Issue or crisis Essay Example | Topics and Well Written Essays - 1000 words

Issue or crisis - Essay Example In fact, analysts such as Essen (2008) consider it a complete failure of the economic system to check and control the investments made by banks that are supposed to be under government regulations. The finance sector is one of the heaviest regulated sectors of the economy yet the present situation has come to a point where investors and finance gurus are calling it the â€Å"worst financial crisis since the Great Depression (Essen, 2008, Pg. 1)†. Of course the full impact of the crisis may only be understood years after the crisis is over but for the moment it is obvious that the basic cause of the crisis was the high risk action of many different banks who loaned out huge amounts of cash to borrowers without the proper risk scrutiny required. In particular, subprime mortgage lending which was done by American banks in recent times made them focus on short term profits, quarterly sales figures and short sighted goals rather than stable business practices that could have given them real returns (Essen, 2008). To fully understand the current crisis, the background must be examined and that shows a story of greed and what is called by Clendenning (2008) as the casino mentality of American banks. During a time of economic health, housing sellers and mortgage brokers suggested and recommended to buyers that they get into mortgages which required little or no cash towards a down payment. Further, these mortgages and loans were given out without a proper examination of the credit risks associated with the loans. Instead of reducing the risks undertaken by banks, these measures only served to expose them more. The crisis might have been minimized had the banks stopped there but the same debts were sold, traded and bartered as high risk investments to several international investors with the expectations of high returns. However, the high returns did not come and the banks