Before the financial crisis, banks packaged and sold dodgy bundles of mortgages to investors.
Often referred to a securitisation this process is somewhat clouded in mystery. These bundles were given ratings based on their perceived quality, but the actual mortgages weren’t as good as these ratings suggested. UBS, along with other banks, were aware that the mortgages didn’t really meet the required standards, but it continued to sell them anyway.
‘lots of Americans were getting bonds for property that they really could not afford to repay’
The market crashed when people realised that lots of Americans were getting bonds for property that they really could not afford to repay and that these bonds for properties that were way over priced.
People who were renting, began to move out of some properties to cheaper places. This left landlords struggling to pay bonds and get new tenants for their over priced properties.
People who had been buying and “flipping” places for profits found they were struggling to find new buyers and had to try keep bond repayments going. Many failed and Investors realised that these bundled investments were not really as safe as they thought. As more people began to default on their bond repayments a crash ensued.
Scared investors sold quickly, which scared other investors and the whole thing came crashing down very quickly. When the big sell off occurred many people lost everything.
So, who was to blame?
After many investigations it became clear that not only had greed played a factor but many banks had realised the bundled investments were not as safe as they made them out to be. Caught out they then faced fines and punishment.
