Financial Crisis of 2008
In 2008, a series of banks and insurance companies failed and caused a huge financial crisis. The crisis caused more bankruptcies by September 17th than in all of 2007. Mortgage companies Fannie Mae and Freddie Mac had to be taken over by the government, Bank of America bought out Merrill Lynch. AIG was saved by a $85 billion government injection. Because of all the failures and government injections, the country is now in a huge debt and the economy is still feeling the effects today. The crisis began in the real estate and subprime lending crisis. Investment and bank industries lowered their standards and began lending money to unqualified buyers. The financial crisis of 2008 caused the economic
When unqualified buyers took mortgages offered to them by the banks, a lot of people jumped. Unfortunately, the when home values didn't rise and people couldn't keep up with payments, the banks had to acknowledge huge write downs and write offs on these products. With all of these expenses and write downs, several institutions were forced to raise capital or file for bankruptcy. The loans were dispersed throughout the financial system in the form of CDOs and other derivatives to lessen the risk. When people defaulted on there mortgages many of the investment banks and companies who loaned out money lost huge amounts on the houses. Because of the inability for the companies to collect there money back, they had to file for bankruptcy.
Fannie Mae (Federal National Mortgage Association) was founded in 1938. Its brother company, Freddie Mac (Federal Home Loan Mortgage Company) was established in 1968. Both of these companies owned or guaranteed about half of all American home loans and had about $5 trillion worth of obligations. Some market experts believe that ultra low rates and securitization are the main reasons for the current housing crisis and the failure of Fannie and Freddie. Others believe it was improper money...