By: Liibaan Yusuf
The financial crisis of 2008 is said to have been worse than any global economic meltdown since Black Tuesday of 1929, which lead to the Great Depression.
The 2008 financial crisis was an extremely complicated full meltdown of the housing market in the US. Unlike the rest of the world, the housing market in the US is interconnected with the financial market, as to where it is impossible too purchase a house without the intermediary of a bank.
In the years leading up, banks were giving out loans and mortgages left and right with no regard. In late 2001, the federal reserve had lowered the national interest rate from 6 percent to a mind-blowing 1 percent! Upon hearing this, banks and aspiring home owners jumped to getting loans with dirt low interest rates. Banks also took advantage and sold those loans to Wall Street Banks.
By 2004, the Federal Reserve had brought up interest rates to almost 6 percent again but in the 4 year rush, homeownership was at almost 70%! People had gotten great deals on homes! In early 2006, banks began to re-evaluate homes and the majority of prices dropped sharply. People who had gotten a loan on a 500,000 dollar house were being told their house was only worth 300,000 dollars! These people were locked in loans paying off amounts their home wasn’t actually worth! Some were almost done paying it off and some were in the beginning stages of doing such.
People were scared to sell their homes because of horror stories! Those who did sell now owed hundreds of thousands of dollars, that they didn’t have, to their original lenders! Banks had essentially given people money in a loan, the receivers took the loan to buy a mortgage for a house, locked in a deal for what seemed great, but were told their house wasn’t worth what they were paying, and now the banks couldn’t get back the loans they had once given out to everyone and anyone!
One by one, banks started filing for bankruptcy. By early 2007, 25 subprime lenders had went bankrupt. Swiss Bank UBS, one of the most renowned banks in the world, had announced that they were 3.4 billion dollars in the red. But in the US, IndyMac bank, one of the biggest US based banks to have been affected, had be seized by the US government, but it would be a bank named after a different set of brothers to take the biggest fall. Lehman Brothers, had completely been demolished, and their name tarnished. They were known as the bank behind the whole collapse!
By mid 2008, it was the US government who issued a Wall Street bailout in response to the carnage.
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