A Broken Trust

Greed is at the root of the financial cataclysm that we are suffering today. Then again, greed beats at the heart of our very nature. What makes for financial calamity is not just garden-variety greed—it is a type of greed that undermines the foundations of trust that uphold an economy.

Core to this recent financial crisis was a heartbreaking breach of trust: the trust that millions of Americans, in pursuit of economic security, placed in home mortgage lenders.

Central to the problem is the fact that, over the past few decades, Wall Street reversed the traditional formula for how banks profit from mortgages. Historically, banks benefited when borrowers paid off their mortgages over time. But now, rather than collecting payments over decades, banks and mortgage companies make huge sums by quickly bundling and reselling mortgages to investors. The model has encouraged unsustainable and even deceptive lending for the sake of short-term gain. By 2006, 61 percent of subprime borrowers received loans more expensive—and more likely to foreclose—than what they qualified for.

How could homeowners know they were being set up to fail? The financial professionals they trusted—brokers and banks—declared “you’re approved!” Even political leaders encouraged families to draw on home equity for cash.

In the end, promised prosperity wilted into financial tragedy. Since 2007, more than 1.8 million families have lost their homes to foreclosure. Another 8 million will likely experience the same fate by 2012. During the next four years, foreclosures are predicted to destroy wealth built by 2.5 million African-American and Latino homeowners.

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Sojourners Magazine January 2010
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