These products were sold to investors worldwide, spreading risk across global markets. Securitization and the Spread of Risk Financial institutions bundled subprime mortgages into complex securities known as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs).
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The Housing Bubble and Its Burst Fueled by cheap credit and speculative demand, U. These loans carry higher interest rates than prime mortgages to compensate lenders for the increased risk of default.
This event reshaped the global economy, leading to the Great Recession and leaving a lasting impact on financial regulation and consumer protection. While subsequent regulations have strengthened the system, emerging risks in areas such as shadow banking, fintech, and global debt levels remind us that vigilance remains essential to maintaining financial stability.
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Major firms like Lehman Brothers filed for bankruptcy, while others, such as Bear Stearns and AIG, required government bailouts. Credit rating agencies assigned high ratings to many of these securities, underestimating the underlying risk.
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