2008 MORTGAGE KRİZİ: FİNANSAL ÇÖKÜŞÜN DETAYLARI

Summary

The 2008 global financial crisis, driven by the collapse of the American housing market, was marked by banks offering risky mortgages, including to those who couldn’t afford them. These loans were bundled into mortgage-backed securities, creating a massive financial bubble. When the housing market crashed, millions were unable to repay their loans, leading to widespread bankruptcies and the collapse of major financial institutions, including Lehman Brothers. While the US struggled, countries like Turkey managed to avoid the worst effects through swift intervention. The crisis highlighted the dangers of speculative investments and poor financial oversight.

Takeaways

• 😀 The 2008 financial crisis began with the collapse of the U.S. housing market, triggered by risky mortgage lending.
• 😀 Banks offered mortgages to high-risk individuals, assuming that property values would always rise.
• 😀 Mortgage-backed securities (MBS) were created by bundling risky loans, and were falsely deemed safe investments due to high ratings from agencies like Fannie Mae and Freddie Mac.
• 😀 As home values fell, many borrowers could not pay back their loans, leading to massive defaults and a collapse in the housing market.
• 😀 Investment banks and financial institutions, which were heavily invested in MBS, started to fail, most notably Lehman Brothers in September 2008.
• 😀 The U.S. government intervened with large-scale bailouts, including the Troubled Asset Relief Program (TARP), to prevent further economic collapse.
• 😀 The crisis caused a global recession, with millions losing their homes, jobs, and savings, and the stock market losing significant value.
• 😀 In contrast, Turkey, with limited mortgage market exposure and quick governmental interventions, was less affected by the global crisis.
• 😀 The belief that 'real estate never crashes' led to widespread overconfidence in the housing market, contributing to the bubble.
• 😀 The rapid expansion of mortgage lending to low-income and poor credit borrowers was a key factor in the crisis, with even those unlikely to repay receiving loans.
• 😀 The collapse of the housing market and the financial institutions tied to it resulted in long-lasting economic consequences, with the effects still being felt globally for years.

Q & A

What caused the 2008 financial crisis according to the script?

The 2008 financial crisis was primarily caused by the collapse of the housing bubble, where banks provided risky mortgage loans to individuals who couldn't afford them. These loans were then bundled into securities and sold to investors. When homeowners couldn't pay their mortgages, property values dropped, leading to widespread financial instability.

What is a mortgage-backed security (MBS), and how did it contribute to the crisis?

A mortgage-backed security (MBS) is a financial product made by bundling together mortgage loans and selling them as securities to investors. It contributed to the crisis by spreading the risk of bad loans across the global financial system. As homeowners defaulted on their loans, these securities lost value, triggering widespread financial losses.

Why did banks continue to offer loans to people who were unlikely to pay them back?

Banks continued to offer loans to risky individuals because they believed housing prices would continue to rise, ensuring that the loans would remain secure. Additionally, they profited by selling these loans as mortgage-backed securities, shifting the risk to investors rather than holding it themselves.

What role did rating agencies play in the financial crisis?

Rating agencies gave high ratings, such as AAA, to mortgage-backed securities, which made them appear to be safe investments. This encouraged investors to buy them, not realizing that many of the underlying mortgages were risky and likely to default.

How did the global nature of the crisis affect countries like Turkey?

Although the crisis originated in the U.S., its global effects were felt everywhere. In countries like Turkey, where mortgage lending wasn't as widespread, the immediate financial impact was less severe. However, international financial turmoil and decreased trade still affected Turkey's economy.

What happened when people began to default on their mortgages?

When people started defaulting on their mortgages, banks began foreclosing on properties, flooding the market with unsold homes. This created an oversupply of real estate, causing home prices to fall. As home values decreased, even responsible homeowners found themselves owing more than their properties were worth.

How did the government attempt to address the crisis?

The U.S. government intervened by providing bailout packages to struggling financial institutions, such as the Troubled Asset Relief Program (TARP), which distributed billions in emergency funds. Despite these efforts, the crisis led to a severe recession, with major financial institutions like Lehman Brothers going bankrupt.

What was the impact of the housing bubble on the global economy?

The housing bubble's collapse triggered a global financial crisis, with severe economic impacts. Financial markets froze, credit markets dried up, and companies struggled to convert their assets into cash. The value of stocks plummeted, and unemployment rose as economies worldwide fell into recession.

Why was real estate considered a 'safe' investment during the housing boom?

Real estate was seen as a safe investment because it was a tangible asset that people believed would always retain or increase in value. This belief, combined with the widespread availability of mortgage loans, fueled a housing bubble where demand continuously pushed up property prices.

What actions did Turkey take to minimize the impact of the 2008 crisis?

Turkey acted quickly to minimize the crisis's impact by reducing taxes, increasing regulatory oversight, and easing labor market policies. These measures helped stabilize the economy and protected the country from the worst effects of the global recession.