Subprime Mortgage Crisis

Paper Summary:

The paper explains the background and history of the subprime mortgage crisis and provides an explanation of its psychological roots. The paper discusses how the motivation of "keeping up with the Joneses" rather than being content with what one can reasonably afford motivated unrealistic property acquisitions. The paper then asserts that these mortgages were made possible by financial professionals' groupthink and blind deference to authority that allowed the suspension of independent moral judgment and sound business practices.

Outline:
Background and History of the Subprime Mortgage Crisis
Psychological Basis of the Subprime Mortgage Crisis

From the Paper:

"Several million Americans are currently on the verge of losing their homes to foreclosure in what has been labeled the nation's subprime mortgage crisis. Generally, those facing foreclosure secured title to property with very small downpayments that were substantially less than the 10% or 20% of the property value traditionally required, in conjunction with inflated property values and very low initial mortgage rates based on stated income levels and other standard indices used by banks and other lending institutions to assess a borrower's credit worthiness and ability to repay loans (Clark 2007)."

Sample of Sources Used:

• Clark, K. (2007) Taking a New View of Risk: Murky Investments Are Suddenly Out of Fashion. U.S. News & World Report. Vol.143 No. 8 (50-51)
• Gerrig, R, Zimbardo, P. (2005) Psychology and Life 18th Ed. New Jersey: Prentice Hall.
• Lowenstein, R. (2007) Subprime Time: How Did Home Ownership Become So Rickety? New York Times Magazine; Sept. 2/07
• Myers, D. G. (2001). Psychology: Myers in modules. New York: Worth.
• Russell, B. (1992) The Basic Writings of Bertrand Russell; Dialectical Materialism, pp 500- 511. London: Routledge.

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