Journal #4: “We’ll all pay a steep price for greed of bankers” (December 2, ’07)
Summary
 Reckless behaviour of bankers threatens us with a credit crunch and recession
 Governments support banks by giving them ready access to loans from central
banks to balance their own books and insuring the public’s deposits at banks
 Major banks assume gov’ts can’t afford to let them fail because of the negative
economic consequences therefore their profit driven top executives take
unnecessary risks to increase profits
 U.S. banks made hundreds of billions of dollars of imprudent subprime loans to
homebuyers who were a bad credit risk
 Now many borrowers cannot maintain payments causing housing prices to steeply
decline as foreclosures increase
 U. S. banks deceived foreigners by packaging these risky mortgages as triple A
investments, so now the greed of U.S. bankers will hurt foreigners including Cdns
 Larry Summers former U.S. Secretary of Treasury warns, “the capacity of the
financial system to provide credit in support of new investment on the scale
necessary to maintain economic expansion is increasingly in doubt.”
 This will mean that many people will not be able to borrow money for a house or
car and others will lose their jobs therefore regulation is needed
Cause – Effect Predictions
1. If bankers are allowed to continue to put profits ahead of prudence then further
financial crises will occur in the future costing middle class Cdns their jobs as
investment slows & the ability to be homeowners as loans become difficult.
2. If bankers are regulated more to prevent putting profits ahead of prudence then
business will have access to sufficient funds for capital investment which
increases productivity and workers’ pay and improves product quality.
3. If there is more of an educational emphasis placed on positive business ethics at
university then bank executives will potentially make decisions that benefit
Canadian society more than themselves (e.g. less loans for less short term profit,
but less bad loans lead to long term stability creating jobs)
Opinion
1. The government should penalize bank executives who engage in risky loan
schemes to ensure that they will not be rewarded for such behaviour and continue
to put millions of consumers at risk of financial hardship.
2. Business programs at universities should have a mandatory course on positive
business ethics to encourage more bank executives and business leaders to behave
in a more unselfish and caring manner.
Questions
1. What are the major causes & effects of the present credit crunch in the world?
2. What are the most effective methods of dealing with the credit crunch problem?