Financial Crisis

Posted by Ali Reda | Posted in | Posted on 1/04/2013

a deregulated economy which the government doesn't interfere and leaves the economy to the market, banks used credit system (buy now and the bank pays as a loan for you and you pay later to the bank with benefits) then Investment banks bundled mortgages (house credit loans)  with other loans and debts into collateralized debt obligations (CDOs), which they sold to investors. and promised credit default swap (CDS) is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan failure ,(CDS) was akin to an insurance policy. Speculators could buy CDSs to bet against (take a short position in) CDOs they did not own. But people had no money to pay back the loans and due to CDS , the banks had to repay the investors , but the banks had no money (they were given as credit to people) so the economy collapsed (the money cycle stopped) and the government had to buy all the debts for the cycle to return to work

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