Financial Crisis and Subprime meltdown - The subprime financial crisis of 2007-8
3 important questions on Financial Crisis and Subprime meltdown - The subprime financial crisis of 2007-8
How was the global financial crisis in 2007 triggered?
The global financial crisis starting in 2007 was triggered by mismanagement of financial innovations involving subprime residential mortgages and the bursting of a housing pricing bubble
How was did a housing price bubble form before the crisis?
- Liquidity flows form china and india boosted the US subprime mortgage market, which in itself created the highest homeownership in the US in History.
- The asset pricing boom in housing also helped the growth of the subprime market (Owners could easily refinance there houses, when they would default they could sell there house, making investors in CDOs happy because they had high returns)
- The growth of the subprime mortgage mark increased the demand for houses and so fuelled the boom in housing prices
What is the dark side of financial engineering?
Structured products (CDOs CDO2s CDO3s) can get so complex that is is hard to value cash flows or even determine what the actual cash flow of the underlying assets is.
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