why and how the 2008 economic crisis happen?
In: Economics
Banks gave lots of loans for houses to people who couldn’t pay them back, or could but just barely.
They then “packaged up” these loans. You can take a ton of loans, put them together, then sell *that* to investors. They’ll make money as long as enough people in the package pay back the loans with interest.
Then investors took those packages and sold bets on them, that would pay out in certain conditions. This was supposed to hedge them in case the packages failed.
This whole system only worked if enough people in the packages could pay off their loans.
They couldn’t. The math didn’t work out. Too many people in the packages weren’t able to pay off the loans, causing them to fail, which caused a domino reaction that led banks to fail.
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