No doubt that the set of adverse situations in the financial systems led to the deep downturn in the national economies. This paper investigates into the origination of the credit crisis, the series of events leading the crisis to the one of the worst world recessions, till now. In such a course, observation of some similar cases will be helpful to gather information on the influential factors behind this global recession. Certain matters would be included in the research area to investigate the responsibility of each of them in the origination of the disastrous recession in recent times. These factors would include US housing market, Securitization, Asset backed securities, ABS CDOs, Rating Agencies and existing regulations.
In the month of July, 2008, a story was published on the “Economist’ edition. A professor was giving a lecture to the public on the solar system. An elderly lady interpreted the fact that that the whole world is moving on the back of a giant turtle. The professor was wondering “But what is supporting the turtle?” A prompt reply from the lady “You can’t trick me; they are turtles all the way down” (Economist, 2008).
Apparently, the US financial systems seemed to be as logical as “turtles all the way down” (Economist, 2008). Deeper down the line the same old story of the faulty system of housing finance. The politicians just started counting on two of the country’s mortgage giants, Fannie Mae and Freddie Mac to reinforce the housing market by absorbing more mortgages (Economist, 2008). At the starting of 2008, these two gigantic pillars of US financial systems got collapsed; the deemed rescuers themselves were now in need of salvage. As a consequence, US housing market went deeper down the mud and the economy trembled. The trembling situation expanded to the other economies on the globe and the world experienced one of the worst recessions, ever.
Looking back to the housing industry, starting from the year 2000 till ...
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