Quiz: The 2008 Financial Crisis

What is a mortgage?

• A type of credit card

• A loan to buy a home

• A type of insurance

• A form of government bond

What are mortgage-backed securities (MBS)?

• A type of loan for students

• Homes owned by the government

• Bundles of home loans sold to investors

• Mortgages backed by gold

What was a key reason MBS became risky?

• They were insured by the government

• They included risky subprime mortgages

• They could only be bought by homeowners

• They were taxed at a high rate

What does “subprime mortgage” mean?

• A loan given to people with bad credit

• A loan for a car

• A type of government aid

• A loan that is paid off early

What happened when people defaulted on their mortgages?

• Interest rates went up

• Investors made more money

• Home prices dropped and more defaults followed

• The government bought their houses

What are credit default swaps?

• Free credit cards

• Insurance-like deals on mortgage investments

• Government loans for students

• Fees for refinancing mortgages

What is moral hazard?

• Taking more risks because someone else will cover the cost

• Lending money with low interest

• Avoiding financial responsibility

• Selling homes without permission

What did the TARP program do?

• Closed banks that failed

• Bailed out banks and stabilized the system

• Created new financial laws

• Reduced all home loan interest rates

What was one goal of Dodd-Frank?

• Prevent risky lending practices

• Lower all mortgage rates

• Increase credit card rewards

• End all federal taxes

According to the report, what was the biggest cause of the crisis?

• Stock market crashes

• Technology failure

• Human failure and lack of regulation

• Natural disasters