Chapter 6: Why financial crisis of 2008-9 happen? Part 1

In 1996 in usa dotcom boom happen in which price of us tech companies increased but in 2002 it blast in which the company price declined so , everyone in us were selling there stock and in 2002 interest were 1% so ,investors don't want to keep there money in bank . So investors started investing in real estate because the value of real estate was increasing and us government were also encouraging there citizens to buy house and bank interest rate was also low that creates chain effect because of demand investors started focusing on us real estate business . Because of demand investment bank also want to earn profit from real estate . [ investment bank are medium of stock market from which company sell the share and took money , they also help in mergers and acquisitions of company, selling derivatives and trading of derivatives . examples - morgan stanly] so , investment bank started buying loan from bank snd combine them in CDO [collatenlised debt obligations] investment bank gives CDO to credit agencies for rating it [ they gave AAA ratings to most of them ] then investment bank sells this CDO to investors . Loan risks were increasing because of all this [ bank passed loan risk to investment bank and they passed it to CDO investors ] . Credit agencies give most of CDO AAA ratings which mean it's safe so , CDO investors were buying this in bulk which increases the demand so , investment bank were asking more loan to bank but bank were already giving loan to people we can pay it back but now bank were giving loan to people which maybe repay the loan [ they are called sub prime loan ] bank wants to earn commission from investment bank so , they don't verify the people to whom they were giving loan . To be continued in next part which will come tomorrow [ note - this will have more than 2 part which will come each day ] review it