Before the crash there were 3 major contributors. Lenders (Banks), Hedge Funds (Investors, i.e.: Meryl Lynch) and Insurance (i.e.: AIG).
Lenders were giving loans using money provided by Investors. Investors were investing money and selling bundles of investments back and forth saying the bundles were sound and safe to invest in.
The Investors also took out insurance on their investment bundles knowing they were very unsafe investments. So when a bundle of investments failed, the Investors had already made huge sums of money on the sale then they made huge amounts of money when the investments failed.
AIG really got the hind end in all of this and was one of the first companies to receive bail out money because if AIG collapsed it would have devastated the economy.
That’s it in a nut shell, my simple explanation.
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