Credit Crunch Essay Example | Topics and Well Written Essays - 500 words - 2

Credit Crunch - Essay Example But on that modest base, it builds an enormous balance sheet of two huge towers of cash: one of money borrowed, and the other of money lent or invested† (Davis). Banks thought that whatever the money they collected from the public in the savings accounts or term deposits need to be lent for a higher rate in order to make profit. So they tried to give loans to anybody approaching them without analyzing or checking the borrower’s financial capabilities. The high spending American people approached the banks for everything whenever they are in financial requirements and the banks were ready to satisfy them. â€Å"The American subprime mortgage firms, who made a rash of bad loans to people with poor credit, can find little to excuse their behavior† (Who is to Blame for Credit Crunch) Repayment period of loans allotted to the public was also fixed by the banks without any vision or purpose. Long periods were allotted to the borrowers for the repayment of loans. Moreover, the government also did everything to encourage the lending habits of the American public. Government encouraged the banks to reduce the interest rates of the loans they sanctioned and also to increase the repayment periods of the loans. Government miscalculated that the increased economic activities across the country would boost the economy. The main problem associated with the current credit crunch is that banks would force to increase the regulations on loans sanctioned to the public in future which will weaken the economic activities.