Subprime mortgages fueled today's economic crisis

by Katherine Mejia

Subprime Mortgage lending is a major part of the reason why the American economy is in such turmoil today. This crisis has been coming for a long time, maybe because of new laws that were passed when new presidents came in, or maybe the crisis is at the hands of the lenders. People took advantage of the incredibly low interest rates and borrowed money for homes they could not afford. But it might have been the fact that lenders did not worry or care about the effects that this might have on the economy in the future.

We know now that it is too late to prevent the negative effects of subprime mortgage lending. Now it is up to us to get out of this crisis. Many obstacles lie ahead and the economy will eventuall turn around. The time it takes to turn around completely depends on us. A new president or bailouts will not alleviate the situation all on their own. It is up to the average American to learn from this crisis so that in the future such a predicament can be prevented.

There were many early warning signs that this would happen. Those who spoke about it were listened to but were not paid as much attention as they are now that were are waist deep in debt and there is no way to run away from this crisis. As early as 2004 many professionals were warning subprime lenders that in a not so distant future, borrowers were going to default on their loans. The fact that Fannie Mae and Freddie Mac, who were the biggest lenders until they were taken over by the treasury, were handing out loans to people with insufficient credit fueled this crisis as well as where the money was coming from. Both lenders were lending money with borrowed money creating a massive amount of debt that caused some of the biggest names in finance ( Lehman Brothers, Bear Sterns) to come crumbling down.


But it is not the lenders who will suffer the most from what has happened. It is the borrowers who are losing their homes all around the country the ones that are paying the consequences. Tax payers are also paying the consequences unfairly. While wall street calls itself the “biggest loser” it is a system that will recuperate when investors feel safe enough to take risks. But the average citizen is left hanging paying for bailouts and becoming homeless because of the situation they were put in due to greed and irresponsibility.

Sources:
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

http://money.cnn.com/2007/08/10/markets/subprime_losers/index.htm

http://topics.nytimes.com/topics/reference/timestopics/subjects/m/mortgages/index.html