In the pre-financial crisis of 2008, a lot of individuals were already feeling the strain brought by the the subprime mortgage crisis. Reckless borrowing by consumers along with unnecessary leveraging of Wallstreet brought the US to the brink. Some experts and analysts have made predictions of the crisis and the extent on how Wallstreet really messed up was the focus of everyone\’s attention.

The first domino to topple was global investment bank Bear Stearns and in March 2008, it was ultimately absorbed by JPMorgan Chase. Henry Paulson, who was the treasury secretary at the time declared to the public that there is still a strong foundation in the US economy and nothing has changed it. Also that time, the White House was confining the issue to just the subprime mortgage sector.

The next significant institutions to fall are Freddie Mac and Fannie Mae which are two of the major US mortgage companies. trillion in taxpayer money was spent by the federal government to bail them out. The collapse of Wallstreet came about soonafter. In turn, the five pure investment banks in Wallstreet which consist of Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, either dissolved or reduced to depository banks.

The next major financial entity said to fall next is the largest insurer in the world, AIG. There was too much riding on AIG to be allowed to suffer the same outcome as the other institutions. If not, the consequences would result to another great depression. It was considered a huge risk to let AIG fall because it has lots of connection to numerous institutions where money is pretty much wrapped around it. Taxpayers were forced to pay billion to bailout the insurance giant.

These ill-fated events that different financial institutions went through together with the stock market\’s collapse were events that are similar before the great depression of the \’20s and a lot of people thought that another great depression is on the horizon. Before the financial crisis in 2008, Like a well-oiled machine, the housing sector soared because of easily obtained money that also happened in the 1920s. The federal government had made it possible for almost everyone to own their own home by giving a 1% rate on mortgage. Loans including mortgages were granted to almost everybody without checking the applicant\’s background. Lots 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.

Even though risky, plenty of lenders don\’t mind granting these loans because of a financing tool acknowledged as mortgage-backed securities. These loans were bulked and resold to banks in Wallstreet and Wallstreet banks bundle these loans into higher yielding mortgage-backed securities and sold to investors around the globe. Investors who have procured these loans are known as \”pooled risks\” and because of this point of view it was thought that it will always be safe.

Given that 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 difficulty. Both lower, middle and upper classes suffered financially because of human greed and error. Now that the economies around the globe are slowly recuperating from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes once more.

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