Earlier than the monetary disaster, banks packaged and bought dodgy bundles of mortgages to buyers.
Usually referred to a securitisation this course of is considerably clouded in thriller. These bundles got rankings based mostly on their perceived high quality, however the precise mortgages weren’t pretty much as good as these rankings steered. UBS, together with different banks, have been conscious that the mortgages didn’t actually meet the required requirements, nevertheless it continued to promote them anyway.
‘plenty of Individuals have been getting bonds for property that they actually couldn’t afford to repay’
The market crashed when folks realised that plenty of Individuals have been getting bonds for property that they actually couldn’t afford to repay and that these bonds for properties that have been manner overestimated.
Individuals who have been renting, started to maneuver out of some properties to cheaper locations. This left landlords struggling to pay bonds and get new tenants for his or her overestimated properties.
Individuals who had been shopping for and “flipping” locations for income discovered they have been struggling to search out new patrons and needed to attempt hold bond repayments going. Many failed and Traders realised that these bundled investments have been probably not as secure as they thought. As extra folks started to default on their bond repayments a crash ensued.
Scared buyers bought rapidly, which scared different buyers and the entire thing got here crashing down in a short time. When the large dump occurred many individuals misplaced every little thing.
So, who was accountable?
After many investigations it turned clear that not solely had greed performed an element however many banks had realised the bundled investments weren’t as secure as they made them out to be. Caught out they then confronted fines and punishment.