The 2008 Financial Crisis: Crash Course Economics #12

A ______ is when a debtor is unable to meet the legal obligation of debt repayment.

In the 2000's investor started investing in _________ because the rate of return was higher than that of government bonds.

• stocks

• mortgages

• certificates of deposit (CDs)

• futures

_______________ is the process of taking an illiquid asset and transforming it into a security.

What are sub-prime mortgages?

• loans made below the prime home price

• loans made on below standard houses

• mortgages made below the average interest rate

• mortgages made to people with low incomes and poor credit

Predatory lending practices actually made the mortgage backed investment riskier.

• true

• false

What was the housing bubble?

• A rapid increase in housing prices driven by irrational decisions.

• A steady increase in housing prices driven by predatory lending.

• A rapid decrease in housing prices driven by low interest rates.

• A rapid rise in interest rates driven by demand.

What happened when the home owners couldn't afford their payments anymore and defaulted on their loans? Check all that apply.

• more houses went on the market, which drove prices down

• big financial institutions stopped buying sub prime mortgages

• the housing demand went up, driving up housing prices

• investors started losing money on their mortgage investments

• big lenders started declaring bankruptcy

Did AIG provide the money to properly insure the securities?

• Yes

• No

What does TARP stand for?

• Territories Answer to Reinstitution Progress

• Terrible Associations Radicalize Proficiency

• Two Assets Recognize Progress

• Troubled Assets Relief Program

Which law was enacted to reduce predatory lending? (2 words)