In the pre-financial crisis of 2008, a lot of the population were already suffering from the subprime mortgage crisis.   Consumers who were borrowing recklessly along with excessive leveraging of Wallstreet brought the US to the threshold.  Everyone was caught by surprise when the news broke out the focus of everyone’s attention was the magnitude of how Wallstreet messed everything up. 

The first domino to topple was global investment bank Bear Stearns where JPMorgan Chase saved it by absorbing it in March 2008.  During that time, the White House has insisted that the economic fundamentals of the country was still strong.  The administration also informed the public that the predicament is limited only inside the subprime mortgage sector. 

By August 2008, the next mortgage companies to fall are Freddie Mac and Fannie Mae.  The federal government was forced to bail these companies out using taxpayer money amounting to $5 trillion.  In just a few days, Wallstreet and all that’s in it collapsed.  Because of this, Wallstreet’s five investment banks which include Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, either dissolved or reduced to depository banks. 

AIG,the world’s largest insurer, is said to fall next.  AIG was considered to be an entity that should not be allowed to fall.  If not, the consequences would result to a new great depression.  Letting AIG fall was a massive risk because it has a lot of connection to various institutions where money is pretty much wrapped around it.  An $85 billion bailout was given by the government to AIG officials to save itself and the bonuses AIG had given to some of its executives were strongly criticized.

The collapse of these institutions and the fall of the stock market were events mirroring that of what happened before the 1920s great depression and a lot of people thought that another great depression is on the horizon.  Before the financial crisis in 2008, the housing bubble was fueled by easy money that also happened in the 1920s.  The federal government had made it possible for practically everyone to own their own home by lowering mortage rate by just 1 percent.  Loans including mortgages were granted to almost everybody without doing some background checks.  Loan applicants have an affinity to lie about the exact amount of money they make and only a credit rating will be asked.  Jobless people were even able to obtain loans simply because this crucial information are neglected to be verified by lenders.

Although risky, a lot of lenders don’t mind granting these loans because of a financing tool known as mortgage-backed securities.  They resold their loans in bulk to banks in Wallstreet and banks in Wallstreet bundle these loans into higher yielding mortgage-backed securities and sold to investors around the world.  These newly converted loans then became “pooled risks” as many investors across the globe now have their share on them and because of this viewpoint it was believed that it will always be safe. 

Because lots of people were affected, these were all a big mistake that dragged each and every individual from every corner of the world into financial struggle.  Job-losses, foreclosures, bankruptcies, debts, etc. are all the outcome of this human blunder.  Now that the economies around the globe are gradually recuperating from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes again.

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