Understanding the 2008 Financial Crisis

What was the primary reason investment banks started selling mortgage-backed securities?

• To support the construction industry

• To provide affordable housing

• To diversify their investment portfolio

• To make more profit from selling bundled mortgages

Why did banks believe that grouping risky loans together would be safe?

• They thought the government would bail them out

• They believed not all loans would default at once

• They had insurance on all loans

• They expected housing prices to keep rising

What made mortgage-backed securities attractive to investors despite the risks?

• Tax incentives

• High interest rates

• Low interest rates

• Government guarantees

How did rating agencies contribute to the financial crisis?

• By refusing to rate mortgage-backed securities

• By rating risky securities as safe investments

• By providing accurate risk assessments

• By investing heavily in these securities themselves

What was one of the major consequences of the collapse of the mortgage-backed securities market?

• A rise in stock market values

• Increased trust in financial institutions

• A boom in the housing market

• A global economic recession