by Selaelo

Created on: January 13, 2009

The 2008 Wall Street crash was undoubtedly one of the most notable events of 2008. Going ten years back, only a few could have predicted the tsunami' that hit the biggest financial hub in the world. To think two years prior to 2008 that Americans' 401Ks would have lost over 40 percent in value and that an estimated 2, 6 million jobs would be lost in 2008 was unthinkable. Not many would have foreseen Wall Street existence without big investment bank giants like Bear Stearns, Merrill Lynch and Lehman Brothers. To think that the Detroit three', the biggest car manufacturing companies in the US would be at the brink of collapse and begging Congress for a bailout was unimaginable. The reality of 2008 was that all the unthinkable, unimaginable things did happen and Wall Street turned into somewhat like a horror movie gone bad for many, with repercussions that would impact the US economy for years to come and completely change the game plan of the operations of Wall Street.

Many are still struggling to get to the root cause of Wall Street's misery, but the cause of the crash which was driven mostly by greed from Wall Street's who's who is not so difficult to identify. As one quote puts it, "the enjoyment of power inevitably corrupts the judgment of reason, and perverts its liberty". Below are some of the contributing causes of the Wall Street collapse in no particular order:

Bad Lending Practices:

One of the buzz phrases of 2008 was subprime mortgages'. Subprime mortgages involved extending credit to borrowers that were considered to be in the high risk category. This category represented borrowers with a likely high risk of default, recorded bankruptcy or limited credit history. These borrowers seemingly became targets of commercial banks as they brought in increased revenues to these institutions. Given the credit profiles of many subprime borrowers, financial institutions should have exercised more caution when providing loans to this category of borrowers. Instead it appears as if they targeted people who were never likely to repay the loans in the long run by using hidden and complex clauses in the mortgage contracts.

Amongst others, commercial banks were able to extend loans using teaser' rates that appeared low on the onset, but would in fact increase in the long run, Adjustable Rate Mortgages (ARMs) were often offered. Banks went from requiring at least 10 percent down payment a few years ago to requiring little or no down payment. It is clear that banks were

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