The 2008 financial collapse, also known as a “Business Recession,” “ Financial Crisis,” or “ Global Financial Crisis,” began with the United State and brought many countries to the edge of insolvency. In another word, the crash of September 2008 through the largest bankruptcies. The contagion, which began with low-interest rates drove housing prices higher and that made the mortgages backed securities and collateralized debt obligations (CDO). At that time, the investors were sitting on their pile of money looking for a good investment to turn into more money. So it seemed like an even better investment in keep buying houses and borrowing money from banks. But what really led to the crash of 2008? Those main factors included the subprime mortgages,
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That's when housing prices started to fall.” (The Financial Crisis, 2018). The investors represented for money and other large institutions, they traditionally went to the U.S. Federal Reserve to buy those Treasury bills. But since the Federal Reserve Chairman Alan Greenspan lowered the interest rates to only 1% to keep the economics “strong” and because 1% is a very very low-interest return so that led the investors to say No to it. However, the banks and brokers commonly knowns as Wall Streets, they took advantage of it and borrowed money from the Fed for only 1% interest with cheap credits this made borrowing money easy for banks. That is to say, banks decided that virtually anyone could qualify for a home loan without verifying their income and “offered absurd, adjustable-rate mortgages with payments people could afford at first, but quickly ballooned beyond their means.” (The 2007-08 Financial Crisis In Review, Singh). It’s called the Subprime Mortgages, mortgages brokers got bonuses for lending out more money, but that encouraged them to make risky loans, which hurt profits in the end. Banks and lenders were willing to lend to subprime borrowers because they planned to sell mortgages to someone …show more content…
The lender sold the mortgage to the investment banker who turned it into a CDO and sold slices to the investors and others. That worked so well and nicely and made all of them rich. They didn’t care about it because as soon as they sold the mortgage to the next guy it was his problem or if the homeowners were to default and they still made millions out of it. But they didn’t know it was a time bomb that would explode very soon. Not surprisingly the homeowners default on their mortgage which at that time it was owned by the bankers that led to the bank’s CDOs go crazily. That means, the banks who held the pieces of paper of the mortgages get the house when the homeowners stopped paying their mortgages. But then more and more monthly payments turned into houses, and now the bankers were worried and they had to put them on the market for sales. Because the supply was up and the demand was down, prices suddenly plummeted. As all the houses in their neighborhood went up for sale, the value of their house went down so bad. It got them wondering why would they want to keep paying more money for the mortgage than the real value of the house, people decided not paying anymore so they walked away, that swept the default rates of the country and prices dropped. Everyone, including the investment bankers, the
That's when housing prices started to fall.” (The Financial Crisis, 2018). The investors represented for money and other large institutions, they traditionally went to the U.S. Federal Reserve to buy those Treasury bills. But since the Federal Reserve Chairman Alan Greenspan lowered the interest rates to only 1% to keep the economics “strong” and because 1% is a very very low-interest return so that led the investors to say No to it. However, the banks and brokers commonly knowns as Wall Streets, they took advantage of it and borrowed money from the Fed for only 1% interest with cheap credits this made borrowing money easy for banks. That is to say, banks decided that virtually anyone could qualify for a home loan without verifying their income and “offered absurd, adjustable-rate mortgages with payments people could afford at first, but quickly ballooned beyond their means.” (The 2007-08 Financial Crisis In Review, Singh). It’s called the Subprime Mortgages, mortgages brokers got bonuses for lending out more money, but that encouraged them to make risky loans, which hurt profits in the end. Banks and lenders were willing to lend to subprime borrowers because they planned to sell mortgages to someone …show more content…
The lender sold the mortgage to the investment banker who turned it into a CDO and sold slices to the investors and others. That worked so well and nicely and made all of them rich. They didn’t care about it because as soon as they sold the mortgage to the next guy it was his problem or if the homeowners were to default and they still made millions out of it. But they didn’t know it was a time bomb that would explode very soon. Not surprisingly the homeowners default on their mortgage which at that time it was owned by the bankers that led to the bank’s CDOs go crazily. That means, the banks who held the pieces of paper of the mortgages get the house when the homeowners stopped paying their mortgages. But then more and more monthly payments turned into houses, and now the bankers were worried and they had to put them on the market for sales. Because the supply was up and the demand was down, prices suddenly plummeted. As all the houses in their neighborhood went up for sale, the value of their house went down so bad. It got them wondering why would they want to keep paying more money for the mortgage than the real value of the house, people decided not paying anymore so they walked away, that swept the default rates of the country and prices dropped. Everyone, including the investment bankers, the