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2008 Recession Explained in Hindi 🕵 2008 Financial Crisis के मुख्य कारण | Live Hindi Facts - YouTube
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Friends, did you know that 13 years ago.
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It means, in the year 2008.
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The world was suffering from a financial crisis.
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Many big companies were declared bankrupt.
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Even millions of people lost their jobs.
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And this did not happen in one country only.
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Even this crisis broke the backbone of the whole world.
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Even a powerful country like America.
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Can't survive during this crisis.
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In fact, the root of the crisis was America.
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So, in today's video, we will come to know.
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That how and why the whole world suffers from that crisis?
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And what was the role of the American Finance & Assurance Company, AIG?
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Let's start the video.
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[Music]
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Friends, this financial crisis.
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Took place in the year 2007-08.
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But this crisis starts thriving in the late 90s.
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In fact, in the late 90s or early 2000.
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America suffered from major events like the Dotcom crash and terrorist attacks.
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That affected the whole economy.
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That's why America's Federal Reserve.
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Decrease the interest rate.
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To maintain price stability and economic growth in the economy.
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You will be surprised to know that Federal Reserve.
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Decrease their interest rate from 6.5% to 1.75%.
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And its result was that most people.
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For fulfilling their psychological need.
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They start taking loans for cars, electronics, etc.
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Because the interest rate was very low.
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The people who were not eligible for loans because of their low credit scores.
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They also start trying to get loans from banks.
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In a true sense.
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They can't get loans.
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But the banks became greedy.
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And start providing loans at the mortgage.
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Let me tell you, what's Mortgage?
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It's a contract between the bank and the borrower.
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According to it, if the borrower is unable to pay the loan's installments.
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Then the bank can recover their amount by selling the borrower's property.
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So, as I told you.
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American banks were providing loans to the people.
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That has not any stable income source.
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And not even a good credit score.
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These types of loans are called Sub-Prime Mortgages.
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Because the probability of defaults is high.
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Even the banks already knew about this risk.
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But they think if there will be any situation of default loans.
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Then they will collect the amount by selling out the borrower's property.
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As banks were providing loans to most people.
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Then they start facing the problem of liquidity.
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And to solve this problem.
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Banks had to take help from Collateriz Debt Obligation[CDO].
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When the banks face the problem of liquidity.
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Then by making a bundle of thousands of mortgages.
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They sell them to third parties like investors, corporators, etc. in the form of bonds.
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And in return, the banks receive cash from third parties.
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That solves the problem of liquidity.
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And the banks that sell the bonds of the mortgages.
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That is called CDO.
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Means Collateralized Debt Obligation.
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The third parties buy the CDOs.
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Because the borrower.
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Repay the loan amount to the third parties with interest.
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And they earn a good profit.
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And according to Statistics.
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The probability of default of these CDOs is totally zero.
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But the problem was that.
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That the CDO prepared by banks.
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The no. of Sub-Prime-Mortgages was too much.
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As we told you.
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The probability of defaults of Sub-Prime-Mortgages is too high.
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Then who wants to bear this risk?
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So, to decrease the risk.
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America's Multinational Finance & Assurance Company, AIG.
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They brought its special Credit Default Swap policy i.e. CDS.
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That was the main reason behind this crisis.
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For your kind information.
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At the time, AIG was one of the reputed companies of America.
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Whose business was spread in more than 80 countries.
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Then AIG starts providing insurance on risky CDOs.
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If any CDO will get the default.
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Then AIG will bear the loss.
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Friends, this is AIG's insurance policy.
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Was called CDS.
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As a reputed company, CIG was ensuring the CDOs.
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Even the majority of Sub-Prime Mortgages.
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The risk has been decreased.
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And when there is no risk.
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Then many third-party companies.
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Not even America.
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Many investors and insurance companies of other counties were also included.
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They start buying these CDOs to earn some profit.
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And selling these CDS policies.
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It will be proved beneficial for CIG.
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In the next few years.
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They earn millions of dollars from this insurance policy.
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But, here the problem was that.
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The AIG company became greedy for profit.
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And in greediness, they made a mistake.
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That made the situation of crisis worst.
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Whenever a company sells out its insurance.
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To repay the insurance.
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They must have good enough funds.
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But AIG had not much enough funds.
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According to the previous data.
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AIG was assured.
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That there will be no need the repay the insurance policy.
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And the banks become worry-free.
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And keep providing loans for many years at low-interest rates.
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That increased the housing market price in America.
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Here the conclusion is.
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From ordinary people to AIG.
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Every involved party was earning a good profit.
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But this profit was just a bubble.
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That can burst at any time.
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And at last, in the year 2006.
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It starts leaking.
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In fact, America's Federal Reserve.
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Increased the interest rate from 1.75% to 5.2%.
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Because of the increase in the interest rate.
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It affected the borrowers a lot.
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But the Sub-prime-mortgages borrowers were mainly affected.
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Because their income was not much enough.
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They can repay the interest on their loans.
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And as a result.
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They stop paying the installments.
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As soon as the no. of defaulters increases.
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The value of CDOs starts decreasing.
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Because of the Mortgage defaulters.
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The market values of the CDOs decrease.
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That banks earned by selling then the third parties.
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And then offered it in form of loans.
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In this situation
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Banks start selling out the houses of the defaulters.
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From which the supply of houses was increased in the housing market.
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And as a result.
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The prices of the houses were very high.
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Came to the bottom in a single strike.
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And when the value of houses becomes lower than the loan amounts.
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Then the prime mortgages stop paying the installments too.
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This means the people that can repay the loan amount easily.
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Because of the sudden crash of the housing market of America.
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This becomes a matter of concern for the banks and the third parties.
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But they were still satisfied.
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That their CDO are insured by CIG's CDS insurance policy.
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And they can recover the loss from the loan amount.
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But as we told you earlier.
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That AIG had not much enough funds.
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That they can repay the loan amounts of CDOs.
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But AIG paid the amount that it can.
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After that, on 15-Sep-2008.
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All funds of AIG were finished.
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On the same day.
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One of the reputed banks of America, Lehman Brothers Banks
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Declared as Bankrupt.
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Then sub-prime-mortgage crises changed into a financial crisis.
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As many investors and insurance companies had invested in that CDOs.
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We got to see the effect not only in America but even on the whole world.
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And because of the crisis, inflation took place, which is called as Great Recession.
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Because of the insufficient of funds.
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AIG was gonna be bankrupt.
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Many banks and insurance companies of the world.
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Were collaborated with AIG.
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Even the Federal Reserve knew.
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If AIG will be declared bankrupt.
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Then the financial crisis will become worst.
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So, to save AIG.
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Federal Reserve came to handle this situation.
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Federal Reserve gave a loan worth $86 Billion to AIG.
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And in return, they acquire 80% equity shares of AIG.
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Then the whole control came under American Govt.
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Firstly, they appointed ED. Liddy as a new CEO of AIG.
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And change the company's leadership.
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Even then, Federal Reserve spent a lot of money.
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In which the money paid to settle the cases filed against AIG was also included.
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To save the AIG.
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Federal Reserve had to spend a total of $122 Billion.
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After that, AIG came the right way.
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And you will be shocked.
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In 2012 recovered all the amount from AIG.
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That Federal Reserve sells out the AIG state at a profit of $22 Billion.
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13 years has been passed away.
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But it is still counted in the topmost financial crisis.
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Friends, it's enough for today.
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Do like and share the video.
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And don't forget to subscribe to our channel.
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Thanks for providing your precious time.
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