In the years ahead of the global economic crisis, a subprime mortgage crisis was already toppling the foundations of the wider housing market. Reckless borrowing by consumers along with excessive leveraging of Wallstreet brought the US to the threshold. Everybody was shocked when the news broke out and the degree on how Wallstreet really messed up was the focus of everybody’s attention.

Bear Stearns is a global investment bank that was the first to go down where JPMorgan Chase saved it by acquiring 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 matter to just the subprime mortgage sector.

Freddie Mac and Fannie Mae are two mortgage giants which next fell in August 2008. The Government decided to bail them out by spending trillion in taxpayer money. The collapse of Wallstreet came about soonafter. In turn, Wallstreet’s five investment banks which include Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, either dissolved or reduced to depository banks.

The world’s largest insurer, AIG, was understood to be the next key financial body to fall. AIG was too valuable and letting it fall was unthinkable. Otherwise the consequences would result to another great depression. The government considered it necessary to bailout AIG because it has a lot of tie to many institutions where money is pretty much wrapped around it. Taxpayers were forced to pay billion to bailout the insurance giant.

The collapse of these institutions and the fall of the stock market were events mirroring that of what happened prior to the 1920s great depression and a lot of people believed that another great depression is on the horizon. Before the financial crisis in 2008, the housing bubble was fueled by easy money that also happened in the 1920s. The federal government had made it possible for nearly everyone to own their own home by giving a 1% rate on mortgage. Because of this, mortgages and other types of loans were easily approved by most banks across the country without doing some background checks. Plenty of loan applicants lie about how much money they make and only a credit rating will be asked. Even individuals who don’t have jobs were granted loans simply because this crucial information are not verified by lenders.

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

Since a lot of people were affected, 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 outcome of this human error. Now that the economies around the planet are slowly recovering from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes for a second time.

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