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What Caused The Financial Crisis of 2008? financial crisis 2008

by Dragonspear



In todays video we will discuss the Credit Crunch, and the role played by credit derivatives and securitization.

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Credit Derivatives and the Financial Crisis of 2007 -2008

What Caused the Financial Crisis of 2008?
Easy availability of credit in the United States, fueled by low interest rates and reduced credit monitoring by financial institutions, led to a housing boom which facilitated debt-financed consumer spending. The existence of credit derivatives and securitization allowed financial institutions to make larger volumes of riskier loans than had been made in the past and consumers assumed an unprecedented debt load.
Between 1998 and 2006, the price of the typical American house increased by 124%. Between 1981 and 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This rose to 4.6 times median household income in 2006.

When home prices declined in the latter half of 2007 and the secondary mortgage market collapsed, a global financial crisis was triggered. Credit derivatives were blamed by many for bringing about this crisis, or for intensifying it.

Credit ratings agencies are widely believed to have failed the markets in their calculations of credit risks on credit derivative products in the lead up to the financial crisis of 2007-2008. They relied on models that were given to them by the credit derivative issuers. The fact that they are paid by the security issuer, rather than the buyer, brought their impartiality into question. There is a structural conflict in this market whereby investors are the beneficiaries or ultimate end users of credit ratings calculations, yet the party paying for the ratings themselves is the issuer.

On the back of the financial crisis, politicians and regulators globally are pressuring originators to resume the former practice of maintaining at least some of the credit risks on the instruments they originate on their own balance sheets. Politicians face a trade-off of hoping to incentivize high consumer spending and home-ownership rates to boost GDP and achieve social goals associated with home-ownership while seeking to avoid the negative outcomes from widespread over-indebtedness from lax credit standards and real estate bubbles. Stronger credit controls stabilize an economy but reduce home values, decrease homeownership levels, and reduce an economy’s GDP growth. .

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What Caused The Financial Crisis of 2008?

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35 comments

jmitterii2 07/09/2021 - 10:22 Chiều

Finance should be boring.
When it gets exciting, history proves we have problems.

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Armchairwoman Mao 07/09/2021 - 10:22 Chiều

I want an unsecured loan !

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jesse diaz 07/09/2021 - 10:22 Chiều

Back then I foresaw the insustainability of the interest only mortgage payments. It was completely stupid. But I didn't know how to profit from it.

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Chris Brown 07/09/2021 - 10:22 Chiều

Some are supportively mentioning how Patrick upgraded his videos. I like his recent videos but also love the older ones. They’re direct, informative, and educational. Don’t compromise the quality. It’s why I subscribed.

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Pete OneOfThePetes 07/09/2021 - 10:22 Chiều

I really like your videos, Patrick. Thanks man. Appreciate that facts, and the style you deliver them 🙂

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Steve H 07/09/2021 - 10:22 Chiều

Sounds like US student loans. The school's interests are not aligned with the student's ability to pay it back.

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Applasamy Subbha Rao 07/09/2021 - 10:22 Chiều

Greed & Currency…..

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Tamin Mohammad 07/09/2021 - 10:22 Chiều

keep the education coming Patrick. Thank you.

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I Consume DMT 07/09/2021 - 10:22 Chiều

13:05 cough Peter schiff cough

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Chris 07/09/2021 - 10:22 Chiều

Yet again, not a single minute wasted. Such purely good information….just excellent

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Antonomase Apophasis 07/09/2021 - 10:22 Chiều

The day when BNP Paribas couldn’t value a CDO because the value was going down, values had only gone up previously.
That is the moment I would like to see discussed.

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Thomas & Maci 07/09/2021 - 10:22 Chiều

There is a lot of talk about models – there is no models in the video at all! Thanks for upgrading from this VGA camera bro 🙂 Thanks for some high quality content Patrick.

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ieon 07/09/2021 - 10:22 Chiều

thanks for covering this topic. if you look from previous crisis. it looks like its starting over again the question is where is gonna start? federal reserve keep saying the inflation is not here yet and they plenty of ammo to help the economy. but if you look around. commodities is going up and lots shortage is going on. for example
oil price hike, lumber shortage, consumer price hike, even starbucks is having a shortage with heir syrups and cups. which is never happened before. feds will be force to increase the interest no matter how long they wanna keep the interest low. media don’t really show to the people what’s really happening behind the scene. hope this inflation is not as bad what other may think of. 🙏🏼

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Alexandre Algranti 07/09/2021 - 10:22 Chiều

Your channel is mandatory to watch !

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Luis Quintino 07/09/2021 - 10:22 Chiều

going through the older videos and they are very informative, educational and to the point. Very undervalued Please keep the quality

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Garrett Fields 07/09/2021 - 10:22 Chiều

Smooth Patrick.

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Andrés Mlinar 07/09/2021 - 10:22 Chiều

Excellent content, thanks!

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Stephen Marler 07/09/2021 - 10:22 Chiều

Honestly, this looks like a hostage video. I'm glad you've taken pandemic time to upgrade audio and set decorations.

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Victor Espino 07/09/2021 - 10:22 Chiều

Should make a video on why derivatives are even actually necessary… what value do they bring to investors and to society.

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Victor Espino 07/09/2021 - 10:22 Chiều

Years later, back to the same shit lol

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Fares Hajjar 07/09/2021 - 10:22 Chiều

The deceptive and divisive race rhetoric of Leftists is what actually caused it. Banks were forced to make loans to people with terrible credit.

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EikTuKaTu 07/09/2021 - 10:22 Chiều

One of most underrated financial channel on youtube. Very nice and clear explanation of a somewhat complex topic. Thank you!

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Christoph Mahler 07/09/2021 - 10:22 Chiều

When looking at the timeline of the appearance of credit derivatives it appears as if these were created solely in order to satisfy investor demand for 'objects of financial speculation' (instead of e.g. a popular, political movement to widen access to capital or home ownership) – which begs the question if derivatives have a function beyond speculation, but towards e.g. raising capital for expensive investments (the equivalent to steelyards, shipyards, workshops and entire railroads in the 19th century which required ever larger banks and asset accumulation).

If investors seek nothing but higher yields through greater risks with their capital, potentially involving enforcement of 'free trade' across national borders ('open door policy') via military intervention (e.g. the Opium Wars) than investment banking is per definition a destabilizing factor in modern economies – and the question would be what justification private ownership of capital could have from a political perspective (foremost the supply of capital for investment into the production of goods and the offering of services – that is consumer demand ).

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Christoph Mahler 07/09/2021 - 10:22 Chiều

Is there a structural similarity between the relaxation of lending criteria prior to 2008 in the US and the 'Japanese asset price bubble' from the 1986 to 1991 ?

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gar cope 07/09/2021 - 10:22 Chiều

criminally under viewed.. lets keep it as our secret.. ah no.. anyone who asks me for help in the financial market i will always send them here.. this info Patrick gives is absolute GOLD.. most people i know think they know it all .. and good luck to them ,.. the only thing i am certain of in life is that I know nothing….Thanks Patrick!!

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Best Friend Hank 07/09/2021 - 10:22 Chiều

Welcome to 2020-21

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Fox 07/09/2021 - 10:22 Chiều

Wtf not even 2k views

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MarvelExtra 07/09/2021 - 10:22 Chiều

I was the 100th like on this video. 🙂

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SFB 07/09/2021 - 10:22 Chiều

I predicted that no bankers would go to jail!

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Peter Bradshaw 07/09/2021 - 10:22 Chiều

People like Michael Burry and John Paulson and Paulson's friend Green used CDS to good effect .

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Alal Alavaladu 07/09/2021 - 10:22 Chiều

It seems nobody knew or cared to know how much of the borrowers will default. The whole shebang could've worked out otherwise.

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Dimitri Andreou 07/09/2021 - 10:22 Chiều

I don't see an answer to the main question though: what was so special about the loans that they became NPLs en masse? That some derivative products on top of the loans were impacted, is only a secondary effect.

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Mark Hathaway 07/09/2021 - 10:22 Chiều

Are the public at large served by the constant creation of new financial products which certainly make their sellers profit?
Where have they moved too far from the real economy and serve the financiers and not the real economy?

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James Y 07/09/2021 - 10:22 Chiều

Your channel is criminally under-viewed Patrick. I look at your channel almost daily hoping for a new video. Keep up the incredible work!

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Patrick Simmons 07/09/2021 - 10:22 Chiều

Great content. Can you please do a video about how you can follow these products in chart or data form..

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