Unless you haven’t been paying attention, chances are you’ve heard of or been affected by the steep recession we’re currently facing. People are losing their jobs, their homes, banks are being closed left and right, etc.
So where did this all start?
Banks had been loaning subprime mortgages (housing loans for people with little credit history.) When those people weren’t able to pay their debts, the banks foreclosed their houses. This happened so much to the point where banks were losing more money than they gained and they ended up closing. We’ve seen this for example with The Lehman Brothers, where 5,000 employees lost their jobs, and IndyMac Federal Bank. Other companies had to be bailed out, such as the AIG insurance company.
Because of this, home values and home equities have plummeted. Everyone who owns a home has less value on their houses now, so if you were to sell your home now, you will owe the bank.
Hopefully lessons can be taken from the errors of banks like The Lehman Brothers so that banks and investment companies will be less aggressive with investing in subprime mortgages in the future, to prevent another housing crisis on this scale from happening all over again.
Sources: https://www.theguardian.com/business/2008/dec/28/markets-credit-crunch-banking-2008
https://www.britannica.com/event/financial-crisis-of-2007-2008
Noah's Blog 