In the years ahead of the global economic crisis, a subprime mortgage crisis was already toppling the foundations of the wider housing market.   Consumers who were borrowing recklessly along with excessive leveraging of Wallstreet brought the US to the threshold.  Some experts and analysts have made predictions of the crisis the focus of everyone’s attention 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 absorbing 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 problem to just the subprime mortgage sector. 

The next major institutions to fall are Freddie Mac and Fannie Mae which are two of the largest mortgage companies in the US.  The Government decided to bail them out by shelling out $5 trillion in taxpayer money.  The collapse of Wallstreet occurred soonafter.  In turn, Wallstreet’s five investment banks which consist of Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, either dissolved or reduced to depository banks. 

AIG,the world’s largest insurer, is said to fall next.  AIG was considered to be an entity that should not be permitted to go down.  Otherwise the consequences might result to a new great depression.  The government deemed it vital to bailout AIG because it has a lot of tie to many institutions where money is pretty much wrapped around it.  Hence, it was given by the Federal Government an $85 billion bailout in taxpayer money.

These ill-fated incidents that several financial institutions went through together with the stock market’s collapse were events reminiscent to the pre-great depression of the late 1920s and lots of individuals thought that another great depression is on the horizon.  As the 2008 financial crisis was still building its momentum, the housing bubble was fueled by easy money that also happened in the 1920s.  Virtually everyone can own a home ever since the Feds have lowered the mortgage rate to 1%.  A good number of banks approved all sorts of loan applications left and right without checking the applicant’s background.  Loan applicants have a tendency to lie about the exact amount of money they make and anyone who can present a credit rating passes.  Loans were even granted to people who don’t have jobs simply because this crucial information are neglected to be verified by lenders.

Lenders are keen and confident to grant “risky” loans because of a financing tool identified as mortgage-backed securities.  These loans were bulked and resold to banks in Wallstreet and Wallstreet banks bundle these loans into higher yielding mortgage-backed securities and sold to investors around the world.  Due to the “pooled risks” linking many investors from other countries, these loans are believed to be protected and because of this viewpoint it was believed that it will always be protected. 

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 struggle.  Job-losses, foreclosures, bankruptcies, debts, etc. are all the product of this human blunder.  Now that the economies around the globe are slowly recovering from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes over again.