Here’s Who Really Caused the Great Recession


11 years ago, the world saw the most serious
economic collapse since the Great Depression. The waves of this collapse went around the
world, touching every continent and every country. Then, when all was said and done, the finger
pointing began to see who was to blame and who should pay the price for this crash. In this video, we’ll see how the insurance
company AIG largely avoided taking the blame, despite ultimately being the single largest
cause of the Great Recession. This video is brought to you by Audible. Get a 30-day free trial by registering with
the link in the description. To understand AIG’s role, we first have
to grasp what happened in 2008 and the events that led up to the crash. During the late 1990s, America was getting
a huge flow of foreign funds from Russia and many Asian countries which were beset by financial
crisis at the time. American banks naturally did not want that
money just lying around earning no interest, so they made it easier to get mortgages as
a way to lend out this cash. Americans who would normally not get home
loans found it very easy to get the mortgages they needed to buy houses. After all, this was the “American Dream”. Banks made it easier and easier to get a loan,
creating adjustable rate mortgages with low early payments and accepting people with low
credit scores. These less-than-ideal loans were called subprime
mortgages. Now, what banks usually do as a way to make
more money, is to bundle thousands of mortgages together as a single bond, known as a CDO,
and then to sell these bonds to other parties, like pension funds, insurance companies or
other banks. However, since subprime mortgages were riskier,
many of the funds that would normally buy these CDOs could not afford the risk to buy
them … unless the banks employed a little bit of financial trickery. You see, if you bought an insurance policy
protecting you from the CDO failing, then you could buy it much more freely and this
is where AIG comes in. AIG was at the time the largest insurance
company in America with branches and offices in over 80 different countries. They’ve been in business since 1919 and
have been declared America’s largest underwriter for insurance across many industries. In 2008 they had hundreds of billions of dollars
in assets and were in fact well on their way to becoming the first company in the world
to achieve a trillion dollar market cap. Here’s what this huge company did to transform
very risky CDOs into much safer products. In a little office in London, AIG was performing
financial alchemy. They were selling insurance on CDOs that had
a very poor credit rating, effectively swapping it with the rating of AIG itself, a very solid
and highly-rated company. This insurance policy was known as a Credit
Default Swap and it literally swapped the bad credit rating of the CDO with the great
credit rating of the big insurance company. You were still buying these horribly rated
CDO bonds from the banks, but since AIG was willing to pay you off if that bond failed,
well then what was the risk? AIG loved the credit default swap and so did
the fund companies. In the 5 short years after introducing it,
that little office in London, known as the Financial Products division, saw its revenues
quadruple to over $3 billion dollars per year. Every time AIG sold another credit default
swap, they were making free money in the premiums being paid to them. It was almost too easy. But AIG got greedy. Normally, if an insurance company insures
you for a million dollars, they should have a million in assets around to pay it, just
in case. Instead of having the capital, however, AIG
were relying on the statistical probability that the housing market would not fall. This strategy worked until it didn’t, and
in 2007, the housing market crashed. All those subprime mortgages increased their
adjustable rates and thus millions of Americans that should never have had mortgages saw their
monthly repayments increase. When those mortgages weren’t getting paid,
the bonds filled with these mortgages, the CDOs, also started collapsing. But the banks and funds weren’t concerned
yet, and rightfully so because they had an insurance policy, these credit default swaps. The banks were relying on AIG to honor their
end of the bargain, but when the time came, AIG realized it had insured far too many CDOs
to possibly pay up. As soon as AIG’s coffers ran dry, all the
banks it had insured also started going down. The speed of the collapse was incredible:
AIG ran out of money on September 15th, 2008 and later that same day, one of America’s
oldest and largest banks, Lehman Brothers, was forced into bankruptcy. That day served as a wake up call for the
government. Up until then, the Federal Reserve was taking
a hardline stance against government buyouts, hoping to teach Wall Street a lesson. AIG, however, was no small insurance agency
and the Fed realized that if AIG failed, the entire world was in trouble. Virtually all banks and insurance companies
had stock and policies held with AIG. Everything was too connected. Thus, AIG was deemed “too big to fail”
and on September 16, 2008, just one day after the US Treasury said there would be no more
government bailouts, the government bailed them out. In return for a massive cash loan to pay out
these credit default swaps, the Federal Reserve took an 80% equity stake in AIG, allowing
the government to change the leadership of the company, which they did. They installed a new CEO, hired at a salary
of just $1, who would be in charge of undoing the complex financial maze AIG had created. AIG then used $165 million of the bailout
money to pay executive bonuses, not for good performance, but for incentives to help undo
years of bad financial practice. In total, AIG received a bailout of $182 billion
dollars and in March 2009, they reported the single greatest loss in corporate history. As a result of that announcement, the Dow
closed at the lowest level it had been since 1997, and at just 50% of it’s record high
in Oct 2007. AIG also settled a lawsuit brought against
them, paying off nearly a billion dollars to investors who were clearly misled. As a result, AIG reduced its staff to less
than half its 2008 numbers just to remain profitable. Interestingly enough, once the dust had settled
and AIG’s business had stabilized, the government’s stake in the business actually became a profitable
trade. In 2012, the Federal Reserve sold their shares
of AIG to make a $22 billion profit, a truly unprecedented result considering the size
of the bailout. It took another 5 years before the government
considered AIG safe enough to remove it from the “too big to fail” list and ever since,
it’s been back to the good old boring days of insurance. AIG never caught the same backlash as banks
like Lehman Brothers, who were arguably victims in all of this, since they relied on fraudulent
insurance. Thus, it is worth remembering just how close
AIG got to crashing the entire global economy and if you wanna read more about the inside
story of AIG’s collapse from the people in the meeting rooms, you should listen to
Fatal Risk on Audible. Using the personal notes of men like AIG’s
former CEO, you’ll learn the full story from the perspective of its key players and
you can listen to it for free right now if you register for a free trial of Audible by
visiting audible.com/businesscasual or by texting “businesscasual” to 500500. Not only will you get a free audiobook to
go along with your free trial, you’ll also receive two Audible Originals that you can’t
hear anywhere else. Now, I hope you enjoyed this video and I’d
like to thank you for watching it. If you wanna see teasers for my future videos
you should follow me on Instagram. You can expect my next video in two weeks,
and until then: stay smart.

About the author

Comments

  1. I have a house of cards I’ve mortgaged with no credit score and renting out to Welfare recipients who I’ve extended credit to buy BMW’s and big screen TV’s etc. You can borrow money to buy shares in my company on margin that is you only need to pay up front 10% of their paper value. What could go wrong? I bet you’d love to use your assets as collateral to borrow money to buy that Spanish villa with the big swimming pool in Palm Springs. These are the good times.

  2. Muslim-Obama bailed out Wall Street, simple as that!!!, he should have let them go bankrupt!!, instead of the American people paying for it, [having a recession on the American people]!!!!!!

  3. Congress put pressure on Banks to make these stupid loans and then Congress made the recession worse by throwing money at it.

  4. Paying the same Bozos that caused the problem , I shoulda stayed in school . That being said Goldman Sachs made out REAL good didn t they ! !

  5. if i make a profit, i keep it.
    if i make a poor decision, i get a bailout.
    win-win for me, lose for the taxpayer if the latter occurs.
    what a sweet deal, and this mantra remains valid to this day.
    with all our Love, the BaNksTErS

  6. The DNC popped the bubble for political gain.. the recession was caused by BBC the media on the very day Obummer took the nomination .

  7. The federal reserve is own by private individuals not the government. Look it up its a fact…the government never bailed anyone out

  8. How can you discuss the cause of the crash without mentioning Bill Clinton, Chris Dodd, and Barney Frank? They changed the mortgage approval criteria at Fanny Mae and Freddie Mac to make it easier for people to get mortgages. Bill Clinton wanted to increase the number of people that owned homes. This was a big reason for the boom years of the Clinton economy, and started the housing bubble.

  9. Essentially the Banks artificially caused houses to falsely inflate in value and for new home buyers like me and my wife had no choice to buy a house at an unusual price. We lost 25% the price we paid when we struggled to sell it 5 months ago so the Banks robbed us for our money and got away with it legal thievery protected by the Government……. very very sad

  10. What about the “Mark To Market Rule” which was changed in the summer of 2008 making banks mark non liquid assets like houses at 0.00? That rule was reversed in February or March of 2009 and within days the Stock Market started climbing again.

  11. Millennials are the blame for hanging no to their money, money is for mortgage, food, rent and Taxes the government has to stop it

  12. To be honest there was a lot of people that predicted this was going to happen in 2005-2006 but as people do no one listened mind you those who predicted it would’ve made an absolute Fortune from stocks and to be honest it really wasn’t that much a complicated prediction to make an insurance company must be able to cover at-least 70% of all the policies anything above this is considered profit now if an insurance company starts taking more than 30% as profits you begin to have issues things like car insurance are fairly safe bets because it’s extremely unlikely that everyone will crash their car at once now securities insurance or insurance on loans is dangerous territory and extra caution should be taken which quite clearly AIG did not take

  13. What kept people from being able to pay off those loans is the problem. Go ahead and blame the banks, or realize the left gutted our country from manufacturing jobs, shut down thousands of manufacturing jobs which were providing jobs to millions of people, the taxes were increased too much so people with money left our country, etc. That's another reason why socialism doesn't work, keep blaming the banks. It's not the banks problem for people not being able to pay off the loans, if the economy was going well most of those people would have been able to pay off the loans.

  14. Don't invest large amount of your money in these industries nor in virtual wallets .these things will make common people suffer and the greedy ones enjoying their lives .

  15. Well im glad it had nothing to do with Obama saying that he was going to change the ways loans were giving out for housing so everyone could get a house (the BAD loans) or the the fact Obama said that $4 a gallon in gasoline would not hurt us(are you kidding me ? Big Oil got the message and raise the price of gasoline) or that that US Mint brought out state quarters that took Millions of dollars out of circulation due to so many people collecting them , now who's smarter than a 5th Grader !

  16. I'm not disputing the facts on your video, but you didn't mention the repeal of the Glass-Stegal Act in 1999 by rapist in charge Bill Clinton. That one thing is what set up the entire failure.

  17. This is pure misdirection and blame-shifting. Yes, all these things happened, but what caused all the subprime lending in the first place BY DESIGN was Leftist, Big Govco regulations that forced banks to make shitty loans. And a certain ex-POTUS was right in the middle of it, organizing his community to sue the banks that didn't make enough shitty loans.

  18. So you are saying that foreign countries laundered money through our banks,and pushed that money into real estate and other funds that were pushed by brokers seeking to maximize their income, brokers that really didn't care if their clients could pay back the loans since they made their money up front. Too many openings for fraud and corruption.

  19. Barney Franks program to give blacks home loans…… .. he forced the banks to give home loans to the homies.. how did that work out? Homies don't pay back loans.

  20. Barney Frank forced the banks to loan to the homies. Then when the wheels came off Barney blamed the banks. That's it in a nutshell.

  21. I think I will start a business where if things go well I will make tons of money and if things go bad the govt will bail me out.
    I can't lose!!! Of course such an arrangement will not encourage me to take HUGE RISKS to maximize the money I could win knowing I have a govt safety net underneath me <wink, wink>…..

  22. Hey YouTube why are you censoring my comment, do not want people to know the truth? As my comment was never posted to this video, but I can see it.

  23. The government made the law that compelled banks to give mortgage loans to people who had no means of paying it back.

  24. Congress had been debating getting rid of the mortgage interest deduction for years prior. They lowered the interest rate effectively eliminating the deduction. Government was complicit. Bailouts are the coverup.

  25. I'll save you 8:48 with one word, Banks. Banks gave loans knowing they were bad investments but not if you have dividends. Banks make money and the people get jacked

  26. Bull, they were definitely a large part of the total figure but over barrowing would not do this. Bill Clinton's NAFTA and Ross Perots predictions are spot on the money. What the layman doesn't no is the open border job market took lots of planning by huge companies before there final proposals and preparations to leave. Many of these companies had to leave to stay competitive. Being from Detroit with the majority of my large family employed by Great lakes and Mcloud steel, one could see the rolling effect it had on small businesses and unemployment and food stamp lines. Clothing stores and lumber companies closing shop before the crash. No money, no loan payments.

  27. Hmm! Did I miss the part where Fannie and Freddie started this nonsense under the leadership of Barney Frank. It wasn’t fair, he thought that “under privileged” people were not be able to own a home. Then flooded the markets with risky paper that many could not afford. But heck, it’s guaranteed by the federal government so let’s make some lemonade with these lemons. In the early 2000’s, if one could fog a mirror, they could a get a loan. A loan for anything. Now, I don’t imply that Wall Street is without sin here, but the government’s attempt to get into the real estate business was a colossal fail and the world paid the price. And when all of these well deserved under privileged people defaulted…they didn’t just pack up and leave. They destroyed the property costing countless billions more to restore for resale. If “no good deed goes unpunished” doesn’t apply here, it applies no where.

  28. Insurance is one of the biggest financial scams out there, you pay your premiums and all you get for your money is a piece of paper saying you are covered. As long as you pay and don't use it everything is fine, the minute you use it you are penalized as a bad risk. Talk about a racket, who else has it both ways like Insurance companies!!!!

  29. Forgot to say that the US government at the time pressured banks to give mortgages to low income and low credit score people ."to make the system fair for everyone"

  30. It’s heartening to know that all these crooks will not avoid their ultimate prosecution. You may not believe but that doesn’t change the outcome.

  31. Q: Who really caused the Great Recession?(Hint: The banks didn't force the people to mortgage houses)
    A: The people's stupidity

  32. I was just asking the other day where did the money go. I mean people gave "real" money into the stock market, when the bottom fell out and the electronic exchanges of selling happened or not, where did the money go? Look if you buy a piece of paper that's worth 1.00 then the paper isn't worth 1.00 anymore, a dollar was still paid. And when to .coms were going through the roof, people were putting money into it but no one on the other side was actually getting any money because they weren't selling any thing, nothing tangible was being offered just a though, not a single product or service, it was all on paper, the value of a say .com was raised but they weren't making any money and that's why they failed. This is the explanation we were given. So again I ask, where did the actual money go?

  33. so who goes to jail ??? Why aren't the snakes (who were responsible for causing the recession which made millions of people lose their basic livelihood) out on the street with a cardboard sign and selling pencils from a cup? Why didn't they get a criminal record which prevents them from EVER holding a banking or monetary job ever again?

  34. Moze se ici u avanture kada porezni obveznici pokrivaju gubitke!?Pa zar drzavne tvrtke ne trebaju graditi stambena naselja za radnike!?

  35. Actually if you want the truth and not a bunch of this bullsht just watch "The Big Short" movie. Much more truthful and definitely more entertaining.

  36. They just use it as a scam to shuffle money into you the pockets of the managers. As long as managers were getting bonus money off of bad debt papers then they were going to sell them

  37. The statistical probability is whatever the company wants the statistician to come up with. This is true of all insurance companies. A true insurance company is required by law to keep far more in the bank and assets then this required. So nobody was watching. No checks and balances means greed will take over

  38. Soo the same people who caused the crash at AIG, were then paid huge sums of money to investigate……themselves!!!!!!!!! Then AIG spent more millions in sponsorship of crappy soccer clubs in UK….what a scam.

  39. Who suffered the most? The American people. Who was blamed? The American people. Who paid the price? The American people…

  40. Thanks for watching! Enjoyed? Don't forget to like & share! By the way! Have you watched our latest video?
    How Andrew Carnegie Became The Richest Man In The World!
    Watch now! 👉http://bit.ly/carnegiebc

  41. The Federal Reserve is a private company and nothing to do with the US government, except for the fact they print US currency and steal from the American taxpayer. This is the Rothschilds banking cartel.

  42. Permit me to issue and control the money of a nation, and I care not who makes its laws!
    ~ Mayer Amschel Rothschild (1744–1812)

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