Tackling irresponsible lending and borrowing

A major cause of the financial crisis is often attributed to subprime lending. Banks irresponsibly gave money to those who could not pay back and consumers irresponsibly borrowed money that they could not realisitically pay back. Then, the banks realised (!) - and had to write off all that money. Confidence plummeted and loans dried up.

The lenders were trying to give these high risk categories with poor credit ratings access to the credit market. But now look at the mess we are in.

To combat this problem, the FSA have announced a string of new proposals to ensure that mortgages are only given to those who can afford to pay it back. Self-certified mortgages will be banned - customers will have to prove their income before taking out a loan. This new rule will be vital in the next boom to save ourselves from getting into another crisis like this.