Case 8 Essay

546 Words3 Pages
Case #8 1. Are subprime loans an unethical financial instrument, or are they ethical tools that were misused? Subprime loans are an unethical financial instrument. They take advantage of people in desperate situations. For instance, a new home buyer that doesn’t have good credit would be told that a subprime loan is best for them. Subprime loans also use too much information for the average person to understand. So the people who couldn’t afford a normal mortgage rate would see the benefits of a subprime loan. Banks would make sure their clients knew that subprime loans were safe, but they just used the loans to get rich at the expense of their customers. At the same time, subprime loans can be ethical tools that were misused. They were misused by the lending companies. Subprime loans are intended to help low to middle income families obtain them to buy homes even if they didn’t qualify for regular loans. Consumers were then allowed an equal opportunity to own their own homes but at a higher cost. The lending companies took advantage of this when the market was good; however, they were surprised by the downfall of the housing industry and the economy. 2. Discuss the ethical issues that caused the downfall of Countrywide Financial. One ethical issue that caused the downfall of Countrywide Financial is that leadership was more focused on themselves then on the company. So that the company could grow at a rapid rate, their salespeople were being given incentives to undertake riskier transactions. The salespeople were substituting sales volumes for hard work which had a part in getting the subprime lending industry a bad name. Another ethical issue that caused the downfall was that they gave out liar loans. They weren’t required to have proof of the borrowers income which in turned allowed the consumers to buy the homes while having few to no assets. Many
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