A Brief History On The Global Financial Crisis
In the years ahead of the global economic crisis, a subprime mortgage crisis was already toppling the foundations of the wider housing market. Reckless borrowing by consumers along with excessive leveraging of Wallstreet brought the US to the threshold. Everybody was shocked when the news broke out and the degree on how Wallstreet really messed up was the focus of everybody's attention.
Bear Stearns is a global investment bank that was the first to go down where JPMorgan Chase saved it by acquiring it in March 2008. Then President Bush and his Treasury Secretary, Henry Paulson, remained firm in the belief that the economic fundamentals of the country was still solid. Also that time, the White House was confining the matter to just the subprime mortgage sector.
By August 2008, the next mortgage companies to fall are Freddie Mac and Fannie Mae. The Government decided to bail them out by shelling out trillion in taxpayer money. The collapse of Wallstreet happened soonafter. As a result, Wallstreet's five investment banks which consist of Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, were either reduced to being depository banks or collapsing altogether.
The next major financial entity said to fall next is the largest insurer in the world, AIG. There was too much riding on AIG to be allowed to suffer the same outcome as the other institutions. If not, the consequences would result to another great depression. It was considered a huge risk to let AIG fall because it has lots of connection to numerous institutions where money is pretty much wrapped around it. Taxpayers were forced to pay billion to bailout the insurance giant.
The collapse of these institutions and the fall of the stock market were events reminiscent to the pre-great depression of the late 1920s and lots of individuals believed that another great depression is on the horizon. As the 2008 financial crisis was still building its momentum, Like a well-oiled machine, the housing sector skyrocketed because of easily acquired money that also happened in the 1920s. Almost everyone can own a home ever since the Feds have lowered the mortgage rate to 1%. Because of this, mortgages and other types of loans were easily granted by nearly all banks across the country without even doing some important checks on the applicant. The propensity to lie about how much money one makes was very widespread at the time and anyone who can present a credit rating passes. Jobless people were even able to obtain loans simply because lenders will not verify this critical information.
These risky loans were granted by lenders with extreme confidence because of a financing tool known as mortgage-backed securities. They resold their loans in bulk to banks in Wallstreet and banks in Wallstreet bundle these loans into higher yielding mortgage-backed securities and sold to investors around the globe. Investors who have procured these loans are known as "pooled risks" and because of this aspect it was thought that it will always be safe.
Since a lot of people were affected, these were all a big mistake that dragged each and every individual from every corner of the world into financial struggle. Job-losses, foreclosures, bankruptcies, debts, etc. are all the outcome of this human error. Now that the economies around the planet are slowly recovering from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes for a second time.
Bear Stearns is a global investment bank that was the first to go down where JPMorgan Chase saved it by acquiring it in March 2008. Then President Bush and his Treasury Secretary, Henry Paulson, remained firm in the belief that the economic fundamentals of the country was still solid. Also that time, the White House was confining the matter to just the subprime mortgage sector.
By August 2008, the next mortgage companies to fall are Freddie Mac and Fannie Mae. The Government decided to bail them out by shelling out trillion in taxpayer money. The collapse of Wallstreet happened soonafter. As a result, Wallstreet's five investment banks which consist of Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, were either reduced to being depository banks or collapsing altogether.
The next major financial entity said to fall next is the largest insurer in the world, AIG. There was too much riding on AIG to be allowed to suffer the same outcome as the other institutions. If not, the consequences would result to another great depression. It was considered a huge risk to let AIG fall because it has lots of connection to numerous institutions where money is pretty much wrapped around it. Taxpayers were forced to pay billion to bailout the insurance giant.
The collapse of these institutions and the fall of the stock market were events reminiscent to the pre-great depression of the late 1920s and lots of individuals believed that another great depression is on the horizon. As the 2008 financial crisis was still building its momentum, Like a well-oiled machine, the housing sector skyrocketed because of easily acquired money that also happened in the 1920s. Almost everyone can own a home ever since the Feds have lowered the mortgage rate to 1%. Because of this, mortgages and other types of loans were easily granted by nearly all banks across the country without even doing some important checks on the applicant. The propensity to lie about how much money one makes was very widespread at the time and anyone who can present a credit rating passes. Jobless people were even able to obtain loans simply because lenders will not verify this critical information.
These risky loans were granted by lenders with extreme confidence because of a financing tool known as mortgage-backed securities. They resold their loans in bulk to banks in Wallstreet and banks in Wallstreet bundle these loans into higher yielding mortgage-backed securities and sold to investors around the globe. Investors who have procured these loans are known as "pooled risks" and because of this aspect it was thought that it will always be safe.
Since a lot of people were affected, these were all a big mistake that dragged each and every individual from every corner of the world into financial struggle. Job-losses, foreclosures, bankruptcies, debts, etc. are all the outcome of this human error. Now that the economies around the planet are slowly recovering from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes for a second time.
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