Short background:
Two of the reasons/potential reasons for the financial crisis is mentioned in the summary of the article. The first one is the advertising from lending institutions that might have misled subprime borrowers to take loans they couldnt really afford. The second reason is that banks did not ask borrowers for as much information (information regarding incomes and employment for example) as they normally do and thereby they granted loans that they would normally not have done. The reason for this was that the banks after granting the loans, sold the right to claim borrowers depts to finacial institutions. the financial institutions later on put a lot of these claims together and sold them to investors as obligations. In that way, borrowers no longer owe the bank which lended them money anymore, but investors that bought obligations. These obligations has been proved to be a very unsafe investment. However, when investors actually did invest, they did that believing that it was a safe investment. The financial institutions mixed good loans with subprime loans in the obligations, therefore the obligations were wrongly graded as a safe investment by independent credit institutions.

refernce(all in swedish unfortunately): http://klotband.wordpress.com/2007/12/22/subprime-forklarat/

I like the question. I would like to rephrase the question to "can the financial crisis be avoided if subprime ads are not misleading?" to make it have an even stronger implication for our class.

I don't thing the financial crisis would be avoided because advertisers are not only guilty : government, bank, speculator, etc... The subprime ads have intensify the misleading and infuencing people to apply for loans.
But the governementt should acted before the crisis on providing information to the consumers and on making ad regulations as they are doing after the crisis.

"can the financial crisis be avoided if subprime ads are not misleading?"

In my opinion, it's impossible to eliminate all problems even though subprime ads are not misleading... In the article, the author mentioned that subprime borrowers are less educated and less financially sophisticated than their prime market counterparts. Some people always spend money without estimating their financial capability, thus, result in financial crisis...

There's not enough to do something on ads misleading. Firms should exam those subprime borrowers with more carefully financial appraisal, and help them with customized repaying plans

I would like to rephrase the question to "can the financial crisis be avoided if subprime ads are not misleading?"

Good point, I´ll edit it

Firms should exam those subprime borrowers with more carefully financial appraisal, and help them with customized repaying plans

Do you mean the people who cannot repay their loans now or do you mean that the customization should´ve been done before the loan was granted?

camille_girard wrote:I don't thing the financial crisis would be avoided because advertisers are not only guilty : government, bank, speculator, etc... The subprime ads have intensify the misleading and infuencing people to apply for loans.
But the governementt should acted before the crisis on providing information to the consumers and on making ad regulations as they are doing after the crisis.

I agree with you that authorities could have done more to prevent the crisis when it comes to regulating the content of ads. However, I believe that it is the banks/lending institutions responsibility to inform their clients and not the government. The institutions does not seem to have been acting in a serious matter in this case. They were basically only interested in selling their product which the advertising reflects. It is also reflected by loans being granted that normally wouldn´t be. All this because these institutions knew that they would not have to claim the money back from their clients in the long run.

I think that the bad design of this financial product may be the main reason of the financial crisis. All other factors just worsen the situation.

MH_Huang wrote:I like the question. I would like to rephrase the question to "can the financial crisis be avoided if subprime ads are not misleading?" to make it have an even stronger implication for our class.

I think the answer to this question is no.
Subprime mortgage crisis happening can be mainly attribute to those complicated and risky financial products.
Some of those products even should not have brought to the market.
Furthermore, whether Ads are misleading or not, subprime borrowers couldn't really understand these venturesome financial derivatives.
As the article mentioned that subprime mortgage borrowers are usually low-educated.
Not to mention that even a well-educated person won't know those financial products' hazard if he/she didn't involve with finance before.
Therefore, misleading ads are only accelerating the process of the crisis.
The right things to do is revising the finance policies so that those problem causing products can not be sold to consumers.

t97701103 wrote:

Firms should exam those subprime borrowers with more carefully financial appraisal, and help them with customized repaying plans

Do you mean the people who cannot repay their loans now or do you mean that the customization should´ve been done before the loan was granted?

I know that there's some statistic model to estimate the financial capability. By using the model, you can easily determine whether the person can apply the loan or not. After the loan was granted, you should help the person with developing a customized repaying plan which he/she capable to follow...

I'd have to say no as well. There were so many factors that played into the financial crisis, I don't think just ending misleading advertisements would have been able to stop it. Misleading or not, there was already a lot of risks associated with subprime lending, and the misleading ads only added to the mess.

I agree with Jamie
there are way too many factors lead to this financial crisis and economic depression, subprime issue does play an important part though.

I agree with the point above. I think the financial crisis can be reduced a little if subprime ads are not misleading, but it can't be extremely avoided just by proper subprime ads since there are so many factors may result to financial crisis.

I think the answer is no. When bubbles blew, people became more and more irrational. And then, whether the ads were misleading or not didn’t matter anymore because most people had less conscious about the risk when everything looked great. The truth is: even the smartest financial engineers still could not foresee and prevent the crisis. Moreover, most of them didn’t notice that these terrible things would happen, that’s why many companies and governments got hurt badly.

I don't think the financial crisis could be avoided.
Like Jamie, Chiaying and Erin said, there are many factors leading to financial crisis,
And i think everything in the world has cycle and limitations.
For example, huaman has 24 hours as a day cycle, and earth has 10,000 years as a ice age cycle.
Therefore,i think the financial crisis is inevitable.

I don't think the financial crisis could have been avoided if the subprime ads were not misleading. The reason is because the factors that directly and indirectly caused it are many and complicated.

First off, a significant reason for the crisis is deeply rooted in society's value (or lack of).
People were/are greedy...some more than other...and some a lot more than others. Corporations and individuals wanted high returns without the hard work.
People wanted instant gratification without the sacrifice. Think credit cards usages. purchasing things without enough money to pay it off.
People are opportunists. They wanted to jump on the opportunities of todayw without thinking about the consequences fo tomorrow.
These are the core reasons the financial crisis happened. The boom in home purchases, in stocks, in portfolios with guaranteed high returns are just the vehicles used by people to satisfy themselves. Thus, a financial crash was bound to happen. However, had there been better regulations, less misleading ads, the extent of the crisis may have been lessen.