The 2008 Financial Crisis - 5 Minute History Lesson

In the world of finance we are often quick to forget the tragedies of the past, but valuable

lesson

s can be gained by exploring their causes and effects; After all, in a world of ever-changing rules, the

history

of products and services is the only constant that can guide us. Through ambiguity, so let's take a five-

minute

history

lesson

on today's plain bagel. It's the early 2000s and investors are looking for new safe sources of return. Stocks and bonds are still quite popular, but the tech bubble at the turn of the century showed them that getting your money back from bankrupt companies can be a bit difficult, but what about mortgages?

Mortgages are the loan you get when you want to buy a house; After all, to mortgage lenders, these loans look a lot like bonds with bonuses; receive regular interest payments. and if the borrower defaults, you get the position on your house, which is a useful resource because with rising real estate prices, recouping your losses is not a problem, but investors don't want to buy Kate Tsui and Bill's individual mortgages In the future, no. My friend, that is where investment banks come in, these institutions with their huge capital and industry experience decide to buy mountains of mortgages from lenders, pool them together and then sell shares of the group to investors, since the securities backed by mortgages mean that home buyers now pay investors their Mortgage payments are not so clever investors surely think so and soon people are flocking to the investment banks to buy their securities and they are not just the banks that do this;

The government, in an attempt to boost mortgage lending, is using Fannie Mae and Freddie Mac to sponsored corporations. Do the same soon. Lenders are facing a seemingly endless demand for mortgages that they are more than happy to part with because increasingly that sell the rights to their interest payments get their money back and can lend it out Once again, mortgage lending and home buying are accelerating and investors are making a lot in the process, but other companies that have seen the gravy train running Full speed ahead in the investment space feel left out and insurers want to cash in to start selling credit defaults. exchanges derivatives that pay out if a mortgage loan were to default;

It seems like a foolproof way to make money; In fact, why stop at just one policy per property when there are speculators interested in purchasing them? Sure, selling 10 policies on the same mortgage may seem excessive and dangerous, but as long as we don't experience a collapse in the housing market, it will soon be free money, the amount of insured credit jumps from 900 billion to more than 62 trillion dollars and probably We don't have enough money to cover that. As long as things keep moving forward, the insurers are making banks and all is right with the world with housing growth supporting this great supply team we've created or at least that's what's supposed to be happening, but something is changing because lenders are selling their loans.

I have lost all incentive to avoid risk and with such high demand for their mortgages they are starting to make loans to borrowers with bad credit scores and low incomes and wait a second, some of those subprime mortgages are predatory, don't be fooled borrower. This may seem like a low-interest mortgage, but it's packed with terrible terms, but subprime borrowers don't seem to notice the fine print and soon everyone is buying a house even though some have no possible way to pay. their mortgage investment banks. They're still gobbling up everything lenders are throwing at them, which means these ticking time bombs are making their way into investor-owned MBSs, but that's not all.

Investment banks are selling collateralized debt obligations similar to NBS but riskier and claiming that they are virtually risk-free even when filled with these toxic assets, but that's not all this way, they are just being so many mortgages for investing in people who are using complex derivative investments like synthetic CDOs to further examine whether people will make mortgage payments which, in case you haven't noticed, are becoming less and less likely now, surely the rating agencies will notice the highest risk of default and they will warn investors, by the way, your holdings are full of crap, but wait, are you kidding me about the triple-a security rating?

We've all done it We don't have a system where lenders don't care if mortgage payments are made Investment bankers don't care about the risk Rating agencies designed for people but paid for by banks don't care by investors and for a time this web of responsibilities and risks remains firm, but it is only a matter of time before subprime borrowers begin to default on their payments in October 2007. 3 percent of all mortgage loans of the U.S. are in foreclosure and another 7 percent one The month's past due mortgage investments are starting to convert into real estate and investment banks are flooding the market with foreclosed homes.

Very soon they meet some demand for LPS and in

2008

house prices do something that no one was prepared for, they start to freak out and thus the domino effect begins. that was a

2008

financial

crisis

,

financial

companies involved in the real estate game were affected and even though 75% of CDOs received the highest security rating, 70% of them defaulted, Messam banks saw the carnage they had caused, they stopped buying mortgages from lenders and insurers face impossible payments, banks, lenders and mature companies begin to close and despite the government trying to save the biggest players From the brink of destruction, on September 15 we witnessed the largest bankruptcy in US history, as Lehman Brothers, a $600 billion investment bank.

At this point, assets sink, anyone with a bear takes them out of the markets and puts them into Treasuries, leading to the Dow Jones losing a portion of its value and companies that rely on loans to operate losing. suddenly access to vital financing. Ties with the US are caught in disaster: in 2009, the global economic engine will stop, in the last four months of 2008 alone 2 million jobs will be lost in the United States and, although the recession will technically end in June 2009, the impact of the

crisis

will be felt long after. The good thing is that even though financial institutions caused the whole mess, they were the ones that received the most money from the government's bailout attempts, while in 2010 the Dodd-Frank Act would be introduced to end the practices. credit of financial institutions.

One would hope we never again need regulation to remind us that greed should never prevail over common sense and decency.