I read that it stemmed from a housing bubble in the US, but how did it affect countries like Latvia severely, or Estonia in terms of healthcare? Like, how did it become global?
In: 7
–In the financial world, virtually everybody trades with US banks.
–Normally, mortgages are seen as one of the safest investments you can buy. People tend to pay their mortgages, and even if they don’t, you can repossess the house and then resell it.
–In the 90s, the US Congress passed legislation encouraging banks to give mortgage loans to people who couldn’t afford them. They thought this would help poor people buy houses, and even if they defaulted, it’s not like they had good credit to ruin.
–What ended up happening, is that middle class and above people used this to buy bigger, nicer houses that they couldn’t afford. Houses are seen as great investments, so the bigger the house, the better the investment. But that’s only the case if you can actually make the payments.
–The problem is that ultimately, you need people who can *actually afford* the house they’re living in. And the percentage of houses people couldn’t afford, got out of control. Like super duper out of control.
–Banks continued to sell these mortgages to each other as though they were perfectly good. Selling them as though they were normal mortgages, i..e., super safe investments. But they weren’t. Most of these people were going to default on their loans, and the banks who made them knew (or strongly suspected) it.
–The economy started to slow down, and people started to lose their jobs. Then they couldn’t make their mortgage payments. Then they started to default on their loans. And the banks had sold those loans to other banks all over the world.
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