The Aftermath of the Financial Fraud Crisis

Before the financial fraud crisis, the global community felt like it had found the key to permanent prosperity. There was mass consumerism, rising productivity, thousands of innovations, and an abundance of natural and human resources. As of 2009, it all changed.
  • Now biggest banks, largest insurance companies and largest mortgage agencies have become nationalized.
  • Twenty five subprime lenders have gone out of business or declared bankruptcy.
  • Then financial fraud spread to hedge funds, commercial banks and investment banks that buy, sell, repackage and invest in risky subprime mortgages and financial fraud.
The former president of Bear Stearns, Alan Schwartz, offered this synopsis. “The near collapse of the global financial system was caused by many factors, from Hyman Minsky’s financial instability hypothesis to the dramatic and unprecedented surge of global wealth. While global wealth was building up, artificial liquidity was pushing interest rates down to low levels and at the same time, people moved from being long-term savers to short-term savers for retirement. You had this huge pool of money looking for return. It created so much excess demand that it inflated the price of the assets purchased by investors’ securities.”

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