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2008 Financial Crisis Summary

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CDOS discussed in pages 94-96 of Chapter 4 led to the financial crisis in 2008. Mortgages were being sold to large investment banks, and they didn’t care how credit-worthy the people taking out the loans were, which was a big problem. Foreign investors than began to dump large amounts of money into the US housing market because the housing market was seen a gold mine. But then like everything else it was to good to be true and housing prices failed to rise. And when borrowers defaulted there wasn’t an opportunity to sell the repossessed homes and even make back a fraction on what was owed on it. So then major lenders called on reinsurance companies to back them but the CDO market was huge and reinsurance and insurance companies couldn’t cover

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