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What Caused the 2008 Financial Collapse? Finance Industry: Goldman Sachs, JP Morgan (2010) [keyword

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The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.

CDO issuance grew from an estimated $20 billion in Q1 2004 to its peak of over $180 billion by Q1 2007, then declined back under $20 billion by Q1 2008. Further, the credit quality of CDO’s declined from 2000 to 2007, as the level of subprime and other non-prime mortgage debt increased from 5% to 36% of CDO assets.[118] As described in the section on subprime lending, the CDS and portfolio of CDS called synthetic CDO enabled a theoretically infinite amount to be wagered on the finite value of housing loans outstanding, provided that buyers and sellers of the derivatives could be found. For example, buying a CDS to insure a CDO ended up giving the seller the same risk as if they owned the CDO, when those CDO’s became worthless.

This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this provided the ground for fraudulent acts, misjudgments and finally market collapse.[120] In 2005 a group of computer scientists built a computational model for the mechanism of biased ratings produced by rating agencies,[121] which turned out to be adequate to what actually happened in 2006–2008.[citation needed]

Martin Wolf further wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: “…an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the ‘shadow banking system’ itself – was to find a way round regulation.”

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What Caused the 2008 Financial Collapse? Finance Industry: Goldman Sachs, JP Morgan (2010)

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22 comments

Tron 14/09/2021 - 4:51 Sáng

Simple: 2008 Financial Crisis was caused by massive fraud in the system & big banks believing home values will never go down nationwide.

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Bunne Rabb 14/09/2021 - 4:51 Sáng

Rating agencies put their kneepads on for any box of shit stuffed through their letterbox while the banks set up a circle jerk of trading grade Z debt as assets. Anything else you need to be clarified? (typo edit)

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Carolina QUANONNE 14/09/2021 - 4:51 Sáng

Pilgrim cover wagon gold more gage rush Limbaugh

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Lambo Seeker 14/09/2021 - 4:51 Sáng

Does anybody remember the Congressional hearings demanding the acceptance of subprime loans? Or was it the lowering of required credit rating?

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DMando04 14/09/2021 - 4:51 Sáng

Here in 2021

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Shalom CCS 14/09/2021 - 4:51 Sáng

I can’t hear all this crap no more knowing what really happened.

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Shalom CCS 14/09/2021 - 4:51 Sáng

People don’t give your money to this kind people. These are gangsters with a license to make shark loans. The law was tailored to them, not to you. They take your money and the government bail out them.

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Shalom CCS 14/09/2021 - 4:51 Sáng

USA congress had failed to the whole nation to bring out the real truth about JFK assassination , 911, and 2008 economic fraud.

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Shalom CCS 14/09/2021 - 4:51 Sáng

All Lehman & brothers subsidiaries around the country received the instructions to increase the housing loans and mortgages. All was did knowing it was illegal. I hate to hear the word risk . Goldman & S . Invested 401k savings on Lehman bubble.

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brent cline 14/09/2021 - 4:51 Sáng

Awesome Congressman Angelenis! Mr. Blankfein you are the CEO of the most sophisticated institution in the world. GS was underwriting and packaging garbage securities and selling them to their trusted clients. On the other hand they were shorting these same securities in the market without Disclosing any information to their clients. Blankfein says “ who us we didn’t do anything wrong we were caught up in this like everyone else”. The really sad thing about the 08 financial crisis is nobody went to jail for any of these criminal acts and Wall Street got richer!

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Darin Attard 14/09/2021 - 4:51 Sáng

Jail them, take their wealth and distribute it to the people who were robbed by them. Pass a new law to protect the people, who are the voters and should be rightly represented. Why do you define it as a democracy? It`s not a democracy, it`s communism and protectionism for the crooks, bankers, corrupt politicians and corporations.

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pieterprinsloo007 14/09/2021 - 4:51 Sáng

What was the use? Dick Fuld is still a free man, total fucking waste of time and money. The world want these fuckers locked up, the truth means nothing.

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Gustavo Tejada 14/09/2021 - 4:51 Sáng

Bunch of Crooks

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Gustavo Tejada 14/09/2021 - 4:51 Sáng

THESE ARE THE EVIL CEOS THAT DESTROYED THIS COUNTRY AND CONTINUE TO DO IT, AND GET AWAY WITH IT.

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Corbae L 14/09/2021 - 4:51 Sáng

no one went to jail. the silly thing is both sides here should have had people in jail. congress and the bankers but they just got to pretend as they always have. these people are criminals.

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BMk'er 14/09/2021 - 4:51 Sáng

These characters are just scum… Private profit and public losses are the bedrock of modern banking!! Clinton is mostly at fault for loosening the screws on the banks in the '90's…. We all suffer from decisions taken in darkened rooms.

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Beverly Bradford 14/09/2021 - 4:51 Sáng

And we still have to pay back 700 billion dollars because of these guys. Whatever.

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Lulunyc11 14/09/2021 - 4:51 Sáng

all i heard is blah blah keep having fun keep getting ur multi million dollar bonuses and government will bail you out with tax payers money !!!! here 700 billion go have fun ….. another bubble is coming ….

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Bonez Alota 14/09/2021 - 4:51 Sáng

NEVER ONCE A, "YES".. OR ,"NO" ANSWER…. U~N~I, TRY & GO B4 A JUDGE, WITH SO~MUCH, AS A TRAFFIC~VIOLATION, ACQUISATION.. & NEVER TRULY ANSWER THE JUDGE.. SIMPLY DANCE AROUND… EVEN, WHEN DIRECTLY "TOLD"… "YES?OR'NO?"…. YET, STILL… YET, AGAIN.. JUST RAISE YOUR VOICE, ALONG W/ AN, "UNAPOLOGETIC~SMIRK".. THE JUDGE, WOULD HAVE HELD US, IN "CONTEMPT~OF~COURT,".. & SENTENCE US 2 FINES, & ADITTIONAL JAIL~TIME… ALONG W/ FEES… HIM!?. NOTHING!?..

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Timothy William Brown 14/09/2021 - 4:51 Sáng

Its worse then this flat out lied about payments made flat out stole wells Fargo bank 6 payments overlooked

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LLoyd Waynes 14/09/2021 - 4:51 Sáng

a company called centex homes built so many houses that they built themselves out of business

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Eli K. Webber 14/09/2021 - 4:51 Sáng

these crooks lobby congress so they can change rules and laws so they can steal without being punished .

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