Chapter 16

The Global Financial Crisis of 2008

History is the sum total of the things that could have been avoided.

—Konrad Adenauer (1876–1967)

The Perfect Storm

Imagine an economic environment where equity asset classes are suddenly in trouble, big trouble, at the same time. This perfect storm happened during 2008. A combination of factors led to the crisis:

Securitization. I bought my first house in 1976 for $25,000. It was a two-story, brick Cape Cod. I put $5,000 down and took out a $20,000, 20-year mortgage at 8.5 percent fixed. My monthly mortgage payment was $174. The down payment made the bank more secure because it provided a protective cushion for the mortgage loan. The down payment also meant that I had money at risk in the transaction. ...

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