Issuing of loans to non-credit worthy-subprime individuals by aggressive mortgage lenders Many securities like credit default swaps were created and attached to these mortgages High buying led to a higher valuation of real estate

Issuing of loans to non-credit worthy-subprime individuals by aggressive mortgage lenders
Many securities like credit default swaps were created and attached to these mortgages
High buying led to a higher valuation of real estate. After a point, they became so high irrelevant to other factors like income and buying started to decline
Simultaneously the mortgage default started increasing and collapsed
A domino effect started taking place with investment banks and others involved in securities affected.
Banks who invested in such securities collapsed
Some individuals, who recognized the impending collapse, made fortunes out of it. E.g Michael Burry, founders of Cornwall Capital, etc.,

Unfair practices by
Credit rating agencies – gave higher ratings to poor. High-risk securities to maintain their business relationship with investment banks and prevent them from moving to competitors
Brokers – inadequate scrutiny by brokers and underwriters
Subprime lenders
Policymakers
Easy credit to high-risk individual
Companies trying to pass the blame on to others and instead of controlling the risks
Negligence to look at long term
Misrepresentation of facts by institutions and individuals
Instead of acknowledging the truth, the involved plunged in denial mode
Poor forecasting
Enticing poor consumers into a trap by showing them only the benefits and not showing them the risk. Increased debt burden for consumers
Financial innovation – created new complex instruments to pass on the risks.
Collateralized debt obligations- CDOs – essentially the loans purchased by numerous high-risk individuals are pooled into a single security (thinking that risks are shared) and made as an investment opportunity. rating agencies were used to rate them

Failure in course correction by federal regulators
The lenders failed to think
About the possibility and probability of the collapse.
Even if the probability is low, suppose it had happened, what would be the size of damage
Focus on share prices and negligence of value creation
Speculative economics
Interests

Interest in company and self rather than stakeholders
Institutions

Credit rating agencies- standard and moody’s
Brokers
Underwriting agents and institutions
Loan lenders
Investment banks – New Century Financial, ABN Amro, Morgan and Stanley, Bear and Sterns, Citi bank. BNP Paribas
Real estate institutions
Government policy makers
Buyers
Public