US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001) creating an easy-credit environment that fueled the growth of US subprime mortgages. Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA subprime mortgage-backed securities rise from $38 billion to $90 billion per year, as mortgage denial rate of 14 percent for conventional home purchase loans drop in half of 1997 figures.
Federal Reserve Chair Alan Greenspan lowers Federal Reserve’s key interest rate to 1%, the lowest in 45 years. U.S. subprime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac. Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.
The Securities and Exchange Commission ceases an investigation of Bear Stearns "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear.
Buffett famously commented in a letter to shareholders in February 2003, that derivatives can be "financial weapons of mass destruction."
The financial crisis that broke out in August 2007 was considered the worst in the post war period. It represented the collapse of trillions of fictitious credit derivatives and the meltdown of uncontrolled credit growth. Goldman's derivative book had a stunning notional value of $53 trillion.
China has said it is willing to bail out debt-ridden countries in the euro zone using its $2.7trillion overseas investment fund.
In a fresh humiliation for Europe, Foreign Ministry spokesman Jiang Yu said it was one of the most important areas for China's foreign exchange investments.
The country has already approached struggling European countries with financial aid, including offering to buy Greece's debt in October and promising to buy $4billion of Portuguese government debt.