Prior to the global financial crisis formally hit the US economy, a subprime mortgage crisis was already toppling the foundations of the wider housing market.   Consumers who were borrowing recklessly along with unnecessary leveraging of Wallstreet brought the US to the brink.  Everybody was caught by surprise when the news broke out the focus of everyone’s attention was the magnitude of how Wallstreet messed everything up. 

Bear Stearns is a global investment bank that was the first to fall and in March 2008, it was finally absorbed by JPMorgan Chase.  Henry Paulson, who was the treasury secretary at the time declared to the public that the economic fundamentals of the country was still strong.  The government also informed the public that the problem is limited only within the subprime mortgage sector. 

By August 2008, the next mortgage companies to fall are Freddie Mac and Fannie Mae.  The Government decided to bail them out by spending $5 trillion in taxpayer money.  In just a few days, Wallstreet and all that’s in it collapsed.  Because of this, the five pure investment banks in Wallstreet which consist of Merrill Lynch, Bear Stearns, Lehman Brothers, Goldman Sachs, and Morgan Stanley, were either reduced to being depository banks or collapsing altogether. 

The world’s largest insurer, AIG, was assumed to be the next key financial body to fall.  AIG was considered to be an entity that should not be permitted to fall.  If not, the consequences would result to another great depression.  The government deemed it necessary to bailout AIG since it has plenty of tie to many 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 a number of of its executives were strongly criticized.

The collapse of these institutions and the fall of the stock market were events reminiscent to the pre-great depression of the late 1920s and a lot of people believed that another great depression is on the horizon.  Before the financial crisis in 2008, Like a well-oiled machine, the housing sector skyrocketed because of easily acquired money that also occured in the 1920s.  Virtually everyone can own a home ever since the Feds have lowered the mortgage rate to 1%.  Most banks approved all sorts of loan applications left and right without checking the applicant’s background.  The propensity to lie about how much money one makes was very usual at the time and anyone who can present a credit rating passes.  Even individuals who don’t have jobs were granted loans simply because this crucial information are not verified by lenders.

These risky loans were granted by lenders with extreme confidence because of a financing tool recognized as mortgage-backed securities.  These loans were bulked and resold to banks in Wallstreet and Wallstreet banks bundle these loans into higher yielding mortgage-backed securities and sold to investors around the world.  Because of the “pooled risks” linking many investors from other nations, these loans are believed to be safeguarded and because of this aspect it was assumed that it will always be safe. 

Based on what each and everyone has experienced, these were all a big mistake that dragged each and every individual from every corner of the world into financial struggle.  Both lower, middle and upper middle classes suffered financially because of human greed and error.  Now that the economies around the world are little by little recovering from the aftermath, this should serve as an important lesson to all of us to not make the same mistakes again.