Ethics of Subprime Mortgages
By James Smith
There are few individuals throughout the United States and in worldwide business who do not know what Subprime mortgages are and what effect they have had on the worldwide economy. Subprime mortgages can essentially be defined as loans given to individual with insufficient qualifications with an impossibility of being paid back. When the world started to realize these mortgages were going to have detrimental effects on the world’s economy the loans couldn’t even be distinguished because they had been bundled and sold so many times (Barnes). Why were these loans made? Why did people accept them? Was it ethical to make these loans?
These loans were given and accepted for many reasons; in 2002 the economy began to rapidly expand, home values began to rise dramatically and interest rates were very low. It also seemed that the American dream of owning a house was attainable for anyone willing to sign on the dotted line, even for those with little or no down payment and often less than ideal credit. These mortgages were often lent with the adjustable rate attached to the loan, which showed low monthly payment; unfortunately it was only temporary. Many banks made these loans without enough hesitation because they were securing most of their profits on the front end of the loan; the individuals taking out the loans figured the value of their home would never stop increasing they had nothing to loose (Barnes).
Thomas Kostigen from marketwatch.com states “Exploiting those in need never gets any one ahead of the game in the long run. Sure, short-term profits are there to be made, but ultimately repentance prevails.” He said this in an article he wrote about subprime mortgages and the ethics involved around them. This statement seems to sum up the whole cycle of the affects of these types of loans, yes there was much money made on these loans, but now, in the long term many people and entire companies are paying the price. Kostigen also warns about companies that scheme for quick money typically do not have a solid ethics base vs. good performance comes from good ethics throughout companies.
In contrast to poor ethical decisions made by many banks John Allison, recently retired CEO of BB&T ( a bank based in NC with around 1,500 branches and 143 billion in assets (Hemingway)) explains “Subprime mortgages were bad for the people who took them out. That went against BB&T’s philosophy.” This bank has been able to stay out of financial trouble and away from government money by following its solid time proven philosophies. Allison is still out to make money and is a supporter of capitalism but he has shown through his actions that one is better off in the long run being honest; and looking out for both the company and the clients yields better profits and relationships in the future.
Now that the dust has settled perhaps individuals both involved and those who watched from the sidelines will take another look of how important ethics are. People are in business to obviously make money and it seems that those who had strong principles and ethics did just that.
References:
Barnes, R. (n.d.). The Fuel That Fed The Subprime Meltdown. Retrieved November 18, 2009, from Investopedia.
Hemingway, Mark. "Objectivist Philosophy for Fun and Profit." National review online. 30 Apr. 2009. Web. 5 Dec. 2009.
Kostigen, Thomas. "No surprise here Shaky ethics of subprime lending lead to shaken investors." Market Watch. 27 July 2007. Web. 6 Dec. 2009.
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