Subprime mortgage crisis

As you could have learned from earlier posts, most of the economic crises start in good times when greed and speculation prevail over the common sense. In March 2007, the United States sub-prime mortgage market witnessed higher-than-expected home foreclosure rates which started a collapse forcing more than 25 sub-prime lenders to declare bankruptcy. Were the expectations wrong? No doubt. While securitization of mortgage market attracted large quantities of money, it allowed banks to basically sell the mortgages thus distributing credit risk to investors. Since risk could be transferred banks allowed more loans than usual, constantly lowering the criteria. Eventually, people who normally wouldn't be able to purchase a home started refinancing their new ventures through mortgages. But when the home prices started to fall, old bills resurfaced and the entire market was shocked with the numerous foreclosures. Bubble burst caused a loss in trillions of dollars, brought the financial sector to the edge of the cliff and created the seed for the global scale crisis. Read more information about the Subprime mortgage crisis critical events here.

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