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They say smart people learn from other people's mistakes.
Therefore, I will try to understand the mortgage crisis in the United States at the beginning of this century, which grew into a global crisis in its global form and into the financial collapse of millions of Americans.

So the USA is the beginning of the 2000s. The refinancing rate is within 1%. Loans are naturally cheap. How can bankers make money if everything is cheap? Come up with new options for credit products. And the idea of ​​sublending, or subprime mortgage in our case, was born. What is this? If conventional lending requires the borrower to provide certain financial support for his credit desires, then sublending allowed the issuance of loans to persons with dubious ability to repay these loans. That is, for citizens with low incomes. What was the attractiveness of such lending? In increasing the number of loans received. And if anyone encountered difficulties in paying off such subprime mortgages, then a refinancing mechanism was activated or it was possible to obtain a new loan secured by the property already obtained.
Thus, over a period of about ten years, the mortgage business increased its volume by 25%.
And everyone seems to be fine. Bankers make a profit, the population has the opportunity to purchase housing.
But the question of who would bear the risks in the event of any economic shocks was of little concern to anyone. But the risks fell, naturally, on the borrowers.
But that's not all. If subprime mortgages attracted borrowers with questionable financial standing, then the rates on these mortgages were higher than on conventional mortgages. Moreover, there were generally some floating rates. But in order to attract citizens, they created a certain grace period, where mortgage rates were low. Well, how can a citizen who dreams of owning his own home not take the bait? And they pecked. Moreover, it is so active that during the period from 2004 to 2006 the number of submortgage borrowers increased from 8 to 20%.
And everything would be fine if not for macroeconomic indicators in the States.
The first sign of impending financial problems for borrowers on subloans was an increase in the refinancing rate (now it is already 2%), and here those same floating mortgage rates played a role. They began to grow, and it became difficult for low-income Americans to pay that same submortgage. But you have to pay. Otherwise, the housing will be taken away.
But that's not all. If previously real estate grew in price confidently, then there was some confidence that in the event of a financial collapse of the borrower, he would not lose much. Then, after prices began to fall in the US real estate market, it turned out that banks began to take away unpaid real estate at the current price, lower than the price at the time of purchasing the mortgage.
As a result, ass. And the apartment was taken away and the debts remained
(Addendum)
What did this mortgage sublending bring? Homeownership in the US has increased by more than 5% over 10 years. But it is not difficult to understand that such a demand for housing has not kept prices for this housing at a level. And over the same 10 years, the price of real estate, of some typical property, increased by 124%. That is, if more than two.
At the same time, the gap between the price of real estate and a certain average income of the average household began to grow. Those. real estate prices were rising, but the incomes of average Americans were not growing at the same rate. Thus an interesting picture emerged. While in 1990 average Americans borrowed 77% of their average income, in 2007 this percentage rose to 127%. That is, the income of average Americans was no longer enough to pay off their loans. Even if they give everything away, everyone still owes one thing.
How did you get out? Refinanced existing loans at a lower rate. We received a secondary mortgage against rising property prices. In general, they occupied further and further.
But at the same time, the number of those who could no longer pay their debt began to grow. At first there were not so many of them, but then submortgage debt began to grow rapidly.
But the market is the market. And when the mortgage boom began in the United States, construction began to grow. Demand gives rise to supply and these houses have been built up so much that there is already an abundance of them. And if there is a surplus, then wait for the price to fall. Which is exactly what happened. Thus, those Americans who took out subloans for mortgages at a variable rate in the hope of a constant increase in housing prices found themselves in a very unpleasant situation. Just imagine. You have an apartment that is valued today at 5 million rubles and you can say that I have an amount of five million, only this money is still in real estate. But I’ll sell it and I’ll have these five million. And tomorrow the price of real estate collapsed by 20% and the owner of the apartment essentially lost 1 million. That is, he became poorer by this same million. So here it is. Falling real estate prices have left Americans $5 trillion poorer as of September 2008. About 11% of all US households find themselves in this situation. Somewhere around 9 million people. And a month later there were already 12 million of them. And by 2010, almost a quarter of homeowners found themselves in a situation where the value of their home was less than their mortgage payments. That is, it was no longer possible to sell housing and pay off debts. But you need to understand that a real estate mortgage is issued against the property itself. And rising mortgage debt has caused rising foreclosures on those same properties. Banks do not need this property and they put this foreclosed property on the real estate market, thereby further increasing supply and causing an even greater drop in property prices. And a vicious circle arose.
The lower the real estate prices, the more difficult it is for the mortgage owner to repay the loans, the more difficult it is to pay the mortgage, the more cases of alienation of real estate, and finally, the more cases of alienation of real estate, the more real estate appears on the real estate market, which leads to further prices for it.
And everything repeats itself again.
(Addendum)
Rising real estate prices and cheap mortgages have given rise to speculators. That is, those who needed this property not for themselves, but for the purpose of investing funds. For example, in 2006, 40% of real estate sold with a mortgage was not purchased for the borrower to live in this property. This property was purchased for rental. But the very first difficulties in the form of a decrease in real estate prices led to the fact that speculators began to leave this investment segment and again this led to a fall in real estate prices. In a situation where the attractiveness of mortgages was falling, banks sought to attract more and more clients, and to do this they softened the requirements for borrowers.
Getting a mortgage became easier and easier, even for those who had not been given a mortgage before. It got to the point that even those who weren’t working could get this mortgage. But the risks of non-repayment pushed banks to set higher interest rates on these risky loans. And in order not to scare away potential borrowers, they offered a certain grace period.
Well, for example, for 3-5 years they offered rates below 4%. But after this period, the rates doubled. In general, there were many options.
For example, the borrower could determine for himself how much to pay per month. But at the same time, if these payments are lower than the bank’s calculations, then the difference is simply added to the total loan amount. And the borrower, in fact, became even more indebted to the bank

The crisis in the US real estate market provoked a crisis in the American and global financial systems. To figure out why this happened and whether it can be avoided in the future, RIA Novosti columnist Nargiz Asadova went to Miami, one of the US cities most affected by the mortgage crisis.

Life on credit

Marina and her husband live in the very beautiful fashionable town of Boca Raton not far from Miami. Well-groomed flower beds, always trimmed lawns, palm trees, tennis courts and swimming pools.
Buying a large two-story house in this area 15 years ago cost new immigrants $265,000. Like all Americans, they took out a bank loan.

You get used to the American way of life very quickly. A house on credit, a car on credit, furniture on credit, even food can be bought on credit. But it’s good to live on credit when the economy is working normally... We only realized later that Americans buy houses differently than we do: if you like it, we take it. They calculate everything several years in advance to understand how much they will earn from this house,” says Marina.

Buying your own home was considered the most profitable investment in America. Since real estate prices rose all the time until 2006, and loans became cheaper, the house often became the breadwinner of the family. Every two years, the average American accumulated a debt of $15-20 thousand on his credit card (Christmas and birthday gifts, furniture purchases, a ring for his wife on Valentine's Day, everything was done on credit). Then the house came to the rescue, which had grown in price over these two years. Its owner went to the bank and remortgaged his house: he sold his house to himself for a lot of money, receiving a difference of $10-20-30 thousand, as a seller. Banks also earned $5-10 thousand on the deal. Thus, rising real estate prices ensured increased consumption and economic growth as a whole.

Marina and her husband had no intention of selling the house. But in 2006, when her son grew up, Marina decided to sell the house and move out.

In November 2006, the market was already standing. I put the house up for sale, people came and looked, but didn’t buy. I began to gradually reduce the price, but the house still did not sell. So a year passed. By that time, due to the crisis, my husband had lost his business. It took a lot of money to maintain the house: mowing the lawn, property taxes, mortgage, water and electricity bills. At first we struggled, sold gold, carpets, paintings, dishes, and borrowed from relatives. It got to the point of being funny: you sell a Tiffany ring for pennies to pay for the light.

Of the three cars (two Mercedes and a Lexus), which the family also purchased on credit, they were able to keep only one.

And here we have a car - these are your legs. You can’t get anywhere without a car: neither to the store, nor to the bank, nor to see friends. After all, we don’t have public transport.

For two years Marina tried unsuccessfully to sell her house. At this point, according to The New York Times, real estate prices in Florida fell by an average of 30%, and 58% of homes for sale did not find a buyer. At some point, Marina and her husband were no longer able to pay the bills. Their credit history was destroyed.

The bank sent a notice that for non-payment of interest on the loan it could take the house and put it up for auction. Then Marina decided to resort to the short sale procedure.

Usually, when you sell a house, you need to sell it in such a way as to repay the bank for the mortgage, plus pay ten thousand dollars for the transfer of ownership rights, plus some other taxes, interest, and so on. But houses are no longer sold on the market this way.

In 2007-2008, banks had already accumulated a huge number of houses that were taken away from defaulters, but it was completely impossible to sell them, since supply was many times greater than demand. Therefore, in order to return at least some funds, some banks resorted to a “short sale” procedure, allowing the owner to sell the house for less money than what he owed the bank.

Marina found a buyer willing to pay $350 thousand for her house, although her debt to the bank was already $532 thousand. The bank considered the proposal for a long time: the number of employees in the bank was reduced due to the crisis and all those remaining were overwhelmed with papers. As a result, a verdict was reached - $450 thousand and no less.

After 45 days, Marina again received a notification that her house was being put up for auction and would go under the hammer. She managed to find a buyer this time for $375 thousand. The auction was stopped. But the bank continued to insist on the price of $450 thousand.

When the bank put our house up for auction the third time, they didn't even send us a notice. We found out about this completely by accident. The ownership of the house no longer belongs to you, it belongs to the bank. They can come change the locks and have you out of the house in 20 minutes.

Such auctions are taking place today throughout the country. But banks rarely manage to sell real estate on them. Because buyers do not have the opportunity to look at the house before purchasing it at auction, and the price must be paid at least below the market price. Very often, embittered and cornered former home owners deliberately destroy their houses: pour concrete into toilets, tear out sockets and baseboards, and make holes in the walls. Some banks even offer their debtors $500 not to damage the houses they leave.

To avoid the auction, Marina declared bankruptcy.

Bankruptcy proceedings take place in court, and creditors do not have the right to make claims until a judge makes a decision. The courts are overwhelmed with these cases, so you can still live in the house for 5-8 months until you are finally evicted.

Up to 9 million home owners in the United States are now on the verge of bankruptcy.

"Greed destroyed everyone"

When you ask Marina why all this happened, she confidently answers:
- Greed ruined everyone. Banks lured people with cheap and accessible loans, sometimes without even properly checking a person’s credit history and income level. We were told that to get a loan, you only need to have a pulse. And people began to buy houses, despite the fact that their earnings did not allow this. They hoped that, thanks to rising real estate prices, they would pay interest on their mortgage for a couple of years, and then sell the house and make money. Everyone was chasing easy and quick money.

As one American economist put it, the real estate bubble that began to inflate in the mid-1990s was a “great national experiment,” “a way of harnessing the ingenuity of the capitalist system to give low-income families, minorities, and immigrants a chance to own own housing."

And the reason for this bubble is not mortgage lending. Thanks to mortgages, homeownership in the United States increased from 45% to 65% from the 1940s to the 1960s. In the 70s, when demand for mortgages began to exceed supply, the government came up with a new scheme to make home loans more affordable. Banks offered citizens a mortgage loan for 30 years with a fixed percentage of monthly payments (at 5-7%), after which thousands of such mortgages were combined into one security and resold to the investor. Thus, the investor received the right to receive income from mortgages (the interest paid by the borrowers), and the bank received “real” money and a monthly fixed income for servicing the mortgage (they undertook to ensure that interest on loans was paid on time, collected them, sent out letters, etc., for which the investor paid them, conditionally, $35 for one mortgage). The bank could again lend this “real” money to purchase housing.

In addition to banks, mortgage loans were issued by public companies (later becoming private) Fannie Mae, Ginnie Mae and Freddie Mac. They were also often investors who bought mortgage-backed securities from private banks.

However, this scheme brought limited income to all participants in these operations and only marginally stimulated the purchase of new housing by citizens. That all changed in the 1980s when Wall Street came up with a new mechanism for making money on mortgage-backed securities. This mechanism was called CMO (collateralized mortgage obligation) - bonds secured by other securities based on a mortgage. A pool of 100 thousand mortgages was cut into several tranches, which were sold separately to investors. Each tranche had a different income and a different duration. This product was more flexible and began to be in great demand in the financial market. But at the same time, assessing the riskiness of these securities in an emerging market was much more difficult. While real estate prices were rising, no one noticed. The secondary market system for mortgage-backed securities generated billions of dollars in profits for banks, brokers, builders, Wall Street, Fannie Mae and Freddie Mac, and home loans became increasingly affordable and accessible.

Following the collapse of the Nasdaq market and the terrorist attacks of September 11, 2001, the American economy entered a period of recession. To boost the economy, the George W. Bush administration cut interest rates. This has truly increased both demand and supply in the market. From 2001 to 2002, mortgage housing construction increased by 6%. In 2003, the US Federal Reserve lowered the interest rate to a record level of 1%. The fixed rate for a 30-year mortgage fell to 5.8%.

In an effort to make as much money as possible, banks and Wall Street investors began giving mortgages to people without a regular income. These mortgages were called subprime. The risk was justified, since real estate prices were rising all the time, and if the borrower could no longer pay interest on the mortgage, the house could always be sold and made good money. Since subprime loans were riskier, they were issued at a higher interest rate. This means that securities secured by such loans were more profitable. As a result, the share of subprime loans in the total number of mortgages on the market increased sharply from 7.2% in 2001 to 20.6% in 2006. For its part, the George W. Bush administration encouraged Fannie Mae and Freddie Mac to buy securities backed by subprime mortgages to further stimulate demand in the real estate market.

A huge number of investment banks appeared that specialized in issuing subprime mortgages, says Globelend Mortgage broker Alex Roshko. For example, New Century Financial issued a loan to buy a house worth $500 thousand to a McDonalds employee with a salary of $35 thousand a year.

Of course, the banks are to blame for issuing loans so irresponsibly without checking a person’s financial situation. But I think people are more to blame. They simply cheated their creditors. After all, there have been so many cases of fraud! When these craftsmen took some Uncle Vasya under the fence, took out a loan for him for several houses, paid a small fixed interest for him for the first year, so that they could then sell all these houses and make money.

Another feature of subprime mortgages was that they were issued at a low fixed interest rate for the first two years, and then the rate increased depending on the market situation.

By 2005-2006, all those people who bought houses on credit, wanting to sell them profitably in a couple of years, put their houses up for sale. The supply on the real estate market has increased sharply, and prices have gone down.

Homes have become difficult to sell, and mortgage interest rates have risen significantly since the Federal Reserve began raising interest rates in 2004. Families with low and variable incomes who took out subprime mortgages lost the opportunity to make monthly contributions to the bank. The subprime mortgage crisis led to a regular mortgage crisis. Even people who belonged to the middle class stopped paying interest on loans. Banks could not collect money from debtors to fulfill their obligations to investors. Investors suddenly discovered that all these securities were not backed by anything. But since the mortgage-backed securities market was an essential part of the US financial system, the situation in the real estate market provoked a general crisis in the American economy.

Obama's plan

The first government assistance program for the population, Hope for Homes, was adopted back in August 2008. The George W. Bush administration allocated $350 billion to banks so they could modify mortgages to match new home prices and the borrower's economic situation.

During the existence of this program, only 45 people were able to modify their debt: their loan amount was reduced and a constant interest rate was fixed on it. Billions of dollars have not yet been spent because banks are very reluctant to modify mortgages, says Alex Roshko, who heads the mortgage modification company Credit Modification America Corporation.

Barack Obama also came up with his plan to save home owners from bankruptcy.

The government has proposed $75 billion to help 4 million homeowners modify their mortgages so that monthly loan payments do not exceed 31% of household income. This program would help the five million Americans whose mortgages are held by Fannie May and Freddie Mac to refinance (remortgage) their homes based on their current market value. To restore market confidence in the largest mortgage holders Fannie May and Freddie Mac, the government is pouring $200 billion into them. A mandatory condition for participation in the Obama program is that the owner of the house live in it. This measure is intended to prevent speculation in the real estate market in the future.

In addition, banks, as well as Fannie May and Freddie Mac, will return to more conservative assessments of the creditworthiness of borrowers of funds.

In an interview last week, US President Barack Obama said the financial market would be subject to tighter regulation. “Wall Street will continue to be a large and important part of our economy, just as it was in the 70s and 80s. But it will no longer make up half of our economy,” Barack Obama said.

The measures taken by the administration are already producing their first results.

Now the real estate market in Florida has reached its bottom, says the owner of Rapid Realty, Inc. Victoria Blintser, who specializes in short sale transactions - This is well understood by investors from Dubai, Russia and other countries who come to Miami today and buy houses and apartments at these low prices.

Experts believe that from June 2009 banks will slowly begin to issue loans, which will revive the situation on the real estate market. Although the previous growth rates will no longer be there.

American mortgage crisis of 2007-2008. - collapse of the real estate market, as well as all securities related to it. In terms of its destructive scale, it is compared to the Great Depression of the thirties of the last century. The United States of America is a state on whose financial activity stability throughout the capitalist world depends. Therefore, the mortgage crisis in the United States became the first link in the collapse of the global economy. And our country did not stand aside. Russia also suffered from the global crisis. The causes of the mortgage crisis in the United States, as well as its consequences for the global economy, will be discussed in detail in this article. But first, a little about the concept from the point of view of economic theory.

Concept

The 2008 mortgage crisis in the United States was a collapse of the real estate market due to an increase in delinquencies and non-payments on high-risk mortgage loans. It was accompanied by a massive seizure of real estate in favor of banks and credit organizations. Many prominent economists call this crisis the “scam of the century.” Since the Great Depression, American securities have not depreciated at such a rapid rate, which led to a severe drop in stock exchange activity.

The mortgage crisis in the United States led to massive bankruptcy of the world's largest investment banks and insurance companies. Consequently, this was the beginning of the end of the neo-capitalist system of the world, which was formed by the twenty-first century. The consequences of this event have not been overcome to this day, and Russia cannot at all return to pre-crisis indicators of economic development. Therefore, it is fair to note the fact that the mortgage crisis in the United States of 2008 ended the era of world classical capitalism in the form in which it existed before. The whole world has realized that bankers, traders and stockbrokers are unable to self-regulate without government intervention.

Similarities with the Great Depression

If you compare the 2008 US subprime crisis and the Great Depression, you can find two similarities between the two shocks:

1. Excessive speculative activities in the stock exchange and banking sectors. In fact, it turned out that the entire financial sector served exclusively the game on the stock exchange, i.e. all market participants were interested not in the development of real sectors of the economy, but in the development of “virtual spheres” that were divorced from the real state of affairs in the economy.
2. Late reaction of government and regulatory authorities to crisis events. There are theories that for one reason or another this happened on purpose. For the sake of personal interest, financial regulators and supervisory authorities turned a blind eye to obvious signs of an unhealthy situation in the market and did not take any measures to correct the economic course.

Warren Buffett on the crisis

The world's largest investor Warren Buffett called the 2008 US mortgage crisis the biggest speculative market bubble he had ever seen. He stated this in 2011 while testifying at the Commission to Investigate the Causes of the Crisis. In response to questions from the Commission, he stated that all of America and the whole world had convinced themselves that the rise in real estate prices would continue forever and there would never be a fall. This state of euphoria and mass psychosis defies any logical explanation. The last time the world's largest bankers and financial tycoons were in such a state was during tulip mania in the Netherlands in the 17th century.

Causes of the 2008 US mortgage crisis

Why did one of the most stable, honest and open economies in the world turn into a financial pyramid? There are many theories. Bankers blame the state for this, which did not provide a regulatory policy. Government officials blame traders and brokers for artificially inflating the bubble. Perhaps both are right, but in addition to these, almost every study about the mortgage crisis also mentions the following reasons:

1. The growth of foreign investment in the American economy.
2. Changes in legislative regulation of the banking system.

Let us describe each of these points in more detail.

Growth of external investments

From 2002 to 2005, a huge flow of money poured into the American economy. It was associated with the largest hydrocarbon price boom. All oil and gas exporters received huge windfall profits, which had to be placed in a “safe haven” for preservation. In addition to oil and gas exporters, rapidly developing countries in Asia were pursuing similar goals. First of all, China.

The impact of external investment on the crisis

The growth of foreign investment, according to many well-known economists, provoked the mortgage crisis. However, how can these two phenomena be connected? They defy any logical explanation. However, prominent US economists have put forward two theories:

1. At the end of 2004, the US deficit balance was about 6% of GDP. It follows that Americans consumed more than they produced. But this is not the main thing: Americans spent more than they earned. With a huge influx of money from other countries, this balance is brought into balance. This theory was supported by Federal Reserve Chairman Ben Bernanke. He even proposed scattering dollars directly from a helicopter, since there was an excess of them in the American economy. In fact, the Americans blamed for inflating the global crisis not on their own traders, who artificially inflated the “bubble”, not on their own citizens, who, not having enough income, took out several expensive mansions for mortgages, but on third countries that placed their money in the American economy .
2. The second theory is based on the targeted attraction of foreign capital due to the high level of consumption in the United States. When exports fall, they must be satisfied by borrowing from a foreign manufacturer.

The difference between the first theory and the second lies only in the root cause. According to the first, the mortgage crisis was provoked as a result of massive overconsumption, which was caused by the attraction of foreign capital. According to the second, the attraction of investment, on the contrary, was caused by high excessive consumption. That is, in any case, third countries are to blame for placing their cash reserves in the American economy. While pensioners in Nigeria or Russia were severely limited in their income in their countries, at this time millions of Americans took out on credit from the reserves of these very countries everything they wanted: expensive cars, diamonds, cottages. At the same time, some did not even have stable jobs.

By the mid-2000s, the United States had huge available funds. Investors were not satisfied with the low interest rates on Treasury bonds. We needed a new product that would be much more profitable, but at the same time reliable. Real estate became such a commodity.

Changes in legislative regulation of the banking system

The mortgage crisis in America might not have happened if not for the second reason - changes in legislation in the banking sector. The fact is that Americans have learned the lessons of the Great Depression very well. It was caused by commercial banks, which used depositors' money to purchase securities on the stock exchange. Then they were constantly growing in price, so banks attracted all available funds for this. Naturally, when prices went down, “budget holes” formed. Banks actually lost all depositors' funds on the stock exchange. The situation is reminiscent of modern mutual funds. Investors invest money knowing that companies will invest their money in a variety of stocks. That is, investors know in advance that there is a risk of losing everything, but the profit on such financial transactions is higher. The situation with deposits is somewhat different: people open them in order to preserve their funds to the detriment of possible benefits.

After Black Thursday, the Glass-Steagall Act was passed in the fall of 1929 to prevent the arbitrariness of bankers. According to it, there was a clear division of banks into commercial and investment. Now people clearly knew that commercial banks were prohibited from trading securities in any way. In addition, compulsory insurance of deposits has been introduced in the event of bank failure. The Russian government introduced something similar after the crisis broke out in our country. But we'll talk about this a little later.

So, the mortgage crisis might not have come if they had not decided to repeal the Glass-Steagall Act. The fact is that the amount of free capital in the US market was enormous. According to various estimates, it ranged from 50 to 70 trillion dollars. Investment banks were simply unable to absorb these amounts, and many of the funds ended up in commercial banks. The latter were at a disadvantage: investment banks made a profit by investing in mortgage debt securities; since 1982, mortgage loans began to be issued by other commercial organizations that do not have the status of federal banks.

Commercial financial institutions began lobbying for the legislation, which became known as the Gramm-Leach-Bliley, or Modernization Act. Restrictions on commercial banks were lifted after the Great Depression. Now banks had the right to create commercial holding companies, which could simultaneously conduct commercial, investment, and insurance activities. That is, actually accept deposits, invest them in high-risk instruments and at the same time insure themselves. The scheme, ingenious in its simplicity, gave complete carte blanche to the banks.

This alone could inevitably lead to devastating consequences for the global economy. But that was not all: at the same time, the rights of government regulators and supervisory authorities were limited. In fact, the 2008 mortgage crisis was predetermined by these actions, since under these conditions, according to the Nash equilibrium theory, everyone will extract the maximum short-term profit without thinking about the long-term consequences.

Subprime lending

Allowing commercial banks to invest in mortgage-backed securities, coupled with restrictions from state regulatory organizations, is not so bad. The situation was aggravated by the greed of bankers. The fact is that in order for a mortgage to be approved, the borrower should have spent no more than 6-8% of his total income to cover the mortgage. We agree that the percentage is quite acceptable. It does not put much pressure on the personal budget. However, the problem for bankers was that too few borrowers, from their point of view, met such conditions. It was decided to lower the level of mandatory requirements. Such loans are called substandard, i.e. translated into normal language, non-standard or abnormal.

Types of Subprime Loans

The whole cynicism of American bankers was that several types of substandard loans were introduced:

1. With a floating interest rate. He assumed for a long time to pay only the basic interest, and not the principal amount. A similar scheme, by the way, operates in Russia today.
2. Client's choice of payment option. The concept of this loan is simply amazing in its ingenuity: the borrower himself chooses the amount of the monthly installment, and the unpaid interest can be added to the principal debt. Almost 10 percent of all mortgages were negotiated this way. Under this scheme, any unemployed person could take out a mortgage on a huge villa on the seashore for several million dollars, paying only a few hundred dollars a month. And such cases were not uncommon.
3. Possibility of repaying most of the debt at the end of the term. Naturally, at the end of the term, not everyone had the required amount, etc.

Just these three mortgage lending schemes can shock any economist. But the flywheel began to spin, and ingenuity only gained momentum. The apotheosis of the entire system was loans without assets and income. That is, virtually any unemployed homeless person, Texas immigrant, single mother with many children living on benefits and barely making ends meet could get absolutely any real estate as a mortgage. These loans were called “junk”, since the banks themselves understood that no one would pay their obligations, but their interest was not in repayment, but in issuing: for each mortgage loan, debt paper was sold, which was simply swept away on the stock exchange by “hungry” investors." The banks that issued the loans made a profit from them, and not from the return of mortgages. To understand this, you need to know the interest rate on Treasury bonds - on average 0.5-1% per year and the interest rate on loans - 3-4% per year. Consequently, from the mortgage, securities were actually created - derivatives that were quoted on the markets. No one could even imagine a huge scam involving the issuance of “junk” loans.

Speculation on derivatives - the final apotheosis of mortgage lending

The culmination of this entire system was the behavior of stock speculators. Derivatives - completely non-performing mortgage loans elevated to the rank of securities - seemed to speculators to be an endless source of profit. It turned out that derivatives turned into completely separate securities that began to live their own lives. Tulip mania of the 17th century, in the literal and figurative sense of the word, turned out to be nothing compared to the scam of 2008. In the 17th century, they at least traded flowers on the stock exchanges, which were still real objects. Derivatives are debts that no one can ever pay back, but at the same time these debts have enormous value on the exchanges. Further, as they say, more. To secure derivatives, new securities were created - CDOs, and new ones were issued against them - CDOs on CDOs.

Why was such a gigantic scam of the century possible?

There were several reasons why mortgage debts were turned into a gigantic scam:

1. Several economic entities took part in it: commercial and investment banks, stock brokers, large hedge funds, leading rating agencies, and insurance companies. Previously, each of them was engaged in his own business, and they rarely intersected for such purposes. The result was a kind of stereotype of mutual guarantee, but in practice everyone squeezed maximum profit out of it, without thinking about the consequences.
2. Mortgage papers became securities. No one had experience working with them, did not know how to assess risks, strategies, etc.
3. Blatant collusion between banks, large hedge funds and leading rating agencies. The latter, experiencing competition in the market, turned a blind eye to everything so that clients would not go to competitors. In practice, the Nash equilibrium theory worked, according to which each company, not trusting the integrity of its competitor, participated in a conspiracy.

Consequences

The consequences of the mortgage crisis in the United States were severe. The entire global financial system suffered. Over the past quarter century, humanity has not doubted the effectiveness of the capitalist system. Many countries declared default, and many of the largest insurance companies and international banks went bankrupt. Among them are the world famous Lehman Brothers and Bear Stearns. Many have announced mergers. Private savings and savings of US citizens have decreased. The crisis affected all areas of the US economy, which led to a global crisis.

About a million Americans were unable to service their loans. They were forced to leave their housing to the bank. Huge real estate funds have been released onto the market. Entire streets and neighborhoods literally “died out” after the crisis. About 100 thousand families were forced to leave their homes. Naturally, real estate prices dropped sharply. Then the construction sector of the economy suffered, it affected mechanical engineering, etc. The domino principle spread to all areas.

Consequences for our country

The mortgage crisis in Russia in 2008 was an echo of the above events. Of course, we did not have such large-scale consequences as in the United States. Our banks are interested in repaying the loan, and not in selling mortgage-backed securities. Dumping of real estate prices turned out to be disastrous for Russia, as free investors began to buy significantly cheaper housing in the United States. Mortgage loans were under threat during the crisis in Russia because the American crisis hit the financial sector of our country more than real estate.

In our country, a real mortgage crisis occurred due to the sharp devaluation of the national currency in 2014. As a result, the cost of credit for foreign currency mortgages increased several times. In fact, borrowers lost up to 15 years of mortgage payments in one year. And the state is not going to help the affected citizens, since at one time it warned them that they needed to take out a mortgage in the currency in which they received their wages.

Ended with the words that the end of this year will be “fun.” In this material I will talk about the nature of the origin of the crisis in the United States and the financial world order. Draw your own conclusions.

In order to understand that the crisis in Russia is different from the crisis in the United States, let's try to understand the essence of the 2008 crisis. in USA

The USA is 20% of the world economy, 20% of world GDP is a lot. However, Americans across the country consume even more—about 40%. Given that the dollar is a world and international currency, and the US Federal Reserve is responsible for issuing the dollar. The Fed is the Federal Reserve System, analogous to our central bank.

But, as with everything, there are nuances. Few people know that the Federal Reserve System is a private organization, with private capital, having the status of a joint stock company. The Fed consists of the United States Reserve Banks and many smaller commercial banks.

Legislatively, the Fed is independent from the United States. The Fed is absolutely free in its decisions, since the Fed’s decisions are not approved by anyone: neither the President of the United States, nor representatives of the legislative or executive branches. No one.

In contrast, the Fed can only act within the authority granted to the Fed by Congress. In theory, Congress could limit the Fed's authority to make decisions regarding US monetary policy. But this is only theoretical.

Thus, as it is not difficult to guess, the one who controls the Fed and controls Congress (this could be one person, or could be a group) holds the whole world in one place, since all transactions in the world are on world exchanges in Mostly they are carried out in dollars. This means that almost the entire world, whether it wants it or not, depends on the exchange rate of the unbacked gold masterpiece of American printing depicting the presidents of the new world.

Why does the whole world depend on the US dollar exchange rate?

Let's proceed from the fact that the dollar is a world currency. Let's not look for the reasons for this. This is a given, but let historians figure out the reasons.

And just like any currency, the dollar must be backed by something, for example gold. Until 1971, the American dollar was backed by gold reserves, but after that the dollar was untied from gold and the United States Federal Reserve was able to issue its currency in unlimited quantities.

The reason for the decoupling from gold was the crisis of overproduction in the United States of America in the 70s of the last century. In general, the amount of money should correspond to the number of offers on the market. The number of proposals is constantly growing due to scientific and technological progress, the discovery of new materials, etc. America, being a typically capitalist country, carried out monthly money issues.

And the moment came when there was nowhere to put the produced products. A dollar default was declared and this currency was untied from the gold reserve.

However, the issue of the dollar in unlimited quantities made it possible to integrate the American currency into the economies of almost all countries of the world. The economy of the United States of America was considered unshakable, and the dollar played the role of a reserve currency. To some extent, this is justified - the currency of the state with the strongest economy can indeed carry certain economic guarantees.

Thus, using the dollar as a guarantee, almost the entire world economy financially supported and supports America. This allows Americans to live beyond their means, i.e. as I wrote above - provide 20% of world GDP and consume 40%.

It would be fair if the countries holding $ , took part in the Federal Reserve's decision to issue American national currency, since such states support the US economy with their national economies. However, this does not happen. You can, of course, figure this out and find out the true reasons, but that will be a completely different story...

How Americans Live Beyond Their Means: Process and Consequences. Or why the mortgage bubble burst

With a conditionally unlimited issue, the number of dollars in the United States has increased. This means cheap money has appeared and the standard of living has increased. It’s not a bad achievement - the whole world works for one country, and this country accepts the material benefits that the world economy gives it.

After all, if you need to invest a certain amount of money into the country’s economy, then the output should be at least the same amount, and hopefully more. But, as I pointed out, dollars are no longer backed by gold. Why?

Because the world currency must be backed by the world economy, i.e. the economies of those countries that use the dollar as a reserve currency. This means that other countries are working on this green currency - they give their goods, minerals, products to America for simple paper with watermarks and a few grams of paint. Those. a security that is not backed by the assets of the state by which it was issued.

Under such conditions, the emission of the dollar can be increased to a conditional infinity, since the dollar is no longer limited by the security of its country: gold, GDP, etc. But if the volume of printed dollars exceeds the volume of world assets, it happens a crisis.

But let's return to the citadel of democracy. As the standard of living in America increased, new financial mechanisms appeared. One of these mechanisms was investing in real estate. American real estate prices grew with enviable stability. It is explainable. This happens all over the world. The faster the price rises, the more demand increases.

With the availability of cheap money in America, they began to issue “bad” loans secured by this real estate. Those. loans became cheap and they began to be given to everyone, even to those who were previously not allowed anywhere near loans.

The bankers' logic is clear. As long as the borrower pays, it’s good. If they stop paying, they take the property. And taking into account the guaranteed increase in its value, the bank will in any case be in the black - the money paid on the loan is not returned to the borrower, and the house is sold at market value, which increases very significantly from the date the mortgage is issued. Obviously, the money received from the sale of real estate goes entirely to the bank.

Thus, a bubble of unsecured mortgages formed en masse in America. Then, according to the law of the genre, the market always becomes saturated. This always happens in everything. When rapid growth occurs, sooner or later the market will become saturated and then it will turn out that the product is too overvalued.

This is what happened in the USA. When the market became saturated, the next generation of buyers stopped buying real estate. Banks, taking away the collateral, could not return even half the value of the loans issued. It was almost a crisis, there were still not great hopes, but it was all in vain.

Due to the fairly high standard of living and the widespread nature of “bad” loans, panic began in the US real estate market. Many companies involved in issuing “bad” loans began to dump this illiquid stock, as a result of which real estate prices literally collapsed. This is how the US mortgage bubble burst. Many people suffered financially, not only in America, but also far beyond its borders. Why, people, the largest world-famous banks with a rich history suffered. This is how the mortgage “madness” sadly ended in the States.

For the sake of objectivity, it should be said that the US government took anti-crisis measures, including the state going to buy out “bad debts”, and in the end, it seems, it issued 700 billion to banks for consumer lending.

At the same time, investors did not leave the country, i.e. they believed in anti-crisis measures and believed that the US economy would recover. And so it happened. Already in 2010 The United States economy began to grow slightly.

The mortgage crisis in America affected almost all countries, including Russia, because... The strongest economy in the world, the economy of the United States of America, is the producer of the world reserve currency. Russia is very integrated into the world economy and this kind of shock has a negative impact on the Russian economy.

Thus, as long as there will be a dominant currency in the world $ , everything that happens in the United States will somehow affect the rest of the world.

Whether this is good or bad, let everyone decide for themselves.

My next material will be about Russia. In order for readers to understand where the “legs grow” from, it is necessary to understand the financial world order, which I very briefly outlined in this material.

Since events in the financial markets change very quickly, I will try and fit in more often than once a week.

A review article about the economic crisis in Russia can be found by following the link below.

Hello, dear readers! Ruslan Miftakhov is pleased to welcome you, and today we will look at one of the most global economic events of recent times - the mortgage crisis of 2008 in the United States, the consequences of which still affect the economic situation in the world.

Have you ever wondered what the cause of the global crisis that occurred back in 2008 was? Well, everyone knows the crisis and the crisis, everyone has heard, but what exactly and why it happened, few people thought about it or simply did not understand.

Therefore, I decided to consider the causes and consequences of this crisis in order to understand whether Russia faces the same scenario, in the current conditions of rising dollar prices, because almost everyone has heard about the problems of repaying foreign currency loans in our country.

The main reason for the emergence of problems in the field of mortgage lending in the United States is the decline in real estate prices and an irresponsible approach to mortgage lending.

It all started with the fact that over the five years before this event, the value of real estate was steadily increasing, and mortgage lending became very profitable, which contributed to the development "non-standard" loans.

“Non-standard” are loans that are issued according to simplified requirements for borrowers, thereby carrying a great risk for lenders. Moreover, they were issued mainly not by banks, but by various mortgage companies, which, not having their own capital, took it through short-term bank loans to finance their activities.

If initially such companies simply lowered their rates in a competitive environment, then they began to lower their demands even further. And by 2006, the share of such low-quality loans became equal to 20% of all mortgages.

This led to the fact that the clients of American mortgage companies were mainly unscrupulous, low-income speculators, and when they stopped paying off their debts, the companies, in order to get out of this situation, had to sell mortgages to investors not only from the United States, but throughout the world.

When in 2007 the value of real estate in the United States fell sharply, and naturally became lower than the purchased mortgages, all investors suffered enormous losses, which affected the economies of many countries.

What are its consequences and impact on the global economy?

All participants in substandard loans, and the largest systemically important US banks, became bankrupt. Despite the measures taken by the American government (mortgage companies were nationalized, loan rates decreased by 0.5%), overdue debt amounted to $98 billion. This also provoked a crisis of world banks.

Borrowers who, due to an 8-12% rise in real estate prices, became insolvent, had to leave their houses to the banks. And there were about 100 thousand such families.

In addition to serious difficulties within the United States, the crisis had an impact on the economy around the world. Almost all stock exchanges collapsed. The S&P 500 index fell 30% (a list of America's largest companies with the highest capitalization), the MSCI World index of developed countries fell 32.3%, and the emerging markets index fell 40.5%.

Based on this data, stock markets around the world have suffered even more than the United States. And the main reason for this is that the whole world is tied to the American dollar, which is the equivalent of trade. And if problems have overtaken America, they will spread further.

Watch a short video that briefly explains the entire financial fraud scheme. We all know very well what this all led to.

To briefly describe the state of the US economy, it can be compared to a black hole that needs more and more outside investors to cover its debts. Since 2005, Americans' savings have been negative. This country consumes about 35% of world goods, but produces only 20%, and the external federal debt is increasing.

Now employment in the United States, due to the transfer of jobs to China and developing countries, is rapidly declining. Also, the country’s economy is greatly influenced by the huge expenditures on various military actions, which contribute to the outflow of funds from the budget.

After the crisis in 2008, banks changed their attitude towards mortgages. Interest rates have been raised, borrowers are scrutinized much more strictly, and virtually all no-down payment programs have been cancelled.

Who made money from the crisis?

In 2007, Queens John Paulson, a native of New York, brought his investment fund, called Paulson & Co, $3.7 billion, ahead of D. Soros, who received $2.9 billion, and D. Simonas, $2.8 billion. .

Paulson previously partnered with Leon Levy and J. Nash, both Wall Street legends. In 1994, he opened his own investment company, which was not doing so well - in 2002 it had only $500 million.

And only in 2007, the volume of investments grew to $28 billion, and information about most investors is hidden. Investors' contribution to Paulson's success is enormous, but one cannot take away his intelligence and willingness to go against the grain.

Isn't Russia facing such a crisis?

Domestic experts consider the American scenario to be unlikely for our country. And there are several reasons for this:

1. Mortgage lending is a relatively new product for us (it began to develop less than 10 years ago).
2. Our banks provide loans with their own assets, and more carefully assess the risks associated with non-repayment of funds.
3. Our housing continues to grow, and there are very few companies that can issue non-standard loans.
4. The Central Bank of Russia monitors the development of mortgage lending and makes them unprofitable for banks.

Now the share of foreign currency loans on mortgages is 3.5%, and our authorities are busy with this problem. Therefore, we have hopes of solving this problem as well.

Thus, our economy, as well as the world economy in general, has been and is being strongly influenced by America, where the mortgage crisis affected the whole world.

But he taught many financial institutions to approach lending, investing, and economic factors in general responsibly. And given the situation in Russia, we can rest assured that such a crisis will not happen here.

By the way, there is a film on this topic, if you haven’t seen it, it’s called “The Big Short”.

This brings us to the end of today's topic, which I hope you found interesting! We tried very hard, and we will count on your positive ratings and comments!

Have a great day everyone and see you soon!

Best regards, Ruslan Miftakhov.