AIG Real Recession Culprit
In the late 1990s, banks made it easier to buy a home loan, creating adjustable mortgages with low early payments and accepting applicants with low credit scores. These less than ideal loans became known as subprime mortgages. Banks then turned around and bundled hundreds of these loans to form bonds (CDOs) and sold them to other parties. Enter insurance giant AIG, which began insuring risky CDOs with poor credit ratings, but effectively swapping it with its own rating. AIG made billions with the maneuver, until banks increased the rates on the subprime mortgages and the housing market crashed in 2007, leading to the Great Recession. The dramatic turnaround laid the real blame of the collapse squarely on AIG. Business Casual further explains the debacle.
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