Subprime Mortgage Crisis Explained
The subprime mortgage crisis is explained by the use of credit default swaps to guarantee the risk of subprime mortgages. In addition, banks and hedge funds sold these mortgages to the secondary market, where they were repackaged and resold. Since no one felt they would be accountable for the risk, it created a bubble in the housing market. All was fine until housing prices started to decline, and borrowers defaulted on these unsustainable mortgages. Those who had invested in the massive mortgage market, starting with Bear Stearns and ending with many financial institutions throughout the world, found they weren't protected from the risk.