The Financial Crisis of 2008 Rebecca Lynn The Financial Crisis of 2008 was the largest financial crisis since The Great Depression in the 1930’s. The Crisis was felt throughout the world because international businesses invested in the United States housing market. Since the Crisis of 2008 is still very recent, it is unclear what affects will be felt in years to come. Banks marketed mortgages with Mortgage Backed Securities or MBS. Mortgage Backed Securities were loans that were bundled from the lender to investments banks and then to investors so that they could be sold on the open market. MBS’s were around since the 1980’s. They did not start becoming …show more content…
Sub-prime mortgages were doubled to 20% in just 2 years. This was not good because they were giving loans to people that could not afford it. In 2004, the SEC allowed banks to increase the amount of money borrowed. The banks assumed that the housing prices were going to continue to rise so they took on as much risk as they wanted when the leverage requirements were eased. Because of this, the ‘Housing Bubble’ crashed in 2007. The reason for the crash was that individuals owed more money than the homes were worth. This caused a huge rise in foreclosures in 2008. Many major investment firms collapsed because their debt was so large in comparison to what their company was worth. The most important lesson learned from the Financial Crisis is that one should always live within their means. There were many different factors in the cause of this crisis. One of them was the interest rate for home loans dropped to 1% from 6%. Because of that drastic drop more individuals were buying homes and taking out loans since the interest was so low. They did not think about how they would still have to be able to afford the home in the long run. If you do not have the funds, then you have to make smart decisions and not buy things on credit even if it’s on sale or a value. Another important lesson is to learn from the past so as not to make the same mistakes in the future. Future crises are avoidable as long as we learn not to make the same financial