Sunday, April 17, 2011

Financial Laws and Money Management : Crisis

Peace be upon you, brothers and sisters of my muslim relatives.

As I read about this news, I would like to point out some comments pertaining to this matter. A short one.

Today, on 17th of April, Senator Tom Coburn and Senator Carl Levin recommend an additional changes upon their financial laws of United States of America. As we all know that fraudulent mortgage is reported as one of among the findings.

Their recommendation is made following with the question on the report regards with the causes of financial crisis in 2008. Yeah, they ought made some changes. Seriously.

In 1999, there were a lot of a these kind of crimes. Fraud. They actually obtained the money by deceiving a particular party or a bank. Maybe some sort of exaggerated words or informations in order to get a larger loan. Simple way to say that is like when you say that your mom is somebody, then it won't be a problem for you to pay back the money. In United States Federal court, mortgage fraud is prosecuted as mail fraud, money laundering and etc. This is also one of the reason which triggered to a financial crisis. One of the example which involving money laundering is regards with the action of Credit Suisse, as they had laundered the money for Iran nuclear program. Crimes in financial industry is something in common to say. What to expect ? It's all about money right.

Before I give some explanation why this practice leads to a financial crisis in United States of America, well basically leads to global financial crisis, I would like to point out one important case which is correlated with fraudulent mortgage.

In 2006, 15 defendants were indicted on 79 counts of bank loan fraud, conspiracy, money laundering and so on, as it is correlated with the mortgage fraudulent that targeted the metro-Atlanta area housing market. This case has led to an involvement from Federal Bureau of Investigation (FBI) and Department of Housing and Urban Development. Obviously, it is a serious case.

Now, let me demonstrates to you in a very simple way to show and illustrates to you how this led to financial global crisis.I don't even think this would required you to think out of the box as it is a simple things to think.

What is the consequences when you lend a money to a someone who obviously won't be able to repay ?

Imagine like this..

A = a person who borrow your money

B = your friend /campus-mate who is selling maggi, coca-cola, books and etc to you as you are his or her regular customer and most of his or her income is actually coming from you.

C= assistant for B a.k.a B's roommate.

Here we go, A, who wanted to borrow RM1, 000 out of Rm 1, 250 from your allowance. *also imagine that you are a foundation student like me*. A higher debt means a higher rates of interest right ? Logic. But what if the loan were given to someone who cannot pay you back ? you go. A financial crisis. You can't spend more. You have to really really really limit your budget on the other things. Shoes, clothes, books, foods and so on. Does this merely affects you alone ? Totally not. The income for B would be slightly decrease due to lack of demand from you.

In a mean time, C, who acts as an assistant for B, who usually facing some difficulties to handle his business as before, there is a lot of demands made from you. Now, B have to lessen his products. Do you need a hand when there isn't much things to handle around ? So, B have to fire C from his current job.

Can you picture that ?

Now, imagine that you as a main bank which indirectly represents economy of United States of America, A as your citizens, and B as another country, while C as B's citizens. Simple isn't it.

Well, basically, mortgage fraudulent is happening when a particular person getting a large amount of loan by deceiving. He lies about his current income. He claimed that he is a boss of nonexistent company and so forth when actually the amount of money borrowed is far beyond his capability.

There is another reason which triggered a financial crisis which actually played the same concepts. The different things is, mortgage fraud is a crime, yet this is a legal matter in the eyes of law.


This is what the investment bank did in 1999 if I'm not mistaken. They actually preferring subprime loan, as they carry a higher interest rates and this has led to a massive increase in predatory lending. This kind of subprime means give a loans to people who may have difficulties maintaining the repayment schedule. In large amount. One of the risks that the banks have to face is that, there is none of the possession of property assets that could be used or acts as a guarantee or security.

To tell exactly the reasons behind the economic crisis in 2008, there are many things to point out. The reasons on how the banks in Iceland losses 100 billion, while their cross domestic products was only 13 billion. Seriously, many things to say about the reasons. Despite that, there are one last thing that I would like to put forward. This thing is also one of the reason of the global financial crisiss. Mean while, this is what they, the world financial experts prefer for.

What is that ?

Deregulation. It means to remove a national or local government from the controls or rules in business or in any other activity. This is what experts trying to do. Leave all the jobs which pertaining to financial to them *experts*. No interference from the government. In 2000, Iceland made a deregulation. What is the impact ? A lot. Financial and environment. This guy took the risk using the public money. Make an investment on something which in need of larger amount of money. Build some sort of project and causes a pollutions.

In our modern days. Especially in Islamic country like us. They are trying to separate any religious things onto a matter of handling our money. "Leave the job to experts."

That's all from me. Feel free to drop any comments or arguments. *If there's any*

Peace be upon you muslim readers, and adios guys.


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