Over the last two years, we have seen absolute turmoil in the economies of every country in the world. It all started in the United States when the subprime mortgage crisis was kicked off in late 2007. The financial books of Bears Sterns illustrated just how bad the banking and financial industry was in the United States. Almost every major bank and financial institution had some exposure to the subprime market and it was going to cause havoc throughout the work. Little did many of us realize that almost every single American bank would lose over 80% of their stock value in the next two years after April of 2008.
The reason that the financial books of Bear Sterns and many other financial institutions feel apart is because of subprime loans. Some of the financial institutions that feel apart did not have direct exposure to the subprime mortgage industry but they were effected in some way or another. Over 340 banks and institutions have failed since the beginning of the financial crisis and it is very likely that we will see many more to come.
Is it possible that this all started because of subprime loans? Well, in more words or less, yes. When hundreds of thousands of subprime loans were given out to American citizens who could not pay them, this was the first sign of an economic disaster. If you make $50,000 a year, you don’t need a loan for FIVE times that amount! There is no way you are going to be able to pay it off unless you get a huge increase in salary in the next few months.
Subprime loans will never be claimed as the ONLY reason for the financial crisis, but they are definitely what started the economic disaster we are currently in.
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