Question

33. This question refers to the videos we watched about the “Crisis of Credit.” 1. Before 2008, why did investment bankers think that buying home mortgages was a good, safe investment? 2. What made “subprime” mortgages riskier than “prime” mortgages?

Answer 1

Before 2008, the investment bankers thought that buying home mortgages was a good and safe investment because it was a stable investment, which is less impacted by inflation.

The “subprime” mortgages were more riskier than “prime” mortgages because the lender were more likely to default the mortgage.

What was the event "Crisis of Credit" about?

The Crisis of Credit, also known as the financial crisis of 2008 or Global Financial Crisis referred to a severe worldwide economic crisis that occurred in the early 21st century. It was considered the most serious financial crisis since the Great Depression (1929).

In 2008, the financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When bubble burst, all banks were left holding trillions of dollars as worthless investments in subprime mortgages and the Great Recession that followed cost many their jobs, their savings and their homes.

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