Reasons For The Crises Different opinions

[inea 0]

There are several experts busy trying to find the reasons of the crises of 2010. One of the reasons seems to be the turning around of the purpose of selling mortgages. A mortgage is the money somebody gets from the bank in order to buy a house. If the person doesn pay enough money to the bank the bank will sell the house in order to get their money back. Mortgages are put together and sold to other companies and other banks. The original reason was to spread and minimize the risk. When mortgages are combined and controlled by several different banks and companies the risks are smaller. But this resulted in a policy in which the mortgages are sold in order to gain profits by them. The idea was that mortgages are safe investments, because the money of a mortgage will always be returned. If the owner of the morgage and the house cann't pay the interests and the costs and the peridioc payments the house gets sold. And the price of the house is used to solve the debt of the mortgage. But it proved that when the prices of the houses drop and when too many houses are sold by the banks and with other circumstances, the mortgages don't get paid back. So the companies and the banks that bought the packets of mortgages lost a lot of money. This was probably never expected by the chief officers of the companies and the banks.

 

There are probably more reasons for the crises the Western countries face nowadays. The way mortgages were considered to be safe investments and the way mortgages have been traded seem to be 1 of the reasons that caused the crises.

Edited September 27, 2010 by inea (see edit history)

[angelcan 0]

The accumulation of bad debts either secured or unsecured can lead to severe financial crises. In case of secured debts, the creditor recovers the debts through the property which has been used as security. In some cases it leads to bankruptcy also.

Edited October 8, 2012 by velma (see edit history)