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what caused the Recession 2007-2009

what caused the Recession 2007-2009

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The reasons for recession 2007-2008 were
1. Creation of housing bubble: Banks had provided large amount of housing loans assuming that the house can be used as mortgage. At that time prices of houses were artificially very high creating a housing bubble. When the bubble burst prices of house nosedived creating a crisis when customers of banks defaulted their payments. This kickstarted the recession.
2. Loans to subprime borrower: Loans were provided even to less credit worthy customers . This increased the chance of default and loans given to such customers became toxic assets.
3. CDS (Credit Default Swap) : The credit risk of investment banks were insured by third party. When default increased the bad debt of investment banks could not be covered by insurance companies as the default was so huge that insurance companies could not cover the losses. Lehmann Brothers was the biggest casualty of CDS

jeff jeffy answered 6 months ago
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