Financial Services & Trading Institutions Problems

Financial Services & Trading Institutions Problems
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Financial Services & Trading Institutions Problems
Question 1
The government should have prosecuted the banks and rating agencies. These two institutions were responsible for the formulation, execution, and disguising of the housing market's fraudulent system, leading to its eventual collapse in 2007. When Lewis Ranieri came up with the mortgage bonds, the idea was safe and structured. However, the banks turned it into an unsafe and illegal system. It is clear from the book that the banks knew what they were doing. When they started running out of loans to put in the mortgage bonds, they began issuing riskier loans to prospective home buyers. However, the banks should have never given this kind of loan. The reason is that while issuing the loans, the banks no longer took into account factors such as creditworthiness and individual income. While not illegal, this practice is not ethical. The bank must thoroughly vet any borrower before issuing a loan.
Nevertheless, the banks did not do this. They gave the loans and proceeded to place them in new bonds. Through the rating agencies' help, the bonds would receive high ratings. The rating agencies gave the bonds high ratings even though their high risk made them worthless. Although not illegal, the rating agencies also acted in an unethical way.
Besides the banks and rating agencies, all the senior individuals whose employers were involved in the crisis should have been prosec...