Join our Mailing List!
Please click the link below to sign up for your community paper mailing list. Stay up to date with all the events going on in your community as well as the latest news.Sign Up Today!
Banker: A decade of bad borrowing caused current financial crisis
By Ray Weikal
One prominent Kansas City banker is warning that the nation’s financial crisis is likely to get worse before things improve.
Under the wood buttresses and stained glass windows of Graham Tyler Memorial Chapel, UMB Bank Chief Executive Officer Peter deSilva described the string of financial sins leading up to the current batch of Wall Street investment firm failings and attempts by Congress to bail out the nation’s financial industry during Park University’s first annual School of Business and Management Dean’s Distinguished Lecture Series on Monday, Sept. 29.
“We really are at a tipping point,” deSilva said. “We’re just at the end of the beginning.”
In light of current events, deSilva was the perfect person to start the university’s new executive lecture series, according to Dean Alphonso Ogbuehi.
“DeSilva is well recognized in the community, as well as a leading voice for business in the region and a qualified expert on this topic,” Ogbuehi said.
The crisis was born of a “noble cause,” deSilva said.
In 1994, federal officials decided to boost home ownership by making it easier for buyers to get loans, deSilva explained. The result was fewer regulations and financial institutions set loose to approve an increasing number of questionable, so-called “subprime” mortgages.
The entire United States economy began to depend on borrowed money, deSilva said, often from overseas lenders like the Republic of China.
“This goal that was set really gave permission to the mortgage companies to get creative,” deSilva said. “We made loans that should not have been made, and it has come back to haunt us.”
Over the next dozen years, the value of subprime loans in the U.S. ballooned from about $173 billion to roughly $600 billion, deSilva said. Much of this debt was repackaged as complex financial instruments and sold in large lots to other domestic and international investors, including many investment banks like Merrill Lynch.
In 2007, the house of cards collapsed when the economy slowed and home values fell, deSilva said. Homeowners with subprime mortgages tied to extremely high interest rates slid into foreclosures and bankruptcies.
Financial managers started to panic about holding worthless mortgages, deSilva said. The international money market stopped working as banks refused to make loans.
“We are loaded down with debt, and this is not sustainable,” he said. “I hope you can see that we have been living on borrowed time.”
Responsibility for the crisis lies with a vicious circle of irresponsible borrowers, predatory lenders, absent regulators and myopic financial mangers, deSilva said. No matter what Congress does, it will take years to fix, he predicted.
“We need to build a culture of responsibility in this country,” deSilva said. “We need to find a way to live within our means.”
Staff writer Ray Weikal can be reached at 389-6637 or rayweikal@npgco.com.
printable version
e-mail this story
Under the wood buttresses and stained glass windows of Graham Tyler Memorial Chapel, UMB Bank Chief Executive Officer Peter deSilva described the string of financial sins leading up to the current batch of Wall Street investment firm failings and attempts by Congress to bail out the nation’s financial industry during Park University’s first annual School of Business and Management Dean’s Distinguished Lecture Series on Monday, Sept. 29.
“We really are at a tipping point,” deSilva said. “We’re just at the end of the beginning.”
In light of current events, deSilva was the perfect person to start the university’s new executive lecture series, according to Dean Alphonso Ogbuehi.
“DeSilva is well recognized in the community, as well as a leading voice for business in the region and a qualified expert on this topic,” Ogbuehi said.
The crisis was born of a “noble cause,” deSilva said.
In 1994, federal officials decided to boost home ownership by making it easier for buyers to get loans, deSilva explained. The result was fewer regulations and financial institutions set loose to approve an increasing number of questionable, so-called “subprime” mortgages.
The entire United States economy began to depend on borrowed money, deSilva said, often from overseas lenders like the Republic of China.
“This goal that was set really gave permission to the mortgage companies to get creative,” deSilva said. “We made loans that should not have been made, and it has come back to haunt us.”
Over the next dozen years, the value of subprime loans in the U.S. ballooned from about $173 billion to roughly $600 billion, deSilva said. Much of this debt was repackaged as complex financial instruments and sold in large lots to other domestic and international investors, including many investment banks like Merrill Lynch.
In 2007, the house of cards collapsed when the economy slowed and home values fell, deSilva said. Homeowners with subprime mortgages tied to extremely high interest rates slid into foreclosures and bankruptcies.
Financial managers started to panic about holding worthless mortgages, deSilva said. The international money market stopped working as banks refused to make loans.
“We are loaded down with debt, and this is not sustainable,” he said. “I hope you can see that we have been living on borrowed time.”
Responsibility for the crisis lies with a vicious circle of irresponsible borrowers, predatory lenders, absent regulators and myopic financial mangers, deSilva said. No matter what Congress does, it will take years to fix, he predicted.
“We need to build a culture of responsibility in this country,” deSilva said. “We need to find a way to live within our means.”
Staff writer Ray Weikal can be reached at 389-6637 or rayweikal@npgco.com.