Great Financial Crisis (GFC)

US GDP Decline

4.3 percent (peak to trough)

Primary Catalyst

Downturn in the US housing market and subprime mortgage defaults

Alternative Names

2008 financial crisis, Global Financial Crisis, Panic of 2008

Monetary Response

Quantitative Easing (QE) and large-scale liquidity injections

Recession Duration

18 to 19 months

Peak Unemployment Rate

10 percent

2006-06-01

2007-06-01

2007-12-01

2008-09-15

2009-06-30

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 [...] The catalysts for the GFC were falling US house prices and a rising number of borrowers unable to repay their loans. House prices in the United States peaked around mid 2006, coinciding with a rapidly rising supply of newly built houses in some areas. As house prices began to fall, the share of borrowers that failed to make their loan repayments began to rise. Loan repayments were particularly sensitive to house prices in the United States because the proportion of US households (both [...] ### 2. Increased borrowing by banks and investors In the lead up to the GFC, banks and other investors in the United States and abroad borrowed increasing amounts to expand their lending and purchase MBS products. Borrowing money to purchase an asset (known as an increase in leverage) magnifies potential profits but also magnifies potential losses.(#fn1) As a result, when house prices began to fall, banks and investors incurred large losses because they had borrowed so much.

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 [...] the largest liquidity injection into the credit market, and the largest monetary policy action in world history. Following a model initiated by the 2008 United Kingdom bank rescue package, the governments of European nations and the United States guaranteed the debt issued by their banks and raised the capital of their national banking systems, ultimately purchasing $1.5 trillion newly issued preferred stock in major banks. The Federal Reserve created then-significant amounts of new currency as [...] The economic crisis started in the U.S. but spread to the rest of the world. U.S. consumption accounted for more than a third of the growth in global consumption between 2000 and 2007 and the rest of the world depended on the U.S. consumer as a source of demand. Toxic securities were owned by corporate and institutional investors globally. Derivatives such as credit default swaps also increased the linkage between large financial institutions. The de-leveraging of financial institutions, as

[edit] [...] The combination of banks being unable to provide funds to businesses and homeowners paying down debt rather than borrowing and spending resulted in the Great Recession. The recession officially began in the U.S. in December 2007 and lasted until June 2009, thus extending over 19 months.( As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of [...] The Great Recession was a period of market decline in economies around the world that occurred from late 2007 to mid-2009,( overlapping with the closely related 2008 financial crisis. The scale and timing of the recession varied from country to country (see map).( At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression.

seen as the consequence of the relative inflexibility of the currency regimes in China and some other EMEs. According to Portes (2009), global macroeconomic imbalances were the major underlying cause of the crisis. These saving-investment imbalances and consequent huge cross-border financial flows put great stress on the financial intermediation process. The global imbalances interacted with the flaws in financial markets to generate the specific features of the crisis. Such a view, however, [...] Argentina 25 Benin 40 Serbia and Montenegro 65 Albania 93 Azerbaijan 5 Brazil 25 Bolivia 38 Cameroon 63 Lithuania 92 Mauritania 5 Kazakhstan 24 Mauritius 37 Romania 60 Croatia 91 Nigeria 5 Pakistan 23 Burundi 36 Niger 59 Bosnia-Herzegovina 90 Turkey 4 Costa Rica 22 Seychelles 36 Mali 57 Mexico 82 Uzbekistan 1 Malawi 22 Lebanon 34 Angola 53 Macedonia 80 Philippines 1 Tunisia 22 Nicaragua 34 Latvia 52 Uganda 80 South Africa 0 Mongolia 22 Chile 32 Jamaica 51 El Salvador 78 China 0 Sudan 20 [...] 1.8 0.6 0.6 ‐0.7 Malaysia ‐5.2 1.8 9.8 15.0 16.0 15.4 17.9 Philippines ‐4.0 ‐2.8 ‐0.7 2.0 4.5 4.9 2.5 Russia 0.9 3.5 11.2 11.0 9.5 6.0 6.1 Saudi Arabia ‐11.7 ‐2.4 10.6 28.5 27.8 24.3 28.6 South Africa 1.2 ‐1.3 ‐0.7 ‐4.0 ‐6.3 ‐7.3 ‐7.4 Switzerland 5.7 8.8 10.8 13.6 14.4 9.9 2.4 Thailand ‐6.4 1.0 4.2 ‐4.3 1.1 5.7 ‐0.1 Turkey ‐0.9 ‐0.8 ‐1.6 ‐4.6 ‐6.0 ‐5.8 ‐5.7 United Arab Emirates 8.3 4.6 9.9 18.0 22.6 16.1 15.7 United Kingdom ‐2.1 ‐1.0 ‐2.0 ‐2.6 ‐3.3 ‐2.7 ‐1.7 United States ‐1.0 ‐2.1 ‐4.5 ‐5.9