Applichem Case

The grim milestones that US banks achieved in 2009 painted a bleak picture for full recovery even till this day. One of the milestones was that 702 banks were in high risk of failing as a financial institution. This was a 16 year high similar to the fall out that occurred in the 80s. This would mean that the FDIC would have to come in and clean up the mess created if the bank had indeed failed while selling off loans to other institutions so that they could hopefully make them good. The only issue with selling off a loan is that also at the same time more than 5% of all loans originated were at least three months behind. Five percent does not sound like much but this percentage can make or break a bank. After all a bank has their own overhead they have to maintain while at the same time have the ability to pay out anyone who was needing their funds. What a lot of people fail to realize is that the bank also borrows money and has to pay interest out to that bank member. If at any time a large amount of people decide they would like to take out their money, this presents a strain to the bank. Banks at one time were lending money so freely, that all you had to have was a pulse. I learned this first hand through mortgage lending. At any given time hundreds of thousands of consumers were getting loans approved for homes they could not afford for many years. Everything was hidden with adjustable rates, balloon payments, and just plain silly lending that this caused our "stomach" to have a bad belly ache. Banks kept on eating up loans that they knew should not have been made. All a consumer would have to do is fill out a form, sign and presto, they had their incredibly overpriced home with a mortgage they could never afford. These types of practices would have definitely made banks realize the errors of their ways and ultimately realize that they played a huge part in the economic slow down. I personally believe it is just a slow down and not a recession due to the fact that I personally received a $20k raise when we are supposed to be in economic pandemonium. I also see many individuals get raises left and right. Banks are smart not to lend as freely as before but need to realize that they need to loosen the reigns just a bit. Banks reduced their lending drastically because they saw the dramatic of loans and mortgages that were defaulting. Large institutions started to fail and by December of 2009 approximately 140 banks had already failed compared to 25 the previous year. Banks would be wise to realize that what they were doing was not the correct way. Then the government stepped in and assisted some major players but also set some more strict guidelines for loans. One part of the government is pushing for loans because they feel that the economy could benefit from people having money in their hands as opposed to sitting in their bank, figuratively speaking. More money out in the publics hands increases