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The definition of which could differ to individuals but during a press conference by President George W. Bush he clearly relates the American Dream with home ownership. “Right here in America if you own your own home, you're realizing the American Dream” (G.W Bush, Remarks by the President on Homeownership, St. Paul AME Church Atlanta, Georgia USA, June 17, 2002). In 2003 the Federal Reserve dropped interest rates to 1% (Labonte & Makinen, 2008) this caused America to start spending big and the American dream of home ownership; instead of being a myth and something which has been unachievable by millions in the past, all of the sudden was in their grasp, enter subprime mortgages. Prime mortgages were approved for people who qualified on the prerequisites stated on the terms of a loan. Prerequisites included: down payment, stable income and current assets as collateral in case the borrower defaulted. Subprime mortgages on the other hand did not require any prerequisites of the borrower what so ever. (Kirchhoff, Block, 2004) To make certain that these types of borrowers would qualify; the government introduced a bill granting the down payment to be payed by the government. (U.S. Department of Housing, 2010) Nevertheless, these people with shaky credit and possible history of past defaults were now new home owners, living the American dream. Unbeknown to them it was to be short lived because in 2006 the Fed raised interest rates back close to 6% (Labonte & Makinen, 2008) pushing loan repayments through the roof forcing them to foreclose their properties. So how many people applied and were granted subprime mortgages? In June 2008 there were 27 million subprime housing loans outstanding (Rhan, 2010) leaving the government with a 4.6 trillion dollar debt. (Rhan, 2010) In 2010 after the main storm of the GFC passing, closer review of the types of people who applied for these toxic loans has become evident and a banking
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All misbehaviour is driven by greed. It is evident that Wall Street Investment banks took the opportunity of lowered interest rates offered by the Fed and a weak financial regulatory system and stretched the proverbial rubber band by misbehaving and creating toxic financial instruments: subprime mortgages. They drove their product by means of predatory lending until the rubber band snapped. As a result, the American dream eluded millions and continues to be a pipe dream, far from reality, for the majority of
All misbehaviour is driven by greed. It is evident that Wall Street Investment banks took the opportunity of lowered interest rates offered by the Fed and a weak financial regulatory system and stretched the proverbial rubber band by misbehaving and creating toxic financial instruments: subprime mortgages. They drove their product by means of predatory lending until the rubber band snapped. As a result, the American dream eluded millions and continues to be a pipe dream, far from reality, for the majority of