Financial Crisis Of 2008 : Case Study

1626 Words Nov 2nd, 2016 7 Pages
James Polley, Latifer James, Michelle Current, Tione Nkhono
Lisa Forbes
FNCE 330
1 November 2016
Financial Crisis of 2008 It all began with the collapse of Lehman Brothers in September of 2008. What followed this collapse was a domino effect which saw a near crash of the world’s financial industry, shortly leading to the greatest recession since the Great Depression. This great economic disruption would subsequently require hundreds of billions of taxpayer dollars and government debt to straighten out. After years of relatively low inflation and stable growth, financial institutions had become too comfortable and began taking more risk and carrying out hazardous policies and practices. Mortgages were granted to a large pool of people, including those who ordinarily wouldn’t qualify for them. Banks got into the habit of lending these “subprime” loans with higher interest rates to individuals with low credit scores. These borrowers were among the first affected by the downturn. Some sources say that European banks borrowed heavily from U.S. banks to purchase risky stocks, and there is speculation that this played a major role in the financial crisis (“Crash Course”). These subprime loans were pooled together in the form of collateralized debt obligations, or CDO’s. Banks and experts believed that loans from different cities were uncorrelated, and that different housing markets rose and fell independent of one another. The theory was that these loans, pooled together would…

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