1000words on Investigate and discuss the
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Lastly, the crisis was spread throughout the world by the securitization of mortgage debt. High-grade mortgages have been securitized for decades by Fannie Mae and Freddie Mac, but during the 2000s mortgage-backed securities became in vogue. These complex instruments were an attempt to diversify away the debt. Financial institutions and national governments around the world latched onto these securities, misled by claims of AAA debt ratings. When the high rate of default caused the value of these mortgage-backed securities to collapse, it created substantial liabilities at financial institutions worldwide, leading to a global banking crisis
Compounding the situation, when US financial institutions began to fail, all of the assets that they backed became of questionable value (or valueless). This was the primary impact on Australias banking system. It was estimated that the Big Four were exposed to $412 million at Lehman Brothers, the US-based investment bank that collapsed (Johnston, 2008). Only Westpac, with around $10 million in exposure to Lehman, was spared a heavy hit. These banks had exposure, however, to other US financial institutions, including AIG and Bear Stearns......
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