Weekly Reading (5/16 - 5/20)

All the Devils are Here: The Hidden History of the Financial Crisis

Through the entirety of this book, authors Bethany McLean and Joe Nocera, highlight several things extremely well. Time and time again, all those involved in the financial system that greatly contributed to the economic meltdown, evaded responsibility, neglected the tried and proven rules of the business, and assumed the best without preparing for or even acknowledging the possibility of the worst. Unfortunately this financial crisis can nearly be summed up with one word: carelessness. With this book teachers can clearly illustrate the values of work ethic and integrity, by showing the end all result of what happened to the financial system when these values were neglected.

Furthermore this book focuses on how what these firms were doing were unheard of in the decades before, and seemed to be defying the rules of borrowing and loaning money. The rules for lending are known as the four Cs and are as follows: credit, capability, collateral, and character (p.23). These are an important set of rules for lending money that firms and banks have used for decades, but were for some reason neglected by these companies that sought out subprime mortgage deals. I had the fortune to teach these rules to an economic class during my internship, and for this reason I know firsthand how important they are to teach and to know since they revealed to my students what lenders look for in a borrower.

Also the book mentions a rule/guideline to obtaining a mortgage of which there are others noted in economic textbooks. The rule is as stated: in order to get a mortgage you should be able to pay 20% down payment on the house, otherwise it would be too expensive and your chances of default increase significantly. By teaching this rule, as well the rules on lending the students get a better understanding of what can happen if the rules are not followed as illustrated by the financial crisis.

In response to my group's questions for the week I would like to focus on the one about homeownership. I have myself always aspired to one day own a home, but if that fails to be the case I would not consider myself less of an American or of less importance. Unfortunately this has been ingrained into the idea of the American Dream and thus exploited throughout the build up to the financial crisis by both the investment firms and the government. Homeownership is a nice idea, but it is not for everyone and some people might even be against it all together. We should not let an idea like this control our behavior because if we do we can be taken advantage of, which in my opinion was one of the leading causes of the financial crisis.