eli5 2008 Global economic crisis
In: Economics
Your piggy bank isn’t just a normal piggy bank that holds your money until you need it. Instead the piggy uses your money to lend to other people and to make bets and investments.
The piggy thought it was making safe bets on something called mortgage backed securities. This is because these were supposed to be backed by people paying off the mortgages on their homes.
Unfortunately a lot of people were sold a lot of mortgages they shouldn’t have and didn’t have the means to ever pay off so a lot of the value of these mortgage backed securities was funny money. Eventually people realised and all the piggy banks realised they were about to lose a lot of money.
Because piggy banks are so vital to the global economy, the government had to step in and print pocket money for the piggys. But the result was it became harder to borrow money, lines of credit dried up (i.e. people got less pocket money) and the whole global economy got affected.
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