There seems to be no money at all.” With that message, the French bank BNP Paribas on August 9, 2007 suspended the business of its three investment funds in the US mortgage market.
Prior to this time, three major factors led to the financial crisis of 2008;
1. The Clinton administration began the dismantling of the Glass-Steagall act of 1933.
2. Same administration pushed for the lowering of lending standards to enable more people buy homes via mortgages.
3. The investment banks created Collateralised Debt Obligations (CDOs) which enabled investment banks to sell mortgages as worldwide investments.
At that time, cheap housing in the United States, since the beginning of the millennium; an attractive bait for banks, pension funds, insurance companies and private equity holders around the world — was nominally worth more than $ 1,200 billion, due to the promised fantastic profits (up to 25 per cent of the money invested).
It took the French BNP about five days to stop transactions of the said funds. This was enough to spread panic across financial markets, from Wall Street to Frankfurt and Hong Kong. The question was; who invested (publicly and secretly)? Who had been gambling on the American mortgage market? How long and with what money? Counting on the fact that by temporarily accepting risky loans — once paid, they would make huge profits.
The strongest US, British and European banks which were strategically important insurance companies and pension funds were suddenly asked to explain their solvency and also answer the question of how they were too on high-risk jobs that they did not explain to their clients.
Briefly defending the myth that every American should have a house, the local investment circles created a complex system of granting housing loans to almost all interested clients, without inquiries about their ability to pay back such loans. Upon approval of the loans, US lenders scheduled them into complex debt-lending arrangements with promises of huge profits.
In spite of numerous signs, since 2004, US housing market was overestimated. It became clear in the summer of 2007 that mortgage loans were easily dealt out and Americans could not repay these loans anytime soon.
Faced with possible losses, financiers stopped lending money to the states from autumn 2007. Economies and millions of people around the world were suddenly deprived the opportunity to cover part of their expenses through credit. To save the system, most banks stopped panic attacks by reviving dead industries. Countries started mass printing money. The stock exchanges functioned without much control such that foreign banks mixed foreign exchange rate or gold values, while credit rating agencies shared high ratings for businesses.
On this reform, America introduced the famous Dodd Frank law in 2012 — the most radical since the Great Depression — in order to protect all financial traders. Some parts of the world started a search for the causers of the crisis.
“The world is endangered by the greed of the West. The system based on its domination since the Second World War has collapsed in this crisis like a tower of cards: the dogma about the inviolability of free market dictatorships and undesirable state intervention in the world of finance has been ruined” said the President of Brazil, Ignacio Lula da Silva.
Leading countries in economic development: China, Russia, India by the end of the first decade, often mentioned the crash on Wall Street in 2007-2008 as a key factor in their new-founding goal of reforming the global financial and social order by creating BRIX and the Asian Bank for Investment in Infrastructure.
Meanwhile, the failure of the Western leaders in recognising the crisis in the fall of the American bank Lehman Brothers in the autumn of 2008 gained the status of the worst global financial crisis since World War II soon replaced the awareness of the necessary association (in particular the promotion of the G-20 Forum) in order to curb the recession.
In 2009, the IMF estimated that investors were in the first stage of the 2007-2008 crisis in year-on-year, over $ 4,000 billion of direct and indirect investments related to the US mortgage market. This crisis cost the US economy a total of $22,000 billion as estimated by Washington.
Today, most players in the 2007-2008 crisis (those who avoided bankruptcy or nationalisation) underwent radical reforms, while others have fundamentally changed. The collapse of the Mortgage market changed US power relations.
The IMF is cautious in assessing if the world — without a new recipe for general economic growth, unemployment — has found a way to avoid another global financial crisis. The new administration in Washington is considering abolishing Dodd’s Frank Act against risky financial operations/has charged a total of $150 billion in penalties to foreign banks for blocking Wall Street.