Recession that tumbled the entire world

AMERICAN RECESSION

So basically it all began with people taking mortgages in order to buy houses at some down payment.  The investors used to invest their saving in federal reserve which was considered to be the safest , but when the interest rate by Alan Greenspan was altered to 1% the investors stop investing in it as there were no  good returns 

On the other hand 1% interest rate encouraged borrowing from world wide .Most families took mortgages from bank in order to build houses ,Hence there was abundance of cheap credit . Massive trade takes place on the of basis leverage . The investment bankers on the other hand making the best use of leverage during the ongoing situation grow substantially .They try to create a link between the investors and the home owners . 

Households buy generally buy mortgage from a lender who then sells the mortgage to the investment bank for a very good fee

Seeing that the house rates were growing rapidly their seem to be a no way to decline the offer .

 With the help of leverage they plan to make large amount profits . They buy millions of mortgages which is then converted into a collateralised debt obligation which is further sold to investors .The investor banker have made a good plan to link the household and the investors .Basically they  assumed that they will be good (no chance of risk)even if the household default on their payment as the  house prices were rising and they can sell it off at a good rate ,Moreover the collateralised debt obligation is categorised in 3 trays (levels) the upper being the safest and the lowest being for the risky investors 

The investor at that moment thought of it as the best mode of investment and the investment banks made large profits over the period .The investors now required more CDO’S from the investment bank . The investment bank further asks the lender to but they don’t have any mortgage taker . To fulfil the profitable opportunity they started subprime mortgages ie. The mortgage made to the borrower having low credit rating because if they defaulted they would acquire the house and sell it very easily ( as the property rates were rising ).

The defaults started rising and so the number of houses with the investment banks they have acquired . Then came the situation in the country where the supply became greater than the demand and the prices began to fall and investment banks started suffering losses .

Moreover the responsible home owners who were making payment of their earlier purchase of houses started to think that even if they default they will be easily to buy another house as the property rate have stumbled at that time .The investors who have purchased the CDO’S are not interested to sell it until  the price movement get corrected 

Hence for investment banks their were no source f income and  the whole economy over the period falls in recession 

(It ended very bad with the collapse  of LEHMAN BROTHERS which at that time was considered one of the best investment banks)