10. Global economic crisis One of the most discussed topics in finance recently is the global economic crisis that is said to have begun in the 2000s. Your professor instructed your team to write an article for the college newspaper. Your friend has written the first draft of the article, which captures the essence of the global economic crisis. She has left some important points for you to review and has asked you to check the summary. Which statements belong in the summary? The Global Economic Crisis Mortgage originators issued mortgages to home buyers and sold these mortgages to securitizing firms. These firms bundled these mortgages into pools and created securities that were backed by the mortgage payments. A portion of these pools were called tranches. Groups of tranches were further combined and then divided again into more complex securities called collateralized debt obligations (CDOs). These securities were redivided and recombined to create even more complex securities called CDOs-squared Summary Check all that apply. Securitizing companies, such as Merrill Lynch, Bear Stearns, and Lehman Brothers, were making money on the volumes of mortgage pools that they were securitizing. This encouraged originators to issue more mortgages and increase the total value of the mortgages From a borrower's perspective, adjustable-rate mortgages (ARMs) are considered riskier than traditional fixed-rate mortgages, because mortgage payments might increase without an increase in income. Mortgages were accessible for borrowers who did not meet income and minimum down payment requirements. Moreover, the Fed kept interest rates really low to prevent a recession. This led to a decrease in the demand for homes and a further decline in housing prices The total amount of risk embedded in the securities created by bundling mortgages did not change. The securitization and resecuritization processes led to a distribution of total risk among different types of collateralized securities Factors that caused the financial crisis Analysts and theorists have debated over the different factors that caused the subprime mortgage meltdown. According to your understanding of the crisis, which of the following factors, led to the financial crisis? Check all that apply. Mortgage brekers did not verify borrowers carefully The Fed kept interest rates low to encourage home ownership Regulations were relaxed, leading to non-qualifying mortgages getting approved for loans. Home buyers opted for traditional fixed rate mortgages to avoid any payment delinquency Continue Continue without sa