Loosening Credit Standards Research Paper Example | Topics and Well Written Essays - 1750 words

Loosening Credit Standards - Research Paper Exampleods and services that implies some form of consumer recognise (meaning the credit extended is for eventual consumption) by the borrower and the loaner expects to be repaid either in money or in kind later on.Credit had been used since immemorial times back to Biblical periods or even extending back to antiquity as shown by the Hammurabi Code of ancient Babylon in which there was the provision for punishment for people who do not redress their debts or try to escape their financial responsibility by absconding or running away. The purpose of credit had al slipway been the same it is used to facilitate the alter of goods and services long before modern economics came into being as a distinct academic discipline and as a legitimate craft itself.The Hammurabi Code consisted of about 282 laws with approximately half of these laws dealing with commercial contracts in which there is a graded punishment for contract violators. In modern free-market capitalistic economies today, the sanctity of contracts is always upheld to help promote trade and commerce by creating conditions of trust in which parties to a transaction are assured of payment and some other stipulations by which to ensure compliance by the other party. The loosening of strict credit standards so-and-so lead to serious, unforeseen, and dire consequences for an entire economy because it causes higher credit default rates as borrowers cannot pay.Credit is used in perhaps ninety percent of all commercial transactions compared to the use of cash. This is because cash can be limited at times which can hinder the completion of any contemplated transaction credit provides the necessary link for the transaction to push done despite the absence or lack of sufficient cash on the part of the buyer. If the seller is willing to be trusting or take a risk as to the trustworthiness of a buyer, then credit is extended. People trusted other people to honor financ ial obligations in such ways as a mere handshake to seal a deal.