6 Why financial crisis of 2008-9

In 1996 in usa dotcom boom happen in which price of us tech companies increased but in 2002 it blast in which the company price declined so , everyone in us were selling there stock and in 2002 interest were 1% so ,investors don't want to keep there money in bank . So investors started investing in real estate because the value of real estate was increasing and us government were also encouraging there citizens to buy house and bank interest rate was also low that creates chain effect because of demand investors started focusing on us real estate business . Because of demand investment bank also want to earn profit from real estate . [ investment bank are medium of stock market from which company sell the share and took money , they also help in mergers and acquisitions of company, selling derivatives and trading of derivatives . examples - morgan stanly] so , investment bank started buying loan from bank snd combine them in CDO [collatenlised debt obligations] investment bank gives CDO to credit agencies for rating it [ they gave AAA ratings to most of them ] then investment bank sells this CDO to investors . Loan risks were increasing because of all this [ bank passed loan risk to investment bank and they passed it to CDO investors ] . Credit agencies give most of CDO AAA ratings which mean it's safe so , CDO investors were buying this in bulk which increases the demand so , investment bank were asking more loan to bank but bank were already giving loan to people we can pay it back but now bank were giving loan to people which maybe repay the loan [ they are called sub prime loan ] bank wants to earn commission from investment bank so , they don't verify the people to whom they were giving loan . Bank were selling sub prime loan to investment bank and they were combining it and making CDO and send it to credit agencies which it AAA rating because of AAA ratings sub prime CDO demand were increasing so , banks were selling it to investment bank . Countrywide financial corp and amerequest mortage company have given 177 billions dollars sub prime loan . From 2000-2007 investment bank were earnings billions of profit . Banks and investment bank were earning profit and credit agencies were also earning profit. Us biggest credit agencies moody were earning 4 times profit between 2000-2007 . This happened till early 2008 , AIG stated giving insurance to CDO , AIG was thinking CDO are AAA rated so , there failure chance was low so , they started giving insurance and name it CDS [ credit default swap ] so , CDO investors were buying CDS for protection , strange think was that someone who don't have CDO can also buy CDS [ I don't why ] investors have to pay premium to AIG every quarter . AIG was giving bonus to employ who were selling CDO but AIG don't think if CDO failed how much lose they have to face . Most of sub prime loan given by bank were adjustable which mean interest rate of loan will increase for some starting year it was low but after some year it changes fast . Most of sub prime borrowers don't know about adjusting rate and banks also don't inform them . Sub prime borrowers were paying interest for first few years [ when interest was low ] but after 2007 interest rates were high [ because of adjustable interest] after this sub prime borrowers were not paying interest because it was hard to them to pay so they started defaulting loan so , bank started auctioning the house . Because of this all chain event price of house was decreasing because of mass selling of house[ when the people of usa have taken loan for house it was low than actual price ] so , other people who were paying premium also started defaulting loan . Because of this default CDO value becomes 0 so , the people was have buy CDO were in loss [ who knows the reality of CDO have buy large amounts of CDS ] so , people who have buy CDS earn large amounts of profit . Because of failure of CDO investment bank have large amount of CDO left USA top 5 investment bank came to knees because of this . And because of this credit crunch occurred which mean business were having no capital to run company because of all this chain reaction so , us economy stops growing .

Facts about financial crisis of 2008-9 1- 50% of borrowers who have taken loan from bank didn't pay a single dollar from their pockets.

2- AIG which have launched CDS have to face 99 billions dollar losses then us government bailouts the company by paying 85 billions dollars [ to decrease the effect of crisis]

3-Because of failure of CDO investment bank have large amount of CDO left USA top 5 investment bank came to knees because of this .

4- in this crisis banks and other financial institutions have to face 450 billions dollars losses

5- USA unemployment increased by 10% because of this crisis.