Question

THE SUBPRIME MORTGAGE MARKET MELTDOWN question) what motivated to investment bankers to get involved in the subprime market? did they behave appropriately? why or why not?

Answer 1

The investment bankers were somehow motivated by the new laws framed by the government that has completely eliminated interest rate caps which allowed even borrowers with risk to obtain loans; this has allowed investment banks to load up more securities. Also the fact, that during 2007 and 2008 the subprime mortgage was the talk of the market and it has became famous very rapidly, real estate prices were going up and brokers and investment banks wanted to benefit from the same, this has created bubble which burst out in the end. Yet another reason is the profitability of investment banks at that time, which allowed them to bundle more securities.

The lenders certainly behave unethically because they did not monitored the actions of mortgage brokers, brokers wanted to make high profits in the hunt of which they started to recommend even loans which has a high risk of default. The lenders virtually gave loans to every individual that are being thrown to them by the brokers allowing them to bundle more securities. They did not look at what brokers were doing and how this may impact them. They fail to fulfill their responsibility towards investors due to their unethical behavior.