The Global Financial Crisis: How Did We Get Into This Mess?

PART I: The Back Story
PART II: Securitization, CDOs and Sub-Prime Mortgages
PART III: Money Market Actions Fail to Stem the Tide
PART IV: Corporate Casualties Pile Up

The financial crisis that has swept the world and is affecting us all in one way or another first reared its head in mid-2007. The seeds of the crisis can be traced back to the dot.com bubble of the late 1990s, which caused the sharp stock market correction in 2000 and the subsequent recession in 2001.

The Federal Reserve reacted by cutting interest rates substantially.

This in turn made it cheaper to borrow money to buy real estate, and as the economy recovered house prices rose across the United States. Many homeowners refinanced existing mortgages at lower rates.

In the frenzy of cheap loans and rising prices, lenders lowered their requirements and started issuing mortgages to people whose incomes and/or credit records would previously never have qualified them to buy the properties in question.

Large numbers of borrowers took on home loans that they could barely afford, many taking advantage of mortgages that featured low repayments for the first few years, followed by a big increase.

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