In 2008 the finacial sector goes through the worse crisis, with immense declining in the financial

markets, led by the speculative nature of the lenders and borrowers both, specially in home mortgages.
In the fire of this debt market almost all the financial markets were burnt pervasively. Lets have a look
into it.

Background:

As in 1999, the Fannie Mae observed the need to made home loans more availble to those with lower
credit ratings, irrespective to the credit ratings and smaller amount to spend on initial payments as
compared to typically required. As they were called subprime borrowers , as a result they were obligated
to high interest rates and variable payments , that's was due to high risk profiles of subprime borrowers.

This excessive supply of the mortgage debt attracted to both once unallowed borrowers and lenders,
which boosted advancement in mortgages issuance and sales of houses. On the other hand , borrowers
among which most of them were newly owned houseowners, took on extra debt to buy other things.
Firms were looking to take advantage to capitalize on the opportunities at expense by the surging
economy also deliberately indebted themselves. On the other hand. On the other hand the financial
institutions, on there end don't let the opportunity ruined, make use of cheap debt to grow their returns
on investments exponentially.

This situation of debt market acted pervasively and the stock market reactivity started to indicate the
signs of forthcoming collapse in March, 2007, at the point when the investment banks could not cover
the looses linked to subprime mortgages. The stock market to crash kept rising, and reached to 14,164
points (2007 Oct 9) and kept on depreiving until September of 2008,when the major stock indexes lost
almost 20% value. . It then took almost four years for the stock market to recover from the crash.

Behavioral aspect of 2008 crisis:

As number of biases fits in the great depression crisis, most impactful biase here could be seen as
the herding behavior as almost all the indiviuals were given opportunity to have the home mortgage, as
due to speculative nature and herding behaviour majority of the indiviuals were in the housing market to
exploit the opportunity, on the other hand if we move to the reality the inflated prices were nothing
more than a ballon filled with the inflated prices. And the second most impactful biase was the
overconfidence bias ,which act as the basis for the financial institutions, to ignore the credit risk and to
believe that there is no possibilty for the default on payments. On the other hand the financial
institutions and the analysts were beleiving that, with respect to the volume and capital of the
housing market, it is not possible for such a big market to crash .

Aftab Bin Amir

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