| The primary cause of the current recession and | | | | Worst of all, the federal government actually |
| economic crisis was the drastic increase in | | | | encouraged the purchasing of these securities |
| subprime adjustable-rate mortgages and the | | | | without knowing the underlying risk involved. The |
| CDO's (collateralized debt obligations) that they | | | | web of risk was spread worldwide, not just in the |
| comprised. The number of subprime mortgages | | | | United States. Major institutions like AIG, Citi, |
| issued in 2005 and 2006 increased dramatically | | | | Chase, Bear Sterns, etc. held many of these |
| while prime mortgages decreased. | | | | CDO's, and many aspects of society all around |
| Mortgages are securitized by the federal | | | | the world were dependent upon these huge |
| government; they are pooled together and sold in | | | | corporations, thus basically when they failed, |
| sections, which spreads the risk and uncertainty | | | | society failed. |
| to those who take part (nearly everyone). It | | | | On the surface level, borrowing and lending also |
| created a huge web of risk in that the securities | | | | was at an all time high in the past few years. |
| are dependent on the underlying mortgage values. | | | | Many people cite the Federal Reserve, Inflation, |
| The value of the CDO's and their securities | | | | and the money supply as causes (as if that |
| decreased and were miscalculated to begin with. | | | | means something), or random phrases they here |
| Rating agencies could not accurately determine | | | | on the news, thinking they know what they're |
| the value them. This is why so many people lost | | | | talking about, but these things are not really |
| nearly all of their retirement which was largely | | | | related to the whole situation at all. |
| based on these securities. | | | | |