On 15 September 2008 Lehman Brothers, the giant US investment bank, went bust. In 2007, banks began to panic once they realized they would have to absorb the losses, and they stopped lending to each other. During 2004-2007, there were hundreds of US billion dollars worth of mortgages given to individuals with poor credit ratings on adjustable rates. Hedge funds and other financial institutions around the world owned the mortgage-backed securities, but they were also in mutual funds, corporate assets, and pension funds. The crisis led to the Great Recession, where housing prices dropped more …

The financial crisis of 2007/2008 is considered the largest and most severe financial event since the Great Depression; it reshaped the world of finance and investment banking. Traders at Salomon Brothers and Drexel Burnham Lambert looked into expansion on the bond market and they found out that the steady stream of payments from US mortgages could be reorganized in bonds and then sold off to investors. Kimberly Amadeo has 20 years of experience in economic analysis and business strategy. Most of the firms which got money via TARP have paid it back and until summer 2011 the financial markets stabilized and grew(Wall Street Oasis).More than six years after the financial and economic crisis, the world economy is still weak, with many key regions continuing to underperform their pre-crisis development. Investment banks had leverage ratios of at least 30 times higher. Congress authorized the Treasury Secretary to take over mortgage companies Fannie Mae and Freddie Mac—which cost it $187 billion at the time. But, in September 1992, the government left the ERM and allowed the value of the pound to fall. President Barack Obama didn't use the remaining $700 billion allocated for TARP because he didn't want to bail out any more businesses. Preventing clients from withdrawing money lead to shutting down the funds, revealing a $3 billion dollar loss.The issues with short-term debt funding and mortgages weren't present only in the United States. A main risk in the future can be considered the uncertainty about productivity growth . The Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act) allowed banks to use deposits to invest in derivatives. It occurred despite the efforts of the Federal Reserve and U.S. Department of the Treasury. It took huge taxpayer-financed bail-outs to recover the industry. In October and November, the Fed and Treasury restructured the bailout, bringing the total amount to $182 billion. In 2006, housing prices started to fall for the first time in decades. These complicated financial products were so profitable they encouraged banks to lend to ever-riskier borrowers. By August 2007, the Federal Reserve responded to the subprime mortgage crisis by adding $24 billion in liquidity to the banking system.

The US government still refused to bail Lehman out or to manage any type of funding for an agreement.

Securitization, or the bundling and reselling of loans, has spread to more than just housing. Before this, investors hadn't access to the US mortgage market other than by investing in real estate or construction firms, which was not the best solution and didn't necessarily give the proper exposure to house prices (Wall Street Oasis).During the late 1990s and early 2000s, there was a boom in issuing bonds backed by mortgages, known as mortgage-backed securities (MBSs). The Commodity Futures Modernization Act exempted derivatives from regulatory oversight.The banks had chopped up the original mortgages and resold them in  For instance, these mortgages required low interest payments for the first two years (bellow 8%), then increased to 15% per year for the next 28. To prevent further destabilization, stronger regulations of these derivatives should be considered.U.S. By September 2008, Congress approved a $700 billion bank bailout, now known as the Troubled Asset Relief Program. In theory, pooling different mortgages reduced risk and therefore these assets were pretty safe, but the reality is that the most of the securitized mortgages were of poor quality.

It never ended.

This was the moment when global financial stress turned into a …

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