What Caused the Housing Bust (14)

Run on the bank


The market "locked up."

Nobody would buy mortgage bonds.

And everyone needed to sell.

Suddenly even Wall Street's biggest banks –

the very firms that created these mortgage securities –

were suffering huge losses, as the bonds kept getting marked down as hedge funds and

other leveraged speculators had to sell into a panicked market.


It's a classic "run on the bank," except today the function of the traditional bank has been spread out among several institutions:

i) mortgage brokers,

ii) Wall Street security firms,

iii) hedge-fund investors, and

iv) banks.


By Porter Stansberry