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Financial Crisis of 2008

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Financial crisis of 2008
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Financial crisis of 2008 The financial crisis of 2008 resulted to the greatest recession. This was after the great depression that had happened in 1929. This happened even after the treasury department and the Federal Reserve aggressively trying to prevent the United States system of banking from collapsing. The first suspicion of what caused the financial crisis was when the housing prices started to drop from 2006. This was a red light that the economy was in trouble. Nevertheless, realtors were relieved at the time. There was hope that the housing market that was overheated would securely go back to a level that is more sustainable. The realtors did not realize is that the number of people who owned homes with credit that was questionable had loans for 100 percent or even more of the value of their homes. What banks had done is that they had resold the mortgages in packages as a part of mortgage backed securities. Primarily, the Federal Reserve was thinking that the damage from the crisis of subprime mortgage will remain secluded to housing. However, prevaricate funds and other financial institutions all over the world had ownership over them. They were in pension funds, corporate assets and mutual funds. Given that the initial mortgages had been cut and sold again in parts, then the actual derivatives became impossible to price. This is the reason as to why the secondary market value tumbled as investors worried. When financial institutions started to realize that they had to take up all the losses, a widespread fear took over financial institutions globally. Banks opposed to lend to each other so that they would not get stuck with mortgages that are potentially worthless as collateral. As a result...

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