Great Financial Crisis

Extracted Attributes

• End Date

  2009-06-30

• Start Date

  2007-07-01

• Main Causes

  Excessive speculation in property values, predatory lending for subprime mortgages, regulatory deficiencies, US housing bubble

• US Job Losses

  8.7 million

• Policy Responses

  Massive government bailouts, Troubled Asset Relief Program (TARP), quantitative easing, American Recovery and Reinvestment Act, Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III capital and liquidity standards

• Primary Location

  United States

• Alternative Names

  Global Financial Crisis (GFC), Panic of 2008

• Key Trigger Event

  Bankruptcy of Lehman Brothers

• US Poverty Rate Increase

  From 12.5% in 2007 to 15.1% in 2010

• US Unemployment Rate Peak

  10% in October 2009

• Dow Jones Industrial Average Decline

  53% between October 2007 and March 2009

Timeline

• Federal Reserve begins lowering the federal funds rate, continuing until 2003, leading to increased high-risk loans to low-income homebuyers. (Source: Wikipedia)

  2000-01-01

• Interest rates begin to rise, increasing mortgage costs and decreasing housing demand. (Source: Wikipedia)

  2004-01-01

• US house prices peak. (Source: web_search_results)

  2006-06-30

• Subprime mortgage crisis begins as mortgage-backed securities collapse in value. (Source: Wikipedia)

  2007-01-01

• New Century Financial, a major subprime lender, files for bankruptcy. (Source: Wikipedia)

  2007-04-01

• The Great Recession, a global recession, begins. (Source: summary)

  2007-07-01

• Financial contagion spreads to global credit markets; central banks begin injecting liquidity. (Source: Wikipedia)

  2007-08-01

• Dow Jones Industrial Average begins its 53% decline. (Source: Wikipedia)

  2007-10-01

• Bear Stearns, the fifth largest US investment bank, is sold to JPMorgan Chase in a Fed-backed 'fire sale'. (Source: Wikipedia)

  2008-03-01

• Fannie Mae and Freddie Mac verge on collapse. (Source: Wikipedia)

  2008-07-01

• US federal government seizes Fannie Mae and Freddie Mac. (Source: Wikipedia)

  2008-09-07

• Lehman Brothers files for the largest bankruptcy in US history, triggering a stock market crash and bank runs. (Source: summary)

  2008-09-15

• Federal Reserve bails out American International Group (AIG), the country's largest insurer. (Source: Wikipedia)

  2008-09-16

• Washington Mutual is seized in the largest bank failure in US history. (Source: Wikipedia)

  2008-09-25

• Congress passes the Emergency Economic Stabilization Act, authorizing the $700 billion Troubled Asset Relief Program (TARP). (Source: Wikipedia)

  2008-10-03

• American Recovery and Reinvestment Act is signed by President Barack Obama to preserve and create jobs. (Source: Wikipedia)

  2009-02-01

• Dow Jones Industrial Average reaches its lowest point. (Source: Wikipedia)

  2009-03-01

• The worst of the Great Recession ends. (Source: Wikipedia)

  2009-06-30

• US unemployment rate peaks at 10%. (Source: Wikipedia)

  2009-10-01

• Dodd-Frank Wall Street Reform and Consumer Protection Act is passed, overhauling financial regulations. (Source: summary)

  2010-01-01

• US unemployment rate returns to pre-crisis levels. (Source: web_search_results)

  2016-01-01

• Economic Growth, Regulatory Relief, and Consumer Protection Act weakens 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

• 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 [...] Although the global economy experienced its sharpest slowdown since the Great Depression, the policy response prevented a global depression. Nevertheless, millions of people lost their jobs, their homes and large amounts of their wealth. Many economies also recovered much more slowly from the GFC than previous recessions that were not associated with financial crises. For example, the US unemployment rate only returned to pre-crisis levels in 2016, about nine years after the onset of 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

• Great Recession

  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. [...] The 2008 financial crisis and the Great Recession were described as a symptom of another, deeper crisis by a number of economists. For example, Ravi Batra argues that growing inequality of financial capitalism produces speculative bubbles that burst and result in depression and major political changes. Feminist economists Ailsa McKay and Margunn Bjørnholt argue that the 2008 financial crisis and the response to it revealed a crisis of ideas in mainstream economics and within the economics [...] 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 forecast

• Great Recession | Causes, Effects, Statistics, & Facts - Britannica

  The financial crisis, a severe contraction of liquidity in global financial markets, began in 2007 as a result of the bursting of the U.S. housing bubble. From 2001 successive decreases in the prime rate (the interest rate that banks charge their “prime,” or low-risk, customers) had enabled banks to issue mortgage loans at lower interest rates to millions of customers who normally would not have qualified for them (see subprime mortgage; subprime lending), and the ensuing purchases greatly [...] Great Recession, economic recession that was precipitated in the United States by the financial crisis of 2007–08 and quickly spread to other countries. Beginning in late 2007 and lasting until mid-2009, it was the longest and deepest economic downturn in many countries, including the United States, since the Great Depression (1929–c. 1939). [...] the European Union, the European Central Bank, and the International Monetary Fund (IMF) and resulted in the imposition of painful austerity measures. In all the countries affected by the Great Recession, recovery was slow and uneven, and the broader social consequences of the downturn—including, in the United States, lower fertility rates, historically high levels of student debt, and diminished job prospects among young adults—were expected to linger for many years.

• The Great Recession and Its Aftermath - Federal Reserve History

  Like the Great Depression of the 1930s and the Great Inflation of the 1970s, the financial crisis of 2008 and the ensuing recession are vital areas of study for economists and policymakers. While it may be many years before the causes and consequences of these events are fully understood, the effort to untangle them is an important opportunity for the Federal Reserve and other agencies to learn lessons that can inform future policy. ##### Endnotes

• 2008 financial crisis

  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 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 [...] 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.