Responsibility for Subprime Mortgage Crisis
There is not one group, in particular, which is completely responsible for the subprime mortgage crisis; the responsibility lies with a collective group of entities. This group of entities and individuals include central banks of the world, credit rating agencies, underwriters, lenders, and homeowners. Although these groups played a role, the major offenders are the lenders, homeowners, and credit rating agencies.
Many lenders knowingly lent funds to individuals who were high-risk applicants with poor credit scores and not enough income to cover their loan amounts. Conversely, homeowners played a role in the crisis by purchasing homes they could not afford. According to Benston (2007), " Most subprime borrowers applied for and got mortgages they thought would benefit them. They expected that house prices would continue to increase, allowing them to refinance their mortgages or sell the property at a profit. Many guessed wrong, and they and the investors who ultimately provided the funds for the mortgages will take losses rather than gains” (Con: Collaborative Fiasco). In addition to lenders and homeowners, credit rating agencies played a significant roll in the subprime mortgage crisis. Credit rating agencies are observed as partaking in the crisis because of their role on rating subprime mortgage backed securities and other structured finance securities. The Review of Business Research published an article by Cheick Wagué, Credit and Credibility: Triple-a-Failure and the Subprime Mortgage Crisis that argues the failure of the credit rating agencies to provide accurate ratings therefore illustrating structural problems. This problem shows that the subprime mortgage crisis is not solely because of investor naivety. “Given the crucial role of credit rating agencies for the functioning of today´s financial markets it is vital that ratings are indeed as objective and reliable as possible. Yet, arguably the current...