The current global financial crisis is rooted in the subprime crisis which surfaced over a year ago in the
United States of America. During the boom years, mortgage brokers attracted by the big commissions,
encouraged buyers with poor credit to accept housing mortgages with little or no down payment and
without credit checks. A combination of low interest rates and large inflow of foreign funds during the
booming years helped the banks to create easy credit conditions for many years. Banks lent money on the
assumption that housing prices would continue to rise. Also the real estate bubble encouraged the demand
for houses as financial assets. Banks and financial institutions later repackaged these debts with other
high-risk debts and sold them to world- wide investors creating financial instruments called CDOs or
Collateralized Debt Obligations (Sadhu2008). In this way risk was passed on multifold through
derivatives trade.