Fraud in financial services

This is only a part of what is known at this point.

Repeal of Glass-Steagall Act of 1933 by the Clinton Administration in 1999 allowed the US banks to create and trade various securities based on debt obligations.

In the last decade, outsourcing of American jobs, importation of cheap labor, and destruction of the US industry resulted in the situation of the US government running a huge trade deficit and printing money to pay for this deficit. Foreign governments, banks, other institutions accumulating which were accumulating US dollars were looking for the US investments. Considering that the US treasury paid very low interest rates, there was a huge demand for quality debt obligation.

Consequently, banks, financial services companies (often own by banks themselves), and credit rating agencies developed a fraudulent scheme in which:

- Banks sold mortgages to unqualified home buyers and home owners, knowing that these people would default in the future

- Financial services companies pooled these mortgages into so-called http://en.wikipedia.org/wiki/Mortgage-backed_securities target=blank>"mortgage-based securities" and collaterized debt obligations.

- Credit rating agencies assigned the highest investment ratings to these instruments while fully aware of these instruments' high risk.

This scheme allowed financial services companies to sell high risk credit junk at high volumes.

All this created an upward pressure on home prices and created the last real estate bubble.

However, pyramid scheme ends sooner or later. Once the new buyers stopped entering the housing market and interest rates on sub-prime adjustable mortgages started to increase, homeowners started to default on their mortgages. This had lead to housing market collapse in some areas, failure of some investment banks, and, more importantly, to credit market freeze, which almost lead to the collapse of the world economy.