Question

Write a historical summary of the events that prompted the writing of Too Big To Fail by Andrew Ross Sorkin

Answer 1

The main reason behind writing this book was the Financial Crisis of 2008.

The 2008 financial crisis is called the subprime mortgage crisis.it happened due to collapse of housing market. This financial crisis is threatened to fail the financial system all over the world. This caused the failure of several major investment, commercial banks, saving and loans association etc .

The sub prime crisis caused by deregulation in the financial market. Which give banks the authority to engage in hedge fund(high risk) trading with derivatives and increase demand of these in banks.

In 2004, the Federal Reserve raised the fed funds rate just as the interest rates on these new mortgages reset. Housing prices started falling in 2007 as supply is greater than demand. That trapped homeowners who couldn't afford the payments, but couldn't sell their house. When the values of the derivatives crumbled, banks stopped lending to each other. That created the financial crisis that led to the Great Recession.

Deregulation of financial sector lead invest in housing sector at low price, but these investment not give return at maturity period. And thus led the way towards financial crisis.