By Tom Creely, Ph.D.
The current mortgage crisis has contributed to the United States sliding into a recession which adversely affects all Americans. Recently, three major credit card companies, Bank of America, Capital One, and Discover Financial Services, revealed before Congress that they are passing their losses in the mortgage sub-prime loans on to credit card holders by increasing their interest rates on balances. Even people who have paid more than the minimum payment and on time are being hit with dramatic rate increases. According to recent testimony for the US Senate Committee on Bankruptcy Reform, Professor Elizabeth Warren stated “Sub-prime mortgage companies … have unlawfully taken millions of dollars from homeowners, then fled to the bankruptcy courts to protect their insiders and bank lenders.” This is more than a legal issue, it is a moral issue of greed, manipulation, and deception of people who could ill-afford high risk mortgages. Do you think such predatory lending was focused on the poor and economically disadvantaged? With Metro Atlanta having a large minority population, were they victims of cunning mortgage brokers? What ethical responsibilities do major financial institutions have? Tell me what you think.
Dr. Tom Creely is assistant professor of Leadership and Ethics at the Siegel Institute, Kennesaw State University.
Dr. Tom Creely is assistant professor of Leadership and Ethics at the Siegel Institute, Kennesaw State University.
6 comments:
The current financial mortgage mess is a result of laws, ethics/morality, capitalism, and education.
A free society with an economic system based on capitalism has impact on the morality/ethics continuum. The law and morality/ethics are not necessarily synchronized. One result of these two factors is behavior by both consumers and producers that falls on the bottom side of the morality/ethics continuum. Predatory lending resulting in financial losses and the business practices chosen to recover from these losses may be influenced by individuals applying for financial credit with deliberately incomplete and falsified information. Add to this mix, a financially uneducated public, and the current mess is understandable, perhaps even predictable.
An ethical individual with financial understanding has perhaps two levels of response. The first level is protecting your self from this practice by engaging in a financial life style that allows you financial flexibility (take your business elsewhere.) The second level of response would entail going out into the communities in question and attempt to provide financial guidance to individuals that lack basic financial knowledge. (This would be a daunting task!)
Both consumers and financial institutions have had key roles in this situation, but I think that a large responsibility also falls on our education systems that seem to produce substantial numbers of illiterate and financially illiterate graduates. A degree of responsibility also falls on the corresponding students.
Who is responsible for providing and establishing the social mores that dictate ethical and moral behavior from a financial perspective?
(post by mark turcot)
Mark,
You had some keen observations in your commentary. I agree with the fact that minority consumers, especially, are hurt the worst. Many financial companies focus on the poor and especially the elderly to try and loan them money for items they cannot afford -- boats, luxury cars, and expensive houses. These individuals truly live beyond their means. As you stated, Mark, the individual borrower has to be saavy enough to know not to borrow money for those kinds of things. I just don't think that American consumers know enough to NOT make those type of decisions. Unforutnately, lenders get hold of the these consumers, and the next thing you know, there is a financial crisis. My husband works in the financial industry, and, as a family, we have been adversely effected by what is happening in the financial markets. In summary, I think underpriveleged consumers don't know any better and that lenders do. Both groups are ulitmately responsible, but financial companies are the more culpable.
--Holly
Discover Financial does not do mortgages. The author just made up some BS.
Discover Bank does make mortgage loans. Check out www.discoverbank.com.
Dr. Tom Creely
How can these companies legally pass on their incompetence to credit card holders that have good financially sound practices of always making payments on time? How is it possible that our own representatives would just sit by and allow this to happen? This is just another example of how our elected officials continue to allow large companies dictate how the American public will pay for their stupidity and bad business practices! I'm tired of being nickeled and dimed to death, not being given the right to determine where my hard earned money will go. It's no wonder that there are so many people that can't afford healthcare, food, and shelter. Our government needs to remember the meaning of ethics and morality and start caring for our own people, the ones that elected them into office!
I think this really is a big issue and there will be lots more to come. I have never understood why Americans spend so much money that they do not have. I don't know of any other country that buys so many things on credit even though they cannot afford it. On the other hand I can see the pressure of society to have all these material things, because especially in the US material things tend to be very important. It takes a very strong person to say:" I don't care what others think. I don't need all the fancy things to feel good about myself...". I believe a lot of times people that have so much debt did not spend it very wisely and it just really baffles me how people don't have a problem with the kind of debt they have. Then of course you have the ones that are in debt due to medical issues and other unfortunate events. I don't think it is right for credit card companies to hand down their money problems to consumers. This cannot be good for anybody and makes the economic situation of this country even worse. If people cannot pay off their card, they sure won't be able to if the rates go up. The financial institutions should have been more careful when handing out loans and not give them to just anybody. Many people that received loans should have never received them based on their financial situation. The companies should not make the public pay for their mistakes.
The housing market situation is a total disaster in my mind. Financial institutions are somewhat obligated to educate their potential clients about all details of a loan. They are also obligated to check if people really qualify for loans, and not drop all the regulations just so they get the business. Obviously that did not happen in the last few years and all they focused on was to get the business. Now that so many families have houses in foreclosure all of a sudden everybody is freaking out, including the financial institutions. I agree that the public has responsibility as well, but as Mark alread pointed out, most of them just do not have the education or knowledge. I am looking into buying a house right now and they have really tightened the rules, which is a good thing. But I believe we are just going through cycles and once the market recouperated at some point (maybe in 20, 30 years)we will go back to what it was over the last few years.
I agree with Holly's final point, that the responsibility and final control really lies within the financial institutions.
Pam Koeferl
Post a Comment