The 2008 financial crisis in the United States
is remembered for its severity and above all
for its rapid spread throughout the world.
What began as a bonanza ended in the bankruptcy
of very important banks. On September 15,
2008, the fall of Lehman Brothers was considered
to be the biggest bankruptcy in the history
of the United States, which marked the beginning
of the crisis. Two days later the Federal
Reserve rescued AIG, the world's largest insurance
company, with a credit of 85 billion dollars.
Subsequently, events like these would be replicated
around the world, even a country like Iceland
seemingly distanced from Western culture would
be severely affected.
It can be said that the origin of this world
crisis is after the terrorist attacks of September
11, 2001 in the United States, this tragedy
generated pessimism and instability, then
to revive the economy, the Central Banks lowered
the reference interest rate to encourage families
and businesses to consume and invest more.
The Federal Reserve, which is the central
bank of the United States, maintained levels
of 1% for several months. Since it was so
cheap to borrow money, there was an excess
of spending by Americans, mainly for the purchase
of homes. Some by necessity others, to speculate.
The point is that the banks granted numerous
mortgage loans to clients without sufficient
support, that is, with low levels of income
and high risk of defaulting on payments. In
some cases to people without employment or
income. In short, they were high-risk mortgages
because they were given to people with low
credit ratings, hence the name subprime mortgage.
On the other hand, the banks were determined
to create new financial instruments related
to the real estate boom. Several mortgage
loans were packaged into a security to be
exchanged in the financial market. Another
of the instruments was the credit default
swap, which consists of the buyer of a title
hiring a company and paying it a periodic
amount and in case the credit has to be paid,
the company responds to it for the total value.
If this information is not easy to assimilate,
that was the implicit objective of these instruments,
which only financial intermediaries understood
in depth. In fact, there was no regulation
for this type of title, yet the problem was
not that, it was that debtors stopped paying
simultaneously. Everything worked well if
people could pay their mortgages and the price
of their homes went up. But the Federal Reserve
started to raise the interest rate in 2004
to control inflation and it went from 1% to
5.25%. A good percentage of loans were contracted
with a variable rate, meaning that the loan
payments were increasingly expensive. Due
to the low credit rating, debtors stopped
paying their mortgages, the number of sellers
increased and now the supply of housing was
greater than the demand, so prices began to
fall. There are reports of more than 1,000,000
foreclosures due to nonpayment of loans.
On the other hand, since financial institutions,
not only in the United States but also in
Europe and Asia, had financial securities
associated with the U.S. housing market, they
began to be affected by the massive credit
default. One explanation for why they were
not alerted to the possible crisis is that
in good times everyone is happy and no one
dares to spoil the party. Banks grant more
loans, homeowners increase their wealth because
of the increase in prices and the government
has high approval of the economic field, that
is, nobody imagined that real estate would
fall in price.
In conclusion, practically all actors are
responsible for the crisis. The buyers for
acquiring credits that they could not pay.
The institutions that invented complex financial
instruments and took exaggerated risk. The
banks for not checking their clients' real
payment capacity. And of course, the regulatory
authorities who did not visualize the problem.
Possibly the solution to prevent a new crisis
lies in regulation and in changing the incentives
around the financial system. It seems difficult
for an institution to take so many risks if
it knows that it will not be rescued, but
if it perceives that the government will solve
the problem, it is very possible that it will
continue to act the same way.
