A Brief History On The Global Financial Crisis
During the pre-financial crisis of 2008, the foundations of the wider housing market is slowly but surely being toppled by the subprime mortgage crisis. Reckless borrowing by consumers along with excessive leveraging of Wallstreet brought the US to the brink. Everyone was shocked when the news broke out the focus of everyone’s thought was the magnitude of how Wallstreet messed everything up.
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.
These ill-fated events that different financial institutions went through together with the stock market’s collapse were events that are similar before the great depression of the ’20s and a lot of people thought that another great depression is on the horizon. Before the financial crisis in 2008, Like a well-oiled machine, the housing sector soared because of easily obtained money that also happened in the 1920s. The federal government had made it possible for almost everyone to own their own home by giving a 1% rate on mortgage. Loans including mortgages were granted to almost everybody without checking the applicant’s background. Lots of loan applicants lie about how much money they make and only a credit rating will be asked. Even individuals who don’t have jobs were granted loans simply because this crucial information are not verified by lenders.
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.
As we all know now, these were all a big mistake that dragged each and every individual from every corner of the world into financial difficulty. Job-losses, foreclosures, bankruptcies, debts, etc. are all the consequence of this human blunder. 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 once more.
Steve Smith writes for All About Loans where visitors can apply for secured loans and also focuses on poor credit loans , in the UK and fast secured loans for UK Homeowners.
