Crisis the Causes of the Essay

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Many subprime mortgages were made with little documentation of income or ability to repay, or other elements that typically safeguard loans of all types and mortgages especially. There have even been cases of widespread fraud, where documents were falsified in order to approve loans. The reason many lenders were so eager to make these bad loans is that they weren't ultimately going to be responsible for them -- the loans were bundled into groups and sold as "mortgage backed securities," so instead of dealing with many individual loans worth an average of a few hundred thousand dollars, banks and other institutions were dealing with bundled groups of these bad loans worth millions of dollars apiece. Companies like AIG made money in the short-term by providing insurance policies for these mortgage backed securities, as well. Eventually, however, people with loans they couldn't really afford began to default, either because they simply couldn't make the payment or because the investment hadn't been that serious for them, as real estate purchasing for profit rather than residential purposes had been rampant during the previous period.

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Once defaults began to stack up, all of the other dominoes began to tumble.

Defaults on enough indivudal loans made the million-dollar mortgage backed securities suddenly worthless. AIG couldn't pay on their policies, banks couldn't meet their obligations, and other holders of mortgage backed securities experienced enormous losses. This contributed to the housing bubble burst, which exacerbated problems for many homeowners and thus deepened problems all along the line -- and thus (in part) the economic crisis was….....

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