12 June 2022 6:40

2008-2009 Stock Market Crash — what caused the second drop?

What caused the market to drop in 2008?

The stock market crash of 2008 was a result of defaults on consolidated mortgage-backed securities. Subprime housing loans comprised most MBS. Banks offered these loans to almost everyone, even those who weren’t creditworthy. When the housing market fell, many homeowners defaulted on their loans.

What caused the 2009 stock market crash?

The stock market and housing crash of 2008 had its origins in the unprecedented growth of the subprime mortgage market beginning in 1999. U.S. government-sponsored mortgage lenders Fannie Mae and Freddie Mac made home loans accessible to borrowers who had low credit scores and a higher risk of defaulting on loans.

What caused the 2008 2009 Great Recession?

The Great Recession, one of the worst economic declines in US history, officially lasted from December 2007 to June 2009. The collapse of the housing market — fueled by low interest rates, easy credit, insufficient regulation, and toxic subprime mortgages — led to the economic crisis.

Who is to blame for the Great Recession of 2008?

The Biggest Culprit: The Lenders

Most of the blame is on the mortgage originators or the lenders. That’s because they were responsible for creating these problems. After all, the lenders were the ones who advanced loans to people with poor credit and a high risk of default. 7 Here’s why that happened.

How much did the market drop in 2008?

On October 24, 2008, many of the world’s stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. In the U.S., the DJIA fell 3.6%, although not as much as other markets.

What caused the stock market crash?

The main cause of the Wall Street crash of 1929 was the long period of speculation that preceded it, during which millions of people invested their savings or borrowed money to buy stocks, pushing prices to unsustainable levels.

What firm started the 2008 financial crisis?

Lehman Brothers

Many point to Sept. 15, 2008 — the day Lehman Brothers, then the nation’s fourth-largest investment bank, filed for bankruptcy — as a turning point in the crisis. After galloping to the rescue of other major financial institutions, the federal government drew the line with Lehman, allowing the firm to collapse.

What was a major cause of the US recession that began in 2008?

When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September –2008 phase was called the subprime mortgage crisis.

What caused the subprime mortgage crisis?

The subprime mortgage crisis of 2007–10 stemmed from an earlier expansion of mortgage credit, including to borrowers who previously would have had difficulty getting mortgages, which both contributed to and was facilitated by rapidly rising home prices.

Is the government to blame for the 2008 financial crisis?

Everybody involved with the 2007–2008 financial crisis is partly to blame for the Great Recession: the government, for a lack of oversight; consumers, for reckless borrowing; and financial institutions, for predatory lending and unscrupulous bundling and selling of mortgage-‐backed securities.

Did Freddie Mac and Fannie Mae caused the financial crisis?

In reality, they were a prime example of the broader economic forces that caused the banking credit crisis and bailout. Legislative attempts to rapidly wind down Fannie and Freddie would not prevent another recession. Worse yet, it could devastate the housing market.

What did Freddie Mac do wrong?

16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had …

Who created the housing bubble?

Hedge funds, banks, and insurance companies caused the subprime mortgage crisis. Hedge funds and banks created mortgage-backed securities. The insurance companies covered them with credit default swaps. Demand for mortgages led to an asset bubble in housing.

Is Freddie Mac still in business?

Today it is a shareholder-owned company that operates under a congressional charter. Freddie Mac was chartered by Congress in 1970 as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country.

How did Freddie Mac get caught 2003?

An accounting scandal erupted at the government-sponsored company in June 2003 when it disclosed that it had misstated earnings by some $5 billion — mostly underreported — for 2000-2002 to smooth quarterly volatility in earnings and meet Wall Street expectations.

Who controls Freddie Mac?

the Federal Housing Finance Agency (FHFA)

Freddie Mac ‘s regulator is the Federal Housing Finance Agency (FHFA). FHFA was established in 2008 as an independent government agency responsible for oversight of the operations of Freddie Mac, Fannie Mae and the Federal Home Loan Banks.

Why is it called Freddie Mac?

As we mentioned earlier, Freddie Mac is not an actual person but is instead a variant of the initials of the company’s full name, the Federal Home Loan Mortgage Corporation or FHLMC. Freddie Mac was created in 1970 as part of the Emergency Home Finance Act to expand the secondary mortgage market in the United States.

How much equity must you have to have outright ownership of a property?

You must own your home outright or have at least 50% equity in your home to be eligible for a reverse mortgage loan. Even if you owe some money on your existing mortgage, you may be eligible for a reverse mortgage.

What’s the difference between Fannie and Freddie?

Mortgage Sourcing

The primary difference between Freddie Mac and Fannie Mae is where they source their mortgages from. Fannie Mae buys mortgages from larger, commercial banks, while Freddie Mac buys them from much smaller banks.