Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 1000 words

Subprime Mortgage Crisis - Essay Example When home prices started falling and those loans started to go bad, Bear’s creditors got scared and pulled their money out of the investment bank. The U.S.  subprime mortgage crisis  was an unfolding of events and that were significant aspects of a financial recession and subsequent crisis that was manifested significantly in 2008. It was characterized by an upsurge in  subprime  mortgage and foreclosures, and the resultant drop of securities was backed up by the mortgages. These  mortgage-backed securities  (MBS) and collateralized debt obligations  (CDO) usually offered attractive return rates due to the high rates of interest on the mortgages but the lower quality of credit ultimately caused huge defaults. In as much as the crisis elements became more clear in 2007, most major financial institutions collapsed in September of 2008, with distinguishable disruption in the credit flow to businesses and consumers during the onset of the most severe worldwide recession. This subprime mortgage crisis was accompanied by fraud issues concerning relating to the Bear Stearns Company. Bear Stearns, had been on Wall Street feature from 1923 and had survived the 1929 crash without laying off any employees. But in 2008, its customers and creditors were worried that the billions of dollars of mortgage-backed securities on its books weren’t worth what the company claimed. Therefore, they stopped doing business with Bear Stearns. Within a few days; Bear was digested into JPMorgan Chase & Co. via the help of the Federal Reserve for an approximate value of a new Madison Avenue office tower. Bear Stearns failure was attributed largely to gorging on subprime mortgages in the previous years in what was termed as a continually-rising housing market.