Chase taking over Bear Stearns (macroeconomic)

These mortgage securities were paying investors higher yields than the treasury bonds , at only a slightly increased risk rate . To benefit from that extra profit , investments started pouring into mortgages from all over the world . Mortgage-based securities were promising higher-than-average returns while presenting no real risk . All kinds of institutional and individual investors were suddenly hungry to get their slice of profit from the MBS business

There was an over-supply of capital , which drove the interests down . And yet the capital continued pouring in . Naturally the housing market started going up

rapidly . More and more investors were getting into mortgage securities , and now there was all the more pressure to lend all that money , even as housing sector boomed . The situation of easy lending combined with housing boom dramatically increased the level of speculation , that is , buying a house cheaper now and selling it for a higher price later on . There was more demand and more supply , and yet the supply was much more than the demand . The lenders were getting desperate to find more homeowners to borrow the money . There was increased competition among the lenders , which led to the offering of better and better terms for potential home-buyers . For example , the initial down-payment was cut from 20 percent to 10 percent to 5 percent to 3 percent until there was no need to make any initial payment . There were complex schemes devised to make the loan offers more attractive to the borrowers . More importantly , the standards of approving loan applications were coming down . Tom , Dick and Harry were granted loans whether or not they would ever be able to repay the amount

And then they were offering the non-recourse loan , which means that in case of default no punitive measures would be taken , except that the mortgaged houses...