The housing crisis of 2008 was a severe financial event that had far-reaching implications for the global economy. It was primarily triggered by a combination of factors, including the subprime mortgage crisis, housing market bubble, and regulatory failures. The crisis began with the subprime mortgage market, which involved lending to borrowers with low creditworthiness. Financial institutions relaxed lending standards and issued a significant number of subprime mortgages, often with adjustable interest rates and low initial payments. These mortgages were then bundled together into complex financial products known as mortgage-backed securities (MBS) and sold to investors. As housing prices continued to rise due to speculative fervor, fueled …show more content…
However, by 2007, housing prices began to decline, causing borrowers with adjustable-rate mortgages to face higher payments they could not afford. Many homeowners started defaulting on their mortgages, leading to a sharp increase in foreclosures. The widespread default and foreclosure rates had a domino effect on financial institutions and investors. Since mortgage-backed securities were intricately tied to the housing market, the decline in their value caused significant losses for financial institutions holding these assets. The crisis unfolded further when it became evident that many institutions had engaged in risky practices, such as excessive leverage and insufficient capital buffers. The interconnectedness of financial institutions, both domestically and globally, amplified the impact of the crisis. Major banks faced severe liquidity and solvency issues, leading to a loss of confidence in the financial system. Lehman Brothers, one of the largest investment banks, filed for bankruptcy in September 2008, which further exacerbated the crisis and triggered widespread panic in the financial markets. The consequences of the housing crisis were severe. The financial sector faced significant turmoil, with