1) What's a subprime ; ''Subprime borrowers have a heightened perceived risk of default, such as those who have a history of loan delinquency or default, those with a recorded bankruptcy, or those with limited debt experience.'' (Wikipedia.org) .
Basically banks were giving loans to people that weren't credible and shouldn't have got one .
2)Banks were issuing securities which included mortgages in them .
3) 20 % of the whole mortgage lending in the united states is considered as a ''risk mortgage'' .
4)The real estate in the States was simply overrated , that's why they called it the real estate ''bubble''
I'm not gonna explain you everything that happened but people were taking loans based on the value of their houses . When the real estate prices went down people couldn't reimburse their loans .
When there is too many houses on the market , the prices go down . Banks were seizing houses to get their money back but couldn't sell them back at the right price and couldn't get their money back .
It's really like a snowball. So after real estate market went down , all the big companies that had securities related to mortgages also lost a lot of money , and the big firms like Lehman Brothers and AIG failed .
That's a very vague answer but it should give a general idea of what happened . What has caused the financial crisis?
One cause is many bad loans made by banks that they had to write down. When they do this they are prohibited by law from loaning money. In addition banks are not sure if other banks will be in business so they are reluctant to loan money to them.What has caused the financial crisis?Too many people, banks, and businesses taking on too much credit and not being able to afford payments.What has caused the financial crisis?
Credit default swaps. Kazillions of them sold by AIG. They couldn't pay off, so we bailed them and Goldman Sachs out. Socialism for the rich.What has caused the financial crisis?Greed.
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