The Protector is the Despoiler
The Banking Collapse Saga that Should Have Never Happened
By Eddy Sumar – Feb 1, 2011
Banks are vital for the safety and security of the nations’ wealth; they facilitate commerce and exist to protect, preserve, and grow our deposits and wealth. People look to banks as solid institutions that keep the flow of funds smooth and steady, moving from depositors to borrowers so the engines of our economy can continue to rev with production, creativity, innovation, and lead to the prosperity of all. In short, the financial system is vital to the functioning of an economy.
Did banks live up to the expectations of their depositing customers? Sadly, the banks betrayed the trusteeship and the fiduciary relationship by putting greed, indulgence and selfishness above the good of their communities. They lost focus and deviated from the principles of safety and security and started to gamble with the wealth of the nations. Some call it the consequence of deregulation; others simply express: “It is the story of capitalism.” Yet a third group will say, “It is the economy, and it is expected from the markets to go through these cycles every now and then.” Is it so? What is the real story of the global collapse of the banking sector?
Let us analyze what happened in the past few years during the boom of the housing market. The housing and mortgage industry entered an unprecedented period of prosperity which created a euphoric bubble fueled by the manipulative greed, indulgence, carelessness, and selfishness of speculators, lenders and some borrowers. Am I using unsympathetic words to describe what happened to the markets? These words are deserved! Greedy speculators and lenders without conscience acted as the destroyers of a system that should have protected its constituents. The banking industry functions on the basis of credit. It receives deposits from its customers who want to protect their funds and make them grow. In turn, the banks lend these funds for a profit to borrowers who should be screened, cleared and approved based on their credit standing.
Bank officers and mortgage lenders are trained to perform complete due diligence on every borrower, whether seeking a cash loan, line of credit, or a mortgage loan. So what really did happen? During the housing bubble, lenders turned a blind eye and approved loans to individuals who neither had the ability nor the wherewithal to pay. They thought that the markets would continue on the upswing and too bad for borrowers if they could not pay a year or two from the approval date. The house would be foreclosed and someone else would buy it at a higher price. Is this ethical? Is this moral? The answer is obvious! Smart, well-trained executives urged the system to create its own demise. Some indulged in fraud, others in deceit and suspicious trading!
From the news around the world, we can see that the banking collapse, on the surface, was based on losses issuing forth from the mortgage crisis and the credit crunch. But beneath the surface, we find the real reasons. The story of NetBank, based in Georgia, highlights some key reasons — poor underwriting standards and expanding into sub-prime mortgages. The collapse of IndyMac reveals how poor practices can combine with questionable oversight to create a disaster. Some banks approved loans without sufficient collateral. Furthermore, the banking collapse revealed the role of some senior banking executives who engaged in fraud, giving loans to fake companies, lending to businesses they had a personal interest in and conspiring with stockbrokers to drive up share prices.
We need to act, and act fast. Why? We are not still out of the woods. One source stated:
“Today, fears about more such fallout have for a large part disappeared. However…the economy is still struggling and banks continue to suffer from loan losses....More failures loom as the government's list of problem banks tops 400.”
The banking system is laden with toxic assets that some estimate to be $2 trillion in bad debts. Moreover, the frequency of bank failures is taking its toll on the FDIC, which guarantees the first $250,000 in every bank account.
So what can we do different to protect us as nations and consumers from the ravages of a repeat of what happened in 2008 / 2009? Simply put, we need to revamp the whole financial system. First, we need government oversight so speculators and greedy selfish executives and individuals cannot wreak havoc in the near future and destroy any vestige of decency and humanity. One reporter aptly said: “Now Americans find themselves with a problem of biblical proportions for the simple reason that the banking industry didn't think it needed supervision anymore.” Second, we need the right kind of farsighted regulation that will create boundaries to protect our wealth without the creation of bureaucracies and obstacles to free trade and capitalism. Third, banks should not be allowed to get involved in speculative and deceitful lending practices the kind that emerged in the mortgage sector and Wall Street. Fourth, we need every banker to go through a complete training course on ethics, community and individual accountability and responsibility. Fifth, banks and their executive officers should be held accountable for acts of greed and deceit. Sixth, we need to return to the fundamentals and apply approved credit and lending practices to every transaction.
No nation can continue to prosper if its wealth keeps vanishing with the wind of greed. Therefore, we need honest bankers who will appoint themselves as moral agents and guardians of their nation’s treasures.
The Banking Collapse Saga that Should Have Never Happened
By Eddy Sumar – Feb 1, 2011
Banks are vital for the safety and security of the nations’ wealth; they facilitate commerce and exist to protect, preserve, and grow our deposits and wealth. People look to banks as solid institutions that keep the flow of funds smooth and steady, moving from depositors to borrowers so the engines of our economy can continue to rev with production, creativity, innovation, and lead to the prosperity of all. In short, the financial system is vital to the functioning of an economy.
Did banks live up to the expectations of their depositing customers? Sadly, the banks betrayed the trusteeship and the fiduciary relationship by putting greed, indulgence and selfishness above the good of their communities. They lost focus and deviated from the principles of safety and security and started to gamble with the wealth of the nations. Some call it the consequence of deregulation; others simply express: “It is the story of capitalism.” Yet a third group will say, “It is the economy, and it is expected from the markets to go through these cycles every now and then.” Is it so? What is the real story of the global collapse of the banking sector?
Let us analyze what happened in the past few years during the boom of the housing market. The housing and mortgage industry entered an unprecedented period of prosperity which created a euphoric bubble fueled by the manipulative greed, indulgence, carelessness, and selfishness of speculators, lenders and some borrowers. Am I using unsympathetic words to describe what happened to the markets? These words are deserved! Greedy speculators and lenders without conscience acted as the destroyers of a system that should have protected its constituents. The banking industry functions on the basis of credit. It receives deposits from its customers who want to protect their funds and make them grow. In turn, the banks lend these funds for a profit to borrowers who should be screened, cleared and approved based on their credit standing.
Bank officers and mortgage lenders are trained to perform complete due diligence on every borrower, whether seeking a cash loan, line of credit, or a mortgage loan. So what really did happen? During the housing bubble, lenders turned a blind eye and approved loans to individuals who neither had the ability nor the wherewithal to pay. They thought that the markets would continue on the upswing and too bad for borrowers if they could not pay a year or two from the approval date. The house would be foreclosed and someone else would buy it at a higher price. Is this ethical? Is this moral? The answer is obvious! Smart, well-trained executives urged the system to create its own demise. Some indulged in fraud, others in deceit and suspicious trading!
From the news around the world, we can see that the banking collapse, on the surface, was based on losses issuing forth from the mortgage crisis and the credit crunch. But beneath the surface, we find the real reasons. The story of NetBank, based in Georgia, highlights some key reasons — poor underwriting standards and expanding into sub-prime mortgages. The collapse of IndyMac reveals how poor practices can combine with questionable oversight to create a disaster. Some banks approved loans without sufficient collateral. Furthermore, the banking collapse revealed the role of some senior banking executives who engaged in fraud, giving loans to fake companies, lending to businesses they had a personal interest in and conspiring with stockbrokers to drive up share prices.
We need to act, and act fast. Why? We are not still out of the woods. One source stated:
“Today, fears about more such fallout have for a large part disappeared. However…the economy is still struggling and banks continue to suffer from loan losses....More failures loom as the government's list of problem banks tops 400.”
The banking system is laden with toxic assets that some estimate to be $2 trillion in bad debts. Moreover, the frequency of bank failures is taking its toll on the FDIC, which guarantees the first $250,000 in every bank account.
So what can we do different to protect us as nations and consumers from the ravages of a repeat of what happened in 2008 / 2009? Simply put, we need to revamp the whole financial system. First, we need government oversight so speculators and greedy selfish executives and individuals cannot wreak havoc in the near future and destroy any vestige of decency and humanity. One reporter aptly said: “Now Americans find themselves with a problem of biblical proportions for the simple reason that the banking industry didn't think it needed supervision anymore.” Second, we need the right kind of farsighted regulation that will create boundaries to protect our wealth without the creation of bureaucracies and obstacles to free trade and capitalism. Third, banks should not be allowed to get involved in speculative and deceitful lending practices the kind that emerged in the mortgage sector and Wall Street. Fourth, we need every banker to go through a complete training course on ethics, community and individual accountability and responsibility. Fifth, banks and their executive officers should be held accountable for acts of greed and deceit. Sixth, we need to return to the fundamentals and apply approved credit and lending practices to every transaction.
No nation can continue to prosper if its wealth keeps vanishing with the wind of greed. Therefore, we need honest bankers who will appoint themselves as moral agents and guardians of their nation’s treasures.