Banks traditionally took your money and protected it from theft. You were charged a fee to protect the money.
They started loaning out the money for mortgages, personal loans and small business loans to make more money. They rewarded savings holders for letting them use their money to do this by paying interest.
Investment banking has two variations. One is where people put money into savings accounts where they know this is done with the money in return for higher interest rates.
During the 2007-2008 economic crash, we found out banks were investing in stocks, businesses and whole new classes of securities like CDOs and tranches of mortgage backed securities (paper not backed by the mortgages/houses). That is why when the number of people paying their high risk home loans went above a certain level and insurance on those mortgage securities came due, and the investors couldn't foreclose on homes to get their money back, the stock market fell. And insurance companies that held those investments suddenly didn't officially own enough assets to pay obligations, just as need for it was rising from financial losses. That's why the government had to bail out major investment firms and insurers.
by Deborah-Diane 6 years ago
Do you think the Glass-Steagall Act should be brought back to prevent risky bank investments?Glass-Steagall was inacted in 1933 to separate commercial banking and investment banking. Most of it was repealed in 1999, and there have been serious bank problems since then.
by marketHEIST 7 years ago
Where to find a chart or infographic of investment banking/wall street structure & relationships?
by Anjili 3 years ago
Which factors are likely to lead to the collapse of an insurance company?
by ViralWhisper 7 years ago
Many people are literally abandoning their house to get rid of their slavery to their mortgage payments. Some people did it after losing their jobs and others did it after losing their retirement money and losing their faith in the current system. Will you do the same thing if it means freedom from...
by PhoenixV 2 years ago
Do You Always Need Title Insurance When Buying A Home Or Property?
by yuwaraj 8 years ago
reason of recession?
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