Published on December 17, 2009 Revised on Friday, March 26, 2010 CASTLES IN VACUUM There is an idiom that was probably framed centuries ago, but was it stated anticipating a cataclysmic disaster, which was to occur in the 21st century? The phrase “Don’t build castles in the air,” was probably coined by a pondering individual (years ago), who had no idea of what subprime loans could do to the entire economical chain of the world. Today, this expression has greater relevance more than ever before. It is normally propagated that no matter how successful you become, your feet should stay on the ground. However, the subprime loan crisis occurred because of the greed of a section of investors, financiers, decision makers and consumers that created an unprecedented milieu of economic uncertainty. The subprime loans crisis was the consequence of various factors. Buyers mortgaged property without waiting for the prices to slide, which dug a grave exactly to their body dimensions. It requires a lot of patience and wit to do things exactly opposite to your other counterparts. It is imperative for an investor to be greedy to invest when others are reluctant, and wait for the storm to abate instead of pressing the panic button in order to make profit at a colossal level. However, none followed the right path. Every investor wanted a short cut, which led to ruinous consequences and eventually led to a massive mayhem. People forgot the basic essence that a home was a place to live and enjoy, rather than a place which would enhance your status or self esteem in society. People started to dwell in false glory, instead of houses. The troubling statistics annoy us even more as in the previous recession of the 20th century; the reason for the fall was because of first time buyers, who invested when the market was at its peak of turbulence. If this was not enough, this time two out of ten mortgages were for more than 5 times the annual income of the borrower. This is where the predicament started and the doors of hell opened for the borrower. The lenders were accomplices in the crime. Initially, lenders were skeptical in giving a deal for the self employed. However, things twisted with time and lending mortgages to people with terribly turbulent economic status was considered an innovative action. But all actions have effects, and this action had adverse ones. Every business has its shares of ups and downs, but the high mortgage levels made sure that the borrower culminated with a bad credit history. The problem dwelled in the method in which borrowers were scrutinized. A source of the capital is a vital criterion in choosing your borrower. Unconventional sources of income must have rung the alarm for lenders and cautioned them as the stability of those sources would have been tentative. One of those situations where, “appearance does matter” and mustn’t deceive.  The crisis could have been  an appalling amalgamation of slip-ups by lender and borrower, but the phrase “don’t build castles in air “ still holds good for the borrower. In fact, the phrase has attained new dimensions this time round as a reason of the greed of the borrower. It wouldn’t be wrong if it’s rephrased to, “don’t build castles in vacuum.” Written by Sanjay Madhavan The views, opinions and interpretations are personal. Sponsorship does not mean that the sponsors endorse them. © Copyright, Mar-10 . MMG Communications. Without prejudice. All rights reserved