The Global Financial Crisis: History Repeats Itself
In the years before the global economic crisis, a lot of people were already feeling the strain brought by the the subprime mortgage crisis. Consumers who were borrowing recklessly along with excessive leveraging of Wallstreet brought the US to the threshold. A number of experts and analysts have made predictions of the crisis the focus of everyone’s attention was the magnitude of how Wallstreet messed everything up.
The first domino to topple was global investment bank Bear Stearns and in March 2008, it was finally absorbed by JPMorgan Chase. During that time, the White House has insisted that the economic fundamentals of the country was still solid. Also that time, the White House was confining the issue to just the subprime mortgage sector.
Freddie Mac and Fannie Mae are two mortgage giants which next fell in August 2008. $5 trillion in taxpayer money was spent by the federal government to bail them out. The collapse of Wallstreet came about soonafter. As a consequence, 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 world’s largest insurer, AIG, was understood to be the next main financial body to go down. There was too much riding on AIG to be allowed to suffer the same outcome as the other institutions. If not, the consequences might result to another great depression. The government reckoned it vital to bailout AIG because it has lots of tie to various institutions where money is pretty much wrapped around it. An $85 billion bailout was given by the government to AIG officials to save itself and the bonuses AIG had given to some of its executives were strongly criticized.
The collapse of the stock market in concert with the fall of different financial institutions were events mirroring that of what happened before the 1920s great depression and plenty of individuals believed 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 nearly everyone to own their own home by lowering mortage rate by just 1 percent. Because of this, mortgages and other types of loans were easily granted by nearly all banks across the country without doing some background checks. The tendency to lie about how much money one makes was very usual at the time and only a credit rating will be asked. Jobless people were even able to obtain loans simply because this crucial information are neglected to be verified by lenders.
Even though risky, lots of lenders don’t mind giving way these loans because of a financing tool identified 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 purchased these loans are known as “pooled risks” and because of this point of view it was believed that it will always be protected.
In the wake of all this, 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 consequence of this human blunder. Now that the economies around the planet are gradually recuperating from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes for a second time.
