Subprime Loane Research Paper Example | Topics and Well Written Essays - 1750 words

Subprime Loane - Research Paper Example It is not the interest rate corresponding to the loan itself. â€Å"Subprime† denotes any type of loan which does not satisfy the prime guidelines of a loan. Subprime lending is a process of making loans or lending money to the borrowers who are not qualified to be given loan at the market interest rates because of their low credit ratings (Bahin, 2007). Both the borrowers and the lenders find themselves in a riskier position as a result of subprime lending. It is so because such lending is characterized by poor credit rating, high amount of interest rates associated with it, and unfavorable financial situations. The mortgage brokers played an important role in the rise and fall of financing related to subprime mortgages. The competition corresponding to the subprime loans increased as a result of increasing demand of Mortgage Backed Securities (MBSs) sought by the investment banks. The lenders were observed to be involved in activities of introducing innovative financial prod ucts which seemed to be attractive to the borrowers, and the latter were thus becoming more and more interested to borrow money from the lenders. If we consider the job responsibilities of mortgage brokers, it can be observed that they had to perform the activities related to identifying the borrowers, receiving an application for loan from the borrowers, assessing their credit worthiness, evaluating their income-to-debt ratios, and then finally sending the borrowers to the lender who meets all the criteria. However, it is worth mentioning that all these activities and processes followed by the mortgage brokers did not correspond to the actual plan. The mortgage brokers received emoluments in the form of commissions and, therefore, it worked as an incentive for them to earn greater commissions by sending even the prime credit borrowers to the subprime lenders. Even the people who had little knowledge about MBSs were attracted to them because of the increasing demand for them in the market. There were not even any kinds of licensing requirements for a person to become a mortgage broker (Sanders, 2002). All these factors led to the emergence of mortgage brokers in the market and had an impact on lowering their reputations. The lenders were exposed to such a huge number of participants in the mortgage industry that many of the borrowers received loans who should never have been lent money because they were to face financial problems while repaying the loans received by them. Based on the above evaluation of the situation it can be concluded that besides some of the minor incidents, certain specific individuals like mortgage brokers cannot be blamed for the downfall of the overall subprime mortgage lending process. The blame should actually go to the regulatory authorities and government institutions which failed to oversee the situation beforehand, to different corporate misdeeds, motivation to earn more profits, and also, to a large extent, to the borrowers them selves. Question 2 Incentive contracts or managerial incentives in a corporate organization mainly correspond with the agency theory and the problems associated with it. Jensen and Meckling (1976) are commonly associated with the term â€Å"agency theory† as found in most of the existing literature. According to Alchian and Demstez (1972), the business activities conducted by most of the organizations are mostly governed through contracts that involve voluntary exchanges.

Foreign Policy Essay Example | Topics and Well Written Essays - 1000 words - 1

Foreign Policy - Essay Example Either way, there is more to consider when gauging the situation in Iraq than casualties and tax dollars. In section VI Ignatieff addresses a major issue that has divided the nation internally and raised comparisons to Vietnam. Recruitment is down and it appears that the price to preserve and spread American ideals may be too high. (Ignatieff, 2005, Section VI, par. 5). Another view presented by journalist William Greider is that Iraq is already worse than Vietnam. He believes that "the war in Iraq is different from Vietnam in one fundamental respect: A substantial portion of Americans (and others around the world) were in the streets protesting this venture before the shooting startedvirtually every element of what has gone wrong in Iraq was cited by those demonstrators as among the reasons they opposed the march to war (Greider, 2004, par. 7). While Ignatieff may not full agree with such a statement, at the very least it outlines the foundation of realist sentiment. Thomas Jefferson is introduced as a fitting reference point for the reader. His questionable morals and apparent contradictions to American freedom reflect the current situation in the Middle East. It also quickly addresses the internal struggle of idealism versus realism that is threatening to further divide the nation (Ignatieff, 2005, Section IV, par. 5). Jefferson's idealism and his legacy present a problem on a global level and is one reason for the international dissention over the situation in Iraq. Also, this Jeffersonian idealism or more specifically, later President's striving to achieve it has made the situation in the Middle East volatile and has challenged the universal of acceptance of American democracy as ideal democracy. Ignatieff suggests that Iraq and the perceived democratization of the nation is an extension of Jeffersonian idealism. He further notes that Jefferson exemplifies the contradictions that continue to plague American freedom (Ignatieff, 2005, Section I, par. 3). One other point of interest is when Ignatieff states, that "until George W. Bush, no American President - not even Franklin Roosevelt or Woodrow Wilson - actually risked his presidency on the premise that Jefferson might be right" (Ignatieff, 2005, Section I, par. 4). Herein lies the crux of the article, are Jeffersonian ideals and American democracy at this point, the same thing Looking at the reaction of the Middle East, most of Europe and Canada, this seems doubtful. Over the past 60 years in the Middle East, America has consistently become close to tyrants in the region (Ignatieff, 2005, Section I, par. 6). This in turn has caused a certain degree of instability in the region and certainly does not embody the democratic vision of the founders of the United States. This threatens to further alienate America on an international level, which can be a problem. Also noted as a sign that American democracy may not be universal democracy, is that while other powerful nations have shifted left on the political spectrum, America has moved further right. This is shown by among other things a huge divide in rights for homosexuals, concern for healthcare and America's willingness to use God's will as motivating factor behind foreign policy (Ignatieff, 2005, Section III, par. 3). Overall, this article does an exceptional job of