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2008 Financial Crisis Essay

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The primary cause of the financial crisis of 2008 was because banks were able to make a lot of money, too fast, and used it to raise real estate prices and conjecture on financial markets. They were also investing excess capital into the property market, which bumped up the price of real estate ahead with the level of personal debt. Interest has to be reimbursed on all the loans that banks financed, and with the debt growing faster than incomes, a lot of people struggled to maintain the payments. At this point, they stopped repaying their loans, and banks found themselves in a crisis of becoming bankrupt. Karen Hoe mentions on page 298 that; “the subprime disaster that began to dominate mainstream news in the summer of 2007 has …show more content…

When the economy is not doing great, financial institutions will restrict granting loans to the public. Even though they limit the amount of loans they make, its mandatory for the people to make payments on the loans they took out. The trouble is that when money is paid back to the loans, that money is gone from economy. The economy gradually goes down and costs decrease. If it continues to spiral out of control were wages and prices continue to go down, but debts don’t change in value, it leaves debts to become more expensive in real terms. Even people and businesses who were not involved in all of this go into recession. The Big Short characters couldn’t come across as straight forward against the American housing market. A lot of the film deals with the efforts to construct an array of insurance deals that would have a great damaging effect. The important principle, would be that the deal they made involved granting an insurance premium every month that the housing market remained strong, with the understanding that they’d get a big insurance cut if and when it got bad. Karen Ho says on page 299 that “investment banking practices both promoted a surge of predatory lending to originate the loans and created a market to buy the bonds based on worldview of refinancing such that predatory and unsound loans could easily be redefined usually with hidden fees at the end of a year or two with a higher home valuation, wall street investments banks rationalized their

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