Subprime Mortgage Foreclosures Have Affected the Financial Meltdown

The title of the “Anatomy of a Meltdown” in an issue of The New Yorker magazine was rightly apt for the current financial crisis sweeping across the nation. Federal Reserve Chairman Ben Bernanke and other experts last year were quick to say that the blossoming issues on subprime mortgages and foreclosures would easily be contained. They were wrong.

Now the crisis has blown out of proportion as fallouts from risky mortgages multiplied in number and foreclosures occurred left and right across the nation. The crisis on foreclosures, like a viral disease, quickly spread to other countries and other lending which quickly placed a freeze on credit. Huge losses piled up for banks and financial institutions who owned these mortgages that drastic actions were needed to be done.

Facing a financial crisis comparable to the 1930s, officials cut key interest rates in a bid to save the economy last September 2007. Foreclosures continue to increase since then with no letting up. The federal government has made unprecedented moves to save the financial market by providing loans to banks, swap mortgages for Treasury securities and investing on other financial companies. Federal reserves were also used to assist investment firms and bailout insurance giant AIG.

Several sectors have criticized the government for these actions, fearing risks for taxpayer’s money and enticing financial companies to take further risks with the hope of a bail out plan from the government.

Other sectors have lambasted the government for focusing on banks but not doing any concrete actions in providing direct financial support to homeowners in danger of foreclosures. A clamor for a mortgage bail-out plan is pushed from all sides to help families in distress and prevent foreclosures.

A year after the initial containment moves from the government, the financial conditions continued to deteriorate. Unless more drastic and effective actions are put in place, the meltdown will continue to spread and put more families in jeopardy.

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