Subprime mortgage crisis – USA
What is the 2008 subprime mortgage crisis?
Subprime lending means lending to borrowers whose credit history suggests they may struggle to repay. Through the early 2000s American lenders did this on an enormous scale, and it looked defensible for as long as house prices kept rising: if a borrower defaulted, the house could be sold for more than the loan. This free clip from When Bubbles Burst shows what subprime lending looks like and what happened when that assumption (rising prices) failes.
The documentary When Bubbles Burst sets the 2008 collapse in a longer history of booms and busts, and follows its consequences from the trading floor down to individual streets and towns. Michael Lewis, who wrote The Big Short, and the Nobel laureate Joseph Stiglitz are among those who explain how the risk was built, sold and mispriced.
How did the subprime mortgage crisis cause the 2008 financial collapse?
The loans did not stay with the banks that made them. They were bundled into securities, sliced into tranches, rated, and sold on — to pension funds, to banks on other continents, to local authorities with no means of examining what sat underneath. Each step put more distance between the decision to lend and the consequences of the loan going bad.
What finally triggered the 2008 crash?
When American house prices turned down in 2006 and 2007, the defaults came, and the securities built on those mortgages lost their value. Because the securities had been sold worldwide, the losses travelled with them. Lehman Brothers failed in September 2008, credit markets froze, and governments that had spent years being assured the market would regulate itself found themselves underwriting it.
The damage was never only financial. Foreclosed houses stood empty beside occupied ones, values gutted street by street, and the unemployment and shrinking public services that followed turned an abstract failure of risk pricing into a lived grievance — the residue that outlasted the crash itself.
