The 2008 global crisis: bank fraud and billions in profits
If you still believe in the transparency and freedom of the global bank system, we have bad news. Banks receive billions of dollars in profits at the expense of ordinary people, sometimes even fraudulently.
A real example is the 2008 US mortgage crisis, which became the largest since the Great Depression and subsequently affected almost all economies in the world.
In the early 2000s, the US construction market grew rapidly: due to low and even adjustable interest rates, people could get a mortgage and finally invest in their own homes. It’s a win-win situation at the first glance: banks get their commission, and people get housing. The reality, unfortunately, was not so bright. To get as much profit as possible, banks began issuing mortgages to anyone who asked. Neither income certificates, nor stable jobs were required, nothing at all. It got to the point of absurdity: mortgages were received by the unemployed, homeless, and even children.
Greed and fraud: mortgage derivatives
Profits from mortgages were not enough: banks created and released to the market mortgage-backed securities. They were seen as profitable investments, since the housing sector has always been considered the most stable. However, the investors were not aware that these securities consist of very risky mortgages not backed by anything.
Rating agencies were also implicated in the fraud, which, due to their close ties with banks, assigned the highest reliability ratings.
Millions of unemployed and billions in losses
The party could not last forever. By 2007, people stopped paying mortgages. Banks were left with houses they hastily sold. As a result, property prices have collapsed.
September 15, 2008, is considered a black day in the US economy, when one of the leading US investment banks, Lehman Brothers, filed for bankruptcy. Its debts amounted to $613 billion.
Investors in mortgage-backed securities suffered billions of dollars in losses. For example, one of the largest banks JP Morgan was tried for fraud with shares of Bear Stearns Bank bought in 2008. Bear Stearns misled investors about the quality of mortgage-backed securities during the housing bubble.
The crisis has hit the welfare of hundreds of millions of people. Citizens of the USA, EU, and many Asian countries could not pay their debts on time due to massive layoffs and lack of new jobs. In 2009, the unemployment problem affected almost 200 million people.
Should we trust the banking system?
The question is rhetorical. Of course, not all banks resort to fraud for profit. But the fact remains: a centralized system is built on trust. There is always a risk that someone will take advantage of their high position for profit.
That is why Bitcoin, the first cryptocurrency, was created in 2009 right after the mortgage crisis. It was a response to the injustice that flourished in the banking system. Digital assets are built on the principle of decentralization: no intermediaries and maximum freedom.