When I was growing up it always seemed like my parents never had enough money, and beginning shortly after my twelfth birthday there were a few particularly …show more content…
“Okay class, it’s time to talk about your research papers. Who here knows what caused the Great Recession?” Professor Xu asked with a smile on his face. He already knew that none of us would likely raise our hands. So began our education on the subject.
First, we learned about subprime mortgages, which are mortgages for those with less than perfect credit histories, so they are considered to be higher risk. Then, he explained what a mortgage-backed security was. This was basically an investment portfolio that contained hundreds, sometimes even thousands, of mortgages all bundled together. And finally, there were the credit default swaps, which was just a fancy term for insurance to protect investors from any losses on the mortgage-backed securities should they fail. This flimsy house of cards toppled over when the interest rates on many subprime mortgages rose in 2007. No longer able to afford the payments thousands of investors and home-owners rushed to sell their houses and millions of homes flooded the market. This caused home values to plummet and suddenly mortgage-backed securities were no longer profitable. thousands of investors all tried cashing in their credit default swaps at the same time. Welcome to the Great