The financial crisis of 2007-2009, started with the United States housing market. The crisis damaged the economy so bad, that it not only caused a crisis in the US, but across the globe. Indicators of the emerging problems came in early 2007 when, first, the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac or Freddie) announced it would no longer purchase high-risk mortgages and, second, New Century Financial Corporation – a leading mortgage lender to riskier customers – filed for bankruptcy. Mortgage lender Countrywide Financial was bought by Bank of America for $4bn in January 2008, while many other firms had their credit ratings downgraded. Amidst continuing tight credit markets, mortgage and financial firms received
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However, such actions were unable to prevent rapid falls in asset prices as institutions sought to relieve themselves of these risky burdens and replenish their risk-weighted capital ratios. When, in a single day, S&P slashed its ratings on two sets of AAA bonds backed by residential mortgage securities to CCC+ and CCC, instantly changing their status from top quality to pure junk. 3 This represented an immediate and severe dislocation of the financial markets: The odds are only about 1 in 10,000 that a bond will go from the highest grade, AAA, to the low-quality CCC level during a calendar year. The financial turmoil that engulfed the US during 2007-09 began in the mortgage lending markets. 9tr2 of mortgage-backed securities received downgrades to reflect the reassessment of their risk. he Dow Jones Industrial Average (Dow) – an index composed of 30 of the largest publicly-listed companies, including a number of large banking institutions – saw tumultuous shifts almost daily and registered its largest ever single-day point drop in value on 29 September
However, such actions were unable to prevent rapid falls in asset prices as institutions sought to relieve themselves of these risky burdens and replenish their risk-weighted capital ratios. When, in a single day, S&P slashed its ratings on two sets of AAA bonds backed by residential mortgage securities to CCC+ and CCC, instantly changing their status from top quality to pure junk. 3 This represented an immediate and severe dislocation of the financial markets: The odds are only about 1 in 10,000 that a bond will go from the highest grade, AAA, to the low-quality CCC level during a calendar year. The financial turmoil that engulfed the US during 2007-09 began in the mortgage lending markets. 9tr2 of mortgage-backed securities received downgrades to reflect the reassessment of their risk. he Dow Jones Industrial Average (Dow) – an index composed of 30 of the largest publicly-listed companies, including a number of large banking institutions – saw tumultuous shifts almost daily and registered its largest ever single-day point drop in value on 29 September