The financial crisis of 2008 did not erupt overnight. It was the result of years of risky practices unchecked speculation and systemic flaws in the global financial system. The road to this crisis began with an unsustainable boom in the housing market that created a false sense of economic prosperity and security. For many Americans owning a home became not just a dream but an expectation—one fueled by easy credit low interest rates and the rise of complex financial products that few truly understood.
In the years leading up to the crisis financial institutions began issuing mortgages to borrowers with poor credit histories known as subprime borrowers. These loans carried higher interest rates and were often approved without proper verification of income or assets. As more people were granted these loans demand for housing skyrocketed driving up home prices and encouraging even more lending. Lenders seeking higher profits bundled these risky mortgages into securities and sold them to investors around the world.
Wall Street played a major role in escalating the crisis. Investment banks repackaged these mortgages into financial instruments such as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). These were sold with high credit ratings despite being backed by increasingly shaky loans. The belief that housing prices would continue to rise allowed many to ignore the growing risks. Financial institutions government regulators and even investors failed to recognize—or chose to overlook—the signs of impending collapse.
