2008 Financial Crisis

Extracted Attributes

• Origin

  United States

• Key Figures

  Richard Fuld (CEO of Lehman Brothers)

• Primary Causes

  Excessive speculation on property values, predatory lending for subprime mortgages, 2000s United States housing bubble, deficiencies in regulation

• Alternative Names

  Global Financial Crisis (GFC), Panic of 2008

• Immediate Triggers

  Collapse of mortgage-backed securities (MBS) (early 2007), bankruptcy of Lehman Brothers (September 2008)

• Contributing Factors (Pre-Crisis)

  Repeal of parts of the Glass–Steagall Act (1999), looser financing rules for affordable housing (1990s), Federal Reserve lowering interest rates (2000-2003) leading to high-risk loans

• Economic Impact (US) - Job Losses

  8.7 million jobs lost

• Economic Impact (US) - Stock Market Decline

  Dow Jones Industrial Average fell by 53% (October 2007 - March 2009)

• Economic Impact (US) - Poverty Rate Increase

  From 12.5% (2007) to 15.1% (2010)

• Economic Impact (US) - Unemployment Rate Peak

  10% (October 2009)

• Economic Impact (US) - Household Net Worth Loss

  One in four households lost 75% or more of their net worth

Timeline

• U.S. Congress passed legislation to expand affordable housing through looser financing rules. (Source: wikipedia)

  1990s

• Parts of the 1933 Banking Act (Glass–Steagall Act) were repealed, enabling institutions to mix low-risk and high-risk operations. (Source: summary, wikipedia)

  1999

• The Federal Reserve lowered the federal funds rate, leading institutions to increasingly target low-income homebuyers with high-risk loans. (Source: wikipedia)

  2000-2003

• Interest rates rose, increasing the cost of mortgages and causing demand for housing to fall. (Source: wikipedia)

  2004-2006

• The subprime mortgage crisis began as mortgage-backed securities (MBS) tied to U.S. real estate collapsed in value. (Source: summary, wikipedia)

  2007-01-01

• New Century Financial, a major subprime lender, went bankrupt. (Source: wikipedia)

  2007-04-01

• A liquidity crisis spread to global institutions. (Source: summary, wikipedia)

  2007-07-01

• Financial contagion spread to global credit markets, leading central banks to begin injecting liquidity. (Source: wikipedia)

  2007-08-01

• The Dow Jones Industrial Average began its decline. (Source: wikipedia)

  2007-10-01

• The Fed cut its benchmark rate by three-quarters of a percentage point, its biggest cut in a quarter-century. (Source: web_search_results)

  2008-01-01

• Bear Stearns, the fifth-largest U.S. investment bank, was sold to JPMorgan Chase in a 'fire sale' backed by Fed financing. (Source: wikipedia)

  2008-03-01

• Fannie Mae and Freddie Mac, which together owned or guaranteed half of the U.S. housing market, verged on collapse. (Source: wikipedia)

  2008-07-01

• Fannie Mae and Freddie Mac were seized by the federal government under the Housing and Economic Recovery Act of 2008. (Source: summary, wikipedia)

  2008-09-07

• Lehman Brothers, the fourth-largest U.S. investment bank, filed for the largest bankruptcy in U.S. history, triggering a stock market crash; Merrill Lynch was acquired by Bank of America. (Source: summary, wikipedia, web_search_results)

  2008-09-15

• The Federal Reserve bailed out American International Group (AIG), the country's largest insurer. (Source: summary, wikipedia)

  2008-09-16

• Washington Mutual was seized in the largest bank failure in U.S. history. (Source: wikipedia)

  2008-09-25

• Congress passed the Emergency Economic Stabilization Act, authorizing the $700 billion Troubled Asset Relief Program (TARP) to purchase toxic assets and bank stocks. (Source: summary, wikipedia)

  2008-10-03

• The IMF predicted a worldwide recession of -0.3% for 2009; the Bank of England and the European Central Bank reduced their interest rates. (Source: web_search_results)

  2008-11-06

• American Express converted to a bank holding company. (Source: web_search_results)

  2008-11-10

• The American Recovery and Reinvestment Act, including measures to preserve and create jobs, was signed by President Barack Obama. (Source: wikipedia)

  2009-02-01

• The Dow Jones Industrial Average reached its lowest point during the crisis. (Source: wikipedia)

  2009-03-01

• The worst of the Great Recession ended due to combined global interventions. (Source: wikipedia)

  2009-06-01

• Unemployment in the U.S. reached a high of 10%. (Source: wikipedia)

  2009-10-01

• The Dodd–Frank Wall Street Reform and Consumer Protection Act was passed, overhauling financial regulations. (Source: summary, wikipedia)

  2010-01-01

• The percentage of U.S. citizens living in poverty rose to 15.1%. (Source: wikipedia)

  2010-01-01

• The Economic Growth, Regulatory Relief, and Consumer Protection Act was passed, weakening parts of the Dodd–Frank Act. (Source: wikipedia)

  2018-01-01

2008 financial crisis

The 2008 financial crisis, also known as the global financial crisis (GFC) or the Panic of 2008, was a major worldwide financial crisis centered in the United States. The causes included excessive speculation on property values by both homeowners and financial institutions, leading to the 2000s United States housing bubble. This was exacerbated by predatory lending for subprime mortgages and by deficiencies in regulation. Cash out refinancings had fueled an increase in consumption that could no longer be sustained when home prices declined. The first phase of the crisis was the subprime mortgage crisis, which began in early 2007, as mortgage-backed securities (MBS) tied to U.S. real estate, and a vast web of derivatives linked to those MBS, collapsed in value. A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, which triggered a stock market crash and bank runs in several countries. The crisis exacerbated the Great Recession, a global recession that began in mid-2007, as well as the United States bear market of 2007–2009. It was also a contributor to the 2008–2011 Icelandic financial crisis and the euro area crisis. During the 1990s, the U.S. Congress had passed legislation that intended to expand affordable housing through looser financing rules, and in 1999, parts of the 1933 Banking Act (Glass–Steagall Act) were repealed, enabling institutions to mix low-risk operations, such as commercial banking and insurance, with higher-risk operations such as investment banking and proprietary trading. As the Federal Reserve ("Fed") lowered the federal funds rate from 2000 to 2003, institutions increasingly targeted low-income homebuyers, largely belonging to racial minorities, with high-risk loans; this development went unattended by regulators. As interest rates rose from 2004 to 2006, the cost of mortgages rose and the demand for housing fell; in early 2007, as more U.S. subprime mortgage holders began defaulting on their repayments, lenders went bankrupt, culminating in the bankruptcy of New Century Financial in April. As demand and prices continued to fall, the financial contagion spread to global credit markets by August 2007, and central banks began injecting liquidity. In March 2008, Bear Stearns, the fifth-largest U.S. investment bank, was sold to JPMorgan Chase in a "fire sale" backed by Fed financing. In response to the growing crisis, governments around the world deployed massive bailouts of financial institutions and used monetary policy and fiscal policies to prevent an economic collapse of the global financial system. By July 2008, Fannie Mae and Freddie Mac, companies which together owned or guaranteed half of the U.S. housing market, verged on collapse; the Housing and Economic Recovery Act of 2008 enabled the federal government to seize them on September 7. Lehman Brothers (the fourth-largest U.S. investment bank) filed for the largest bankruptcy in U.S. history on September 15, which was followed by a Fed bail-out of American International Group (the country's largest insurer) the next day, and the seizure of Washington Mutual in the largest bank failure in U.S. history on September 25. On October 3, Congress passed the Emergency Economic Stabilization Act, authorizing the Treasury Department to purchase toxic assets and bank stocks through the $700 billion Troubled Asset Relief Program (TARP). The Fed began a program of quantitative easing by buying treasury bonds and other assets, such as MBS, and the American Recovery and Reinvestment Act, signed in February 2009 by newly elected President Barack Obama, included a range of measures intended to preserve existing jobs and create new ones. These initiatives combined, coupled with actions taken in other countries, ended the worst of the Great Recession by mid-2009. Assessments of the crisis's impact in the U.S. vary, but suggest that some 8.7 million jobs were lost, causing unemployment to rise from 5% in 2007 to a high of 10% in October 2009. The percentage of citizens living in poverty rose from 12.5% in 2007 to 15.1% in 2010. The Dow Jones Industrial Average fell by 53% between October 2007 and March 2009, and some estimates suggest that one in four households lost 75% or more of their net worth. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was passed, overhauling financial regulations. It was opposed by many Republicans, and it was weakened by the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. The Basel III capital and liquidity standards were also adopted by countries around the world.

Web Search Results

• Major Players in the 2008 Financial Crisis: Where Are They Now?

  oatawa / Getty Images The 2008 financial crisis was one of the most devastating financial episodes in modern history. It caused massive job losses, home foreclosures, company closures, and a global recession. Structural issues and wrongdoing by financial institutions culminated in an economic disaster. [...] The 2008 financial crisis was a catastrophic moment for the global economy, causing distress for people all over the world. It also affected the careers and lives of the people at the center of it. While many key figures have gone on to have successful careers and remain influential in the financial sphere, others had their reputations damaged and faded from the public eye. [...] Richard Fuld was the last CEO of Lehman Brothers, one of the most prestigious financial firms on Wall Street. It collapsed during the economic crisis when the government refused to bail it out. Its bankruptcy reverberated through the global financial markets. Lehman was a big player in the mortgage-backed securities (MBS) space, and poorly structured MBS were a main cause of the financial crisis. When Lehman filed for bankruptcy in 2008, it had $613 billion in debt.

• The 2008 Financial Crisis Explained - Investopedia

  That was just the beginning. Few investors suspected that the worst crisis in nearly eight decades was about to engulf the global financial system, bringing Wall Street's giants to their knees and triggering the Great Recession. The 2008 financial crisis was an epic financial and economic collapse that cost many ordinary people their jobs, their life savings, their homes, or all three. ### Key Takeaways [...] The 2008 financial crisis was years in the making. A reckoning was due for a years-long binge fueled by cheap credit. In mid-2007, two Bear Stearns hedge funds collapsed, BNP Paribas was warning investors that they might not be able to withdraw money from three of its funds, and the British bank Northern Rock was poised to seek emergency funding from the Bank of England. [...] The U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks. The Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.

• 2008 financial crisis - Wikipedia

  The crisis exacerbated the Great Recession, a global recession that began in mid-2007. It was also followed by the euro area crisis, which began with the start of the Greek government-debt crisis in late 2009, and the 2008–2011 Icelandic financial crisis, which involved the bank failure of all three of the major banks in Iceland and, relative to the size of its economy, was the largest economic collapse suffered by any country in history. It was among the five worst financial crises the world [...] September 15, 2008: After the Federal Reserve declined to guarantee its loans as it did for Bear Stearns, the Bankruptcy of Lehman Brothers led to a 504.48-point (4.42%) drop in the DJIA, its worst decline in seven years. To avoid bankruptcy, Merrill Lynch was acquired by Bank of America for $50 billion in a transaction facilitated by the government. Lehman had been in talks to be sold to either Bank of America or Barclays but neither bank wanted to acquire the entire company. [...] November 6, 2008: The IMF predicted a worldwide recession of −0.3% for 2009. On the same day, the Bank of England and the European Central Bank, respectively, reduced their interest rates from 4.5% to 3%, and from 3.75% to 3.25%. November 10, 2008: American Express converted to a bank holding company.

• The Global Financial Crisis | Explainer | Education | RBA

  The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid 2007 and early 2009. During the GFC, a downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. Millions of people lost their jobs as the [...] Financial stresses peaked following the failure of the US financial firm Lehman Brothers in September 2008. Together with the failure or near failure of a range of other financial firms around that time, this triggered a panic in financial markets globally. Investors began pulling their money out of banks and investment funds around the world as they did not know who might be next to fail and how exposed each institution was to subprime and other distressed loans. Consequently, financial

• [PDF] The Financial Crisis of 2008: The Main Players, Causes, Chain of ...

  Lehman” The Financial Crisis of 2008 20 (Sorkin, 2009, p. 386) and reiterating that there was no money. It was on Monday September 15, 2008 that Lehman Brothers officially filed for bankruptcy, with Barclays soon coming with interest in purchasing the assets from the firm that it wanted- the U.S. broker-dealer components and its buildings (Sorkin, 2009, p. 378). The reaction from many after Paulson made the decision not to bailout Lehman Brothers was generally positive. A New York Times [...] put increasing one’s compensation above the financial stability and performance of the firm. While the CEOs certainly played a role in the economic crisis in terms of putting their personal financial concerns The Financial Crisis of 2008 18 ahead of those of the firm they worked for, it appears that the actual underlying culprit may have been the employee compensation models themselves, and not necessarily the “evil tendencies” of the CEOs that the public wanted to believe. The federal [...] were so complex and risky that they could not be The Financial Crisis of 2008 10 rated or valued properly, led to the downfall of these firms- with Lehman Brothers going into bankruptcy and others being rescued by the government. The precedent set by the government when they saved Bear Stearns brought up the concept of moral hazard, which is what occurs when risk-takers are shielded from the consequences of failure, which might inspire them to take on even more risk. This moral hazard that