Financial Crisis 2008 - Causes and Devastating Consequences

We decided to make a video about the Financial crisis that happened during 2008-2009, and to explain on the way about MBS, CDO and other financial instruments that found hard to understand.
This video is made on white board and very easy to understand !

In this eye-opening video, we take a deep dive into the 2008 financial crisis that shook the global economy and left lasting scars on millions of lives. This crisis was not just another economic downturn; it was a catastrophic event that resulted in the loss of homes, jobs, and trillions of dollars of wealth.

To understand how this crisis came to be, we trace its origins back to the dot-com bubble of the early 2000s, where investment bankers fueled a massive speculative frenzy in internet stocks. When the bubble burst, it wiped out around five trillion dollars of investment money, setting the stage for future financial instability.

Fast forward to 1999, and the U.S. Congress passed legislation to encourage funding for affordable housing for low-income homebuyers, coupled with a significant reduction in interest rates. This move created an environment where people could take out loans on assets they couldn't afford to pay off, leading to a surge in housing prices by over 84% between 2000 and 2006.

Mortgage-backed securities (MBS) and Collateralized Debt Obligations (CDOs) emerged as financial instruments that allowed banks to pool mortgages and sell them as investment products. The banks became more interested in making profits from selling these mortgages than in ensuring the borrower's ability to repay the loan, thus paving the way for riskier lending practices.

Rating agencies like Moody's and S&P were complicit in the crisis by giving toxic assets triple-A ratings, making it easier for banks to sell them to unsuspecting investors. Meanwhile, insurance companies jumped into the fray by offering credit default swaps (CDS) to cover the possibility of default on these risky securities.

The collapse began in 2008 when investors lost confidence in investment bank Bear Stearns due to its exposure to toxic assets. The government had to intervene with a massive bailout to prevent a total financial meltdown. Subsequently, mortgage-backed bonds defaulted, leading to the takeover of mortgage companies Fannie Mae and Freddie Mac.

The situation reached a tipping point when the stock markets almost collapsed, and the U.S. government had to step in with a $700 billion bailout package. The consequences were disastrous, with millions of Americans losing their homes, consumer wealth plummeting by $11 trillion, and unemployment rates soaring.

As we examine the domino effect of this financial catastrophe, we also explore the aftermath and the measures taken to prevent a similar crisis in the future. However, the video cautions that the consequences of the actions taken to stop the 2008 crisis are still reverberating, and there may be future challenges ahead.

To stay informed and prepare for potential economic uncertainties, the video concludes with a call to be vigilant and learn from history. As the old saying goes, "In the midst of every crisis lies great opportunity," and understanding the past can help us make better financial decisions in the future.

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