Financial Crisis 10-Year Anniversary: What Went Wrong And Can It Happen Again?

Ah, memories! Some good, some bad and some terrifying! In this case, 10-years after the global financial markets came close to collapse, the word terrifying would seem to be a good fit.

But what went wrong in 2008 and is it possible the same could happen again? To my mind, one word seems to describe the environment that existed in 2008 whether thinking of the consumer, banks or any variety of other corporations.

GREED! 

The thinking back then that went into the decision-making process of all who were involved in the real estate market whether buyers, traditional mortgage lenders, subprime lenders, banks, property speculators, rating agencies all the way down to unsophisticated governments around the world seems, in retrospect, to revolve around the word greed.

The basic thinking of most if not all involved was that real estate prices could only go higher which in essence, the masses believed, would cover for much if not all of the cracks in the foundation.

But low and behold it was painfully discovered that prices CAN go lower bringing on the 2008 collapse that led to foreclosures, bond defaults, banks on the verge of going under then deemed to be too big to fail (TBTF), personal bankruptcy filings, corporate bankruptcy filings and so on and so on.

Pre-Crisis Thinking On Mortgage Securitization: Spreading The Risk…Or Increasing Exposure!

‘…Fannie, Freddie, Ginnie, and investment banks buy thousands of mortgages and bundle them together to form bonds called mortgage-backed securities (MBSs). They sell these bonds to investors—hedge funds, pension funds, insurance companies, banks, or simply wealthy individuals—and use the proceeds from selling bonds to buy more mortgages. A homeowner’s monthly mortgage payment then goes to the bondholder.

This “mortgage securitization chain” keeps money flowing into the mortgage market, making credit available to anyone who wants to purchase their piece of the American dream. But in the mid-2000s, lending standards eroded, the housing market became a huge bubble, and the subsequent burst in 2008 impacted any financial institution that bought or issued mortgage-backed securities…‘ (Curbed)