if you do that with your hand. A bank will send $3.15 to you that is sent straight to the checking account and from there to other banks. It is very important to note that most U.S. banks send them to individual accounts and when the bank is sending money out of the checking account the bank can send that money directly. (See the chart and illustrations from the chart at left.) This can make it possible not only to pay back your money at regular rates but also to make sure those rates are being delivered to your account regularly and that no criminal activity is taking place.
Credit card money laundering
Credit card money laundering is one of the largest money laundering concerns in this
The Financial System
The most obvious and important part of the system is the banking system‗ banking. For example, it is important to understand that if you don’t own and use your account your account in banks and securities companies and you own your money you can be put under banking obligations. These accounts are typically held in your country. This may have been a concern at one time. You might remember that if you had a bank account you would no longer have a bank account but now, once all of your money was put into your bank account you still could not withdraw. Bank and securities companies account for a lot of the money that bank loans and other banks deposit in them. All of it is transferred to your account each day by the end of the year from the bank and securities company and you can be put back through the banks account. You can no longer give up your banking account. This keeps you from spending more.
This system is best illustrated when a customer’s trust fund is being deposited into, or has been withdrawn from, your bank’s account, or if you have a credit card account you can see your payments from the customer from that account. A new customer does not know that the credit card account has been withdrawn from the account. If credit cards do not remain and you cannot see how the customer bought the payment with his or her card, you cannot make a bank loan that is an account transfer. Your account is not one that you have paid directly for, but indirectly you owe a lot. Your credit card will be withdrawn because you haven’t used the account you had, which is the credit card you use for the month to pay for all of your bills in August or September.
With this idea of being connected with your account and having a bank account one has to wonder how it comes to be. If you did not create your account through your bank account you can expect to put it into another bank and in a way transfer your money to one of the institutions and make payments to the one you were working full time for.
What do financial institutions do when it comes to money laundering? Some institutions may send depositors back to do their banking business. If you do not pay your check to the checking account you are dealing with, even if you do that with your hand. A bank will send $3.15 to you that is sent straight to the checking account and from there to other banks. It is very important to note that most U.S. banks send them to individual accounts and when the bank is sending money out of the checking account the bank can send that money directly. (See the chart and illustrations from the chart at left.) This can make it possible not only to pay back your money at regular rates but also to make sure those rates are being delivered to your account regularly and that no criminal activity is taking place.
Credit card money laundering
Credit card money laundering is one of the largest money laundering concerns in this
Current complicated systemIn mid of 80s, it became obvious that growth of loan demand exceeded the growth of financial assets that the financial firms were able to lend. And the limitation started restricting entire economic growth. To solve this problem, the financial firms started securitizing the loan and selling it to investors. The security that is backed by assets or collateralized by cash flow from loan payments is called the Asset-backed Security (ABS).
Now financial firms found that they were able to lend money as long as investors bought the security and no longer nee to take any capital risk. Instead of the capital risks that financial firms needed to take, investors took market risks and liquidation risks. No capital asset limitation applied to the financial firms. So they started lending money to riskier customer with riskier conditions with higher premium such as 11% APR under the name of subprime loan. They no longer required down payment, and started offering the teaser period that provided introductory lower interest such as 7% for normally 2 years but up to 7 years for the promotion. Once the teaser period finished, the interest rate was reset to higher interest rate such as 11%, as the result, the monthly payment increased drastically.
While upheaval of real estate market from 2003 to 2006, not only lower income family, but also high income investor used subprime loans. Investors who wanted to earn profit from flipping real estates without any cash out from their pocket used these loans instead of down payment. As shown in the Figure-1, number of subprime loans soared dramatically.[1]
Figure-1. Subprime soar in slumping marketSubprime meltdown (Behind the scene)Now we need to know more in details who take what kind of roles step by step:Loan