Currently,
we are discussing study case entitled ‘Countrywide financial; The Subprime
Meltdown’. Let’s take a look a little bit to the fact of that case. Countrywide
has become the largest provider of home loans in the United States during the
year 2000s. it was the primary provider of home loans to minorities in the
United States and had lowered the barriers of homeownership for lower-income
individuals. Countrywide also offered loan closing, capital market, insurance,
and banking service to its clients. In 1970s countrywide had diversified into
the securities market as well.
Then, let’s Identify what are the ethical issues involved in this case. The main and underlying problem with Countrywide is usage of subprime loans. Subprime lending means lending to borrowers, generally people who would not qualify for traditional loan, at a rate higher than the prime rate (market rate). The lending job has made easier with exotic mortgages such as so called no doc loan or liar loans, which enable borrowers to borrow without having to supply evidence of income or assets.
The root of the problem here is that companies themselves instill the hunger for the money in top employees by offering them huge salaries and attractive bonuses for dealings with risky decisions. Angelo Mozilo used his own influence in the company in order to get higher salary, a more attractive bonus package and overall better remuneration for the job which he failed to do right.
What are “the moral imaginations” that can be derived to solve Countrywide’s problems? Based on what was mentioned in the case, the main reasons why Bank gives the subprime loans is that they will get a high interest. This motivations couldn’t have happened in Islamic financial institutions because interest is haram. Allah says in Surah al-Rum 39:
“that which you lay out for increase through the property of other people. We have no increase with Allah; but that which you lay out for charity seeking the countenance of Allah (will increase); it is these who will get a recompense multiplied”.
Based on this ‘ayat for those who give money to get an increase (Riba), it is like deprived the wealth from Allah’s blessing. If they really want to aid low-income individuals to get the house, they shouldn’t use the tools which is prohibited in islam.
Another problems occurred in this case are predatory lending and borrowing. Predatory lending is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against. Predatory borrowing on the other hand is a fraudulent practice of the borrower who provides falsified income statements or lies about his income to be many times higher than the actual amount.
These actions are totally prohibited in Islamic financing law. Islamic economic models emphasize fairness. This is reflected in the requirement that everyone involved in a transaction makes informed decisions and is not misled or cheated. Moreover, falsifying income and also lying about are also prohibited in islam.
For the problems of Top management’s greediness who always seeking the high compensations even with unethical dealings, The Qur'an describes this situation in Al Baqarah verse 96:
“And thou wilt find them greediest of mankind for life and (greedier) than the idolaters. (Each) one of them would like to be allowed to live for a thousand years. And to live (a thousand years) would by no means remove him from the doom. Allah is Seer of what they do.”
Islam emphasizes that this current life of ours is only temporary, and everything that we own (including our wealth) is only trusted to us from God for the benefit of others. What we truly own is what we give for the benefit of others. Nevertheless, there have and always will be people who are greedy for life. Ones whose hearts are so attached to this world, that it makes them ignorant towards all the suffering around them.
Then, let’s Identify what are the ethical issues involved in this case. The main and underlying problem with Countrywide is usage of subprime loans. Subprime lending means lending to borrowers, generally people who would not qualify for traditional loan, at a rate higher than the prime rate (market rate). The lending job has made easier with exotic mortgages such as so called no doc loan or liar loans, which enable borrowers to borrow without having to supply evidence of income or assets.
The root of the problem here is that companies themselves instill the hunger for the money in top employees by offering them huge salaries and attractive bonuses for dealings with risky decisions. Angelo Mozilo used his own influence in the company in order to get higher salary, a more attractive bonus package and overall better remuneration for the job which he failed to do right.
What are “the moral imaginations” that can be derived to solve Countrywide’s problems? Based on what was mentioned in the case, the main reasons why Bank gives the subprime loans is that they will get a high interest. This motivations couldn’t have happened in Islamic financial institutions because interest is haram. Allah says in Surah al-Rum 39:
“that which you lay out for increase through the property of other people. We have no increase with Allah; but that which you lay out for charity seeking the countenance of Allah (will increase); it is these who will get a recompense multiplied”.
Based on this ‘ayat for those who give money to get an increase (Riba), it is like deprived the wealth from Allah’s blessing. If they really want to aid low-income individuals to get the house, they shouldn’t use the tools which is prohibited in islam.
Another problems occurred in this case are predatory lending and borrowing. Predatory lending is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against. Predatory borrowing on the other hand is a fraudulent practice of the borrower who provides falsified income statements or lies about his income to be many times higher than the actual amount.
These actions are totally prohibited in Islamic financing law. Islamic economic models emphasize fairness. This is reflected in the requirement that everyone involved in a transaction makes informed decisions and is not misled or cheated. Moreover, falsifying income and also lying about are also prohibited in islam.
For the problems of Top management’s greediness who always seeking the high compensations even with unethical dealings, The Qur'an describes this situation in Al Baqarah verse 96:
وَلَتَجِدَنَّهُمْ
أَحْرَصَ النَّاسِ عَلَى حَيَاةٍ وَمِنَ الَّذِينَ أَشْرَكُواْ يَوَدُّ أَحَدُهُمْ
لَوْ يُعَمَّرُ أَلْفَ سَنَةٍ وَمَا هُوَ بِمُزَحْزِحِهِ مِنَ الْعَذَابِ أَن
يُعَمَّرَ وَاللّهُ بَصِيرٌ بِمَا يَعْمَلُونَ ﴿96﴾
The approximate meaning is:“And thou wilt find them greediest of mankind for life and (greedier) than the idolaters. (Each) one of them would like to be allowed to live for a thousand years. And to live (a thousand years) would by no means remove him from the doom. Allah is Seer of what they do.”
Islam emphasizes that this current life of ours is only temporary, and everything that we own (including our wealth) is only trusted to us from God for the benefit of others. What we truly own is what we give for the benefit of others. Nevertheless, there have and always will be people who are greedy for life. Ones whose hearts are so attached to this world, that it makes them ignorant towards all the suffering around them.
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