In 2000s, global investors were searching for a low risk, high return investment, and so they started to throw their money at the United States housing market. However, global investors feel trouble to deal with individuals. Instead, they bought the investment known as mortgage backed-securities. Mortgage backed-securities are created when huge monetary institutions purchase thousand of the individual mortgages, bundle them together, and sell shares of that pool to investors.
At the same time, investors were told by the credit ratings agencies these mortgage backed-securities were safe investments, due to the mortgages were just for …show more content…
Borrowers started defaulting, and so place a lot of houses back on the market for sale. However there were no buyers, supply keep increasing and demand keep decreasing, and home prices started to collapse. As the housing prices fell, some borrowers suddenly had a mortgage for way more then their home was presently worth. Some stopped paying. That led to more defaults, pushing the prices down further. As this was happening, the huge monetary institutions stopped buying sub-prime mortgages and it get stuck with bad loans.
By 2007, some huge lenders had declared bankruptcy. The issues unfold to the investors, who had poured money into these mortgage backed-securities and CDOs. They started loosing money on their investment. Some major financial players declared bankruptcy, for example Lehman Brothers. Panic set in, trading and credit markets froze, and stocked market crashed. This caused the economy of United States suddenly found itself in a disastrous