Key 2007 Financial Market Shake Dates
THE CREDIT CRISIS : 10 YEARS AND COUNTING RICK TOBIN
The Credit Crisis was related more to imploding derivatives debt associated with complex financial instruments such as Credit Default Swaps and interest rate options derivatives where investors were betting on the future directions of things like interest rates . A “ derivative ” derives value from the underlying debt that it pegged or tied to the derivative ; it is a hybrid combination of a financial instrument and an insurance contract .
In many ways , derivatives were and continue to be glorified bets in dollar amounts exceeding an estimated $ 1,500 to $ 3,000 trillion worldwide , depending upon which financial statistics that one believes . As a comparison , the total estimated dollar amount of all U . S . residential and commercial mortgage loans are somewhere in the $ 10 trillion dollar range today . As such , the value of derivatives contracts worldwide exceeds the value of all U . S . mortgage debt by a factor of 150 to 1 (. 667 %) up to as high as 300 to 1 (. 333 %).
Key 2007 Financial Market Shake Dates
The markets began to rumble like minor earthquakes in early 2007 that later became more forceful prior to knocking down the financial dominoes one by one . The cascading flow of money out of the financial system first started as a trickle before the significant leaks broke the figurative money dam up until lenders began turning off the spigots to the access to capital for borrowers .
Even though delinquent and foreclosed real estate mortgages only accounted for about onethird to twothirds of 1 % of all defaulted financial debt at the start of the Credit Crisis , it was the HSBC ( the world ’ s thirdlargest bank at the time ) announcement about their collapsing mortgage pool of billions of dollars of mortgage loans that was possibly the first figurative domino to begin the Credit Crisis implosion back in February 2007 . HSBC reported baddebt losses from their mortgage pools that were at least 20 % higher than market analysts had forecast at the time in February 2007 . The baddebt charge offs for HSBS were over $ 10.5 billion dollars which shocked the banking industry analysts and investors worldwide .