Giant Pool Of Money Research Paper

The Giant Pool of Money is an episode of the radio show, This American Life, which originally aired on May 9, 2008. The episode described, to a general audience, the causes and factors which led to the subprime mortgage crisis. The cause of these crises are the result of investment companies becoming attached to securitizing mortgages, taking them and building them into large pools of loans. At that time, they sold these mortgages to investors. These investors would increase this pool of money by creating adjustable-rate mortgages (ARMs), subprime mortgages, and no-income loans. This paper will address the major issues that lead to the housing crisis and the economic collapse, describe moral failings of the parties involved, and give feedback

To maintain growth, Wall Street’s appetite became so large that the firms were determined to find a way to influence additional people to get mortgages. Thus, firms gave loans to people that were not qualified. All people needed to present was a statement of how much money was in their bank account and their credit score. Banks would create new money every time they gave a loan. With banks creating new money at such a rapid rate, they caused house prices to inflate. However, lending a large sum of money caused debt to rise quicker than incomes. The resulting debts are unpayable. When these debts were unable to be paid off, the increase in default rates resulted in a financial crisis. Because of the financial crisis, banks refused to lend money which led to the economy shrinking causing a

There is no denying that the financial crisis has caused a major change to housing policy in the U.S. According to Kevin Dowd, a Professor of Financial Risk Management at the Centre for Risk and Insurance Studies and Nottingham University Business School, a moral hazard is where one party is responsible for the interests of another, but has an incentive to put his or her own interests first. A financial moral hazard would be to sell somebody a mortgage knowing that person has no interest in buying it. Moral hazards are a part of the financial system and economy (Dowd 2). However, keeping them under control is a hefty task all