Mechanisms of global financial crisis (2007–2009)

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The speculative boom in the mortgage market, the systematic underestimation of market risks, and the global imbalance of investment and savings have become the general economic causes of the global financial crisis. The main problem was the excessive amount of unreliable mortgage loans (total $ 14 trillion) with high risk, which were massively issued to people who did not have work, income or other assets. Such loans were issued not only by the false belief that prices at the mortgage market can only grow, but also for the purpose of attracting a large number of new clients for mortgage companies. However, in addition to these explicit reasons, there were implicit financial mechanisms that caused the crisis. First of all, this is the huge market of CDO (collateralized debt obligations) created through the securitization of mortgage assets. For the issue of CDO the heterogeneous mortgages and other assets, between the market prices of which was a weak correlation, combined in a pool. Theoretically, in such diversified asset package, the probability of simultaneous default decreases. However, in practice, in the CDO emission pool, the lowest-rated (BBB) mortgage bonds were targeted, which was then artificially raised to AAA by rating agencies. Hence, the risks were concealed, and the CDO with the highest rating could be sold to institutional investors in Japan, Germany and other countries. For CDO insurance, the largest banks and financial companies issued CDS (credit default swaps), which capitalization market ($ 80 trillion) exceeded global GDP in 2008. The risky policy of issuing CDSs by their largest issuers (in particular, the financial company AIG Financial Products) led banks and financial companies to take on the risks of huge sums that they could not pay. In addition, the push to the beginning of the crisis became « the big short game», started by the largest investment bank Goldman Sachs, John Paulson & Co hedge fund and some other market players.