2008 financial crisis

Worldwide economic crisis September 2026 September 2022 Lehman Brothers Times Square by David Shankbone.jpg The bankruptcy of Lehman Brothers (headquarters pictured), the fourth-largest U.S. investment bank (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch), on September 15, 2008, is often considered the climax of the 2008 financial crisis. August 2007–July 2008 Climax of the crisis: 2008 9 15; 2008 ago United States The Great Recession thumb|The TED spread, an indicator of perceived credit risk in the financial system, increased significantly during the crisis. It spiked sharply in August 2007, remained volatile for a year, and spiked even higher in September 2008 to reach a record 4.65% on October 10, 2008.|260x260px The 2008 financial crisis was a major worldwide financial crisis which started in the U.S.Variously known as the 2008 financial crisis, also as the global financial crisis (GFC) The first phase 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.Williams Mark Uncontrolled Risk https://books.google.com/books?id=HSkjB_PGp98C McGraw-Hill Education 2010 978-0-07-163829-6 The crisis exacerbated the Great Recession, a global recession that began in late 2007, and contributed to major crises in Iceland and the eurozone. During the 1990s, the U.S. Congress passed legislation intended to expand affordable housing through looser financing laws, and in 1999 parts of the 1933 Banking Act (Glass–Steagall Act) were repealed, enabling institutions to mix low-risk operations, such as commercial banking and insurance, with higher-risk operations such as investment banking and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.Maverick J.B. October 22, 2019 Consequences of The Glass-Steagall Act Repeal https://www.investopedia.com/ask/answers/050515/did-repeal-glasssteagall-act-contribute-2008-financial-crisis.asp https://web.archive.org/web/20250214141042/https://www.investopedia.com/ask/answers/050515/did-repeal-glasssteagall-act-contribute-2008-financial-crisis.asp 2025-02-14 August 5, 2021 Investopedia 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 subprime loans;Predatory Lending and the Destruction of the African-American Dream Predatory Lending Practices Prior to the Global Financial Crisis 2020 23–68 10.1017/9781108865715.004 978-1-108-86571-5 this development went unattended by regulators.May 6, 2009 Predatory lending: A decade of warnings https://publicintegrity.org/inequality-poverty-opportunity/predatory-lending-a-decade-of-warnings/ https://web.archive.org/web/20250117074014/https://publicintegrity.org/inequality-poverty-opportunity/predatory-lending-a-decade-of-warnings/ 2025-01-17 August 5, 2021 Center for Public Integrity en-US As interest rates rose from 2004 to 2006, monthly payments on these largely adjustable-rate mortgages spiked, leading to a wave of defaults, foreclosures, and bankruptcies among subprime lenders in early 2007. As housing demand and prices continued to fall, the financial contagion spread to global credit markets by August 2007. In March 2008, Bear Stearns, one of the largest U.S. investment banks, was sold to JPMorgan Chase in a "fire sale" backed by Fed financing. In response to the crisis, governments around the world deployed massive bailouts of financial institutions and used monetary and fiscal policy to prevent a collapse of the global financial system.Sakelaris Nicholas February 5, 2014 Paulson: Why I bailed out the banks and what would have happened if I hadn't https://www.bizjournals.com/dallas/blog/2014/02/paulson-why-i-bailed-out-the-banks-and-what-would.html https://web.archive.org/web/20140207081039/http://www.bizjournals.com/dallas/blog/2014/02/paulson-why-i-bailed-out-the-banks-and-what-would.html 2014-02-07 April 27, 2021 Dallas Business Journal On September 7, 2008, Fannie Mae and Freddie Mac, two government-sponsored enterprises which owned or guaranteed half of the U.S. housing market, were seized by the federal government. On September 15, Lehman Brothers filed for the largest bankruptcy in the country's history, which was followed that month by a Fed bailout of American International Group and the seizure of Washington Mutual in the largest bank failure in U.S. history. 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, and the American Recovery and Reinvestment Act, signed in February 2009 by President Barack Obama, included various measures which, combined 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.Act of Congress 111–203 July 21, 2010 The United States Congress Dodd-Frank Wall Street Reform and Consumer Protection Act https://www.govinfo.gov/content/pkg/PLAW-111publ203/html/PLAW-111publ203.htm 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.James Margaret Basel III https://www.investopedia.com/terms/b/basell-iii.asp live https://web.archive.org/web/20250205005634/https://www.investopedia.com/terms/b/basell-iii.asp 2025-02-05 April 27, 2021 Investopedia enOctober 18, 2017 RCAP on timeliness: monitoring reports https://www.bis.org/bcbs/implementation/rcap_reports.htm Bank for International Settlements en https://web.archive.org/web/20170523215923/https://www.bis.org/bcbs/implementation/rcap_reports.htm 2017-05-23 Background thumb|right|upright=1.35|World map showing real GDP growth rates for 2009 (countries in brown were in recession) thumb|upright=1.6|Share in GDP of U.S. financial sector since 1860Confer Thomas Philippon: "The future of the financial industry", Finance Department of the New_York_University_Stern_School_of_Business at New_York_University, link to blog https://web.archive.org/web/20081020041822/http://pages.stern.nyu.edu/~sternfin/crisis/ October 20, 2008 The crisis worsened the Great Recession, a global recession that began in mid-2007.Gopinath Gita April 14, 2020 The Great Lockdown: Worst Economic Downturn Since the Great Depression https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/ https://web.archive.org/web/20250213023027/https://www.imf.org/en/Blogs/Articles/2020/04/14/blog-weo-the-great-lockdown-worst-economic-downturn-since-the-great-depression 2025-02-13 International Monetary FundThree Top Economists Agree 2009 Worst Financial Crisis Since Great Depression; Risks Increase if Right Steps are Not Taken February 13, 2009 Business Wire https://www.businesswire.com/news/home/20090213005161/en/Top-Economists-Agree-2009-Worst-Financial-Crisis https://web.archive.org/web/20221207125712/https://www.businesswire.com/news/home/20090213005161/en/Top-Economists-Agree-2009-Worst-Financial-Crisis 2022-12-07The Great Depression(s) of 1929–1933 and 2007–2009? Parallels, Differences and Policy Lessons 2612243 Hungarian Academy of Science July 1, 2015 Peter Eigner Thomas S. UmlauftA tale of two depressions: What do the new data tell us? https://voxeu.org/article/tale-two-depressions-what-do-new-data-tell-us-february-2010-update VoxEU.org Eichengreen O'Rourke March 8, 2010Peter Temin 2010 The Great Recession & the Great Depression Daedalus 139 4 115–124 10.1162/DAED_a_00048 1721.1/60250 free 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.December 11, 2008 Cracks in the crust https://www.economist.com/briefing/2008/12/11/cracks-in-the-crust subscription https://web.archive.org/web/20250111235019/https://www.economist.com/briefing/2008/12/11/cracks-in-the-crust 2025-01-11 The Economist It was among the five worst financial crises the world had experienced and led to a loss of more than $2 trillion from the global economy.5 of the World's Most Devastating Financial Crises https://www.britannica.com/story/5-of-the-worlds-most-devastating-financial-crises https://web.archive.org/web/20250129133042/https://www.britannica.com/story/5-of-the-worlds-most-devastating-financial-crises 2025-01-29 December 19, 2023 Encyclopedia Britannica enhttps://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html Merle Renae A guide to the financial crisis – 10 years later The Washington Post September 10, 2018 0190-8286 U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 (~$US-GDP 10500000000000 2008 in US-GDP) trillion. The increase in cash out refinancings, as home values rose, fueled an increase in consumption that could no longer be sustained when home prices declined. Many financial institutions owned investments whose value was based on home mortgages such as mortgage-backed securities, or credit derivatives used to insure them against failure, which declined in value significantly.Uchitelle Louis Louis Uchitelle September 18, 2008 Pain Spreads as Credit Vise Grows Tighter https://www.nytimes.com/2008/09/19/business/economy/19econ.html subscription https://web.archive.org/web/20090225230431/http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2008/09/19/business/economy/19econ.html&OQ=_rQ3D1&OP=53cd68c3Q2F8(KC8Q5Bzepszz0Q248Q24))Q228)t8Ft8CqpDZKpp8KezZz9Q268FtKezZQ25v09n 2009-02-25 The New York TimesSorkin Andrew Ross Andrew Ross Sorkin September 14, 2008 Lehman Files for Bankruptcy; Merrill Is Sold https://archive.nytimes.com/www.nytimes.com/2008/09/15/business/15lehman.html The New York Times February 15, 2025Werdigier Julia September 17, 2008 Lloyds Bank Is Discussing Purchase of British Lender https://www.nytimes.com/2008/09/18/business/worldbusiness/18lloyds.html subscription https://web.archive.org/web/20250126183726/https://www.nytimes.com/2008/09/18/business/worldbusiness/18lloyds.html 2025-01-26 The New York Times The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans from January 2007 to September 2009.https://www.reuters.com/article/banks-writedowns-losses-idCNL554155620091105?rpc=44 Factbox–U.S., European bank write-downs, credit losses Reuters November 5, 2009 Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices in late 2008 and early 2009.Ambrose Evans-Pritchard Dollar tumbles as huge credit crunch looms https://www.telegraph.co.uk/expat/4204516/Dollar-tumbles-as-huge-credit-crunch-looms.html https://ghostarchive.org/archive/20220110/https://www.telegraph.co.uk/expat/4204516/Dollar-tumbles-as-huge-credit-crunch-looms.html January 10, 2022 subscription live The Daily Telegraph July 25, 2007 The crisis rapidly spread into a global economic shock, resulting in several bank failures.Norris Floyd Floyd Norris October 24, 2008 United Panic https://archive.nytimes.com/economix.blogs.nytimes.com/2008/10/24/united-panic/ limited https://web.archive.org/web/20230501200556/https://archive.nytimes.com/economix.blogs.nytimes.com/2008/10/24/united-panic/ 2023-05-01 The New York Times Economies worldwide slowed during this period since credit tightened and international trade declined.April 2009 World Economic Outlook: Crisis and Recovery, April 2009 http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/text.pdf https://web.archive.org/web/20250126163230/https://www.imf.org/~/media/Websites/IMF/imported-flagship-issues/external/pubs/ft/weo/2009/01/pdf/_textpdf.ashx 2025-01-26 Housing markets suffered and unemployment soared, resulting in evictions and foreclosures. Several businesses failed.Baily Martin Neil Elliott Douglas J. June 15, 2009 The U.S. Financial and Economic Crisis: Where Does It Stand and Where Do We Go From Here? https://www.brookings.edu/research/the-u-s-financial-and-economic-crisis-where-does-it-stand-and-where-do-we-go-from-here/ https://web.archive.org/web/20241203023846/https://www.brookings.edu/articles/the-u-s-financial-and-economic-crisis-where-does-it-stand-and-where-do-we-go-from-here/ 2024-12-03 Brookings InstitutionWilliams Carol J. May 22, 2012 Euro crisis imperils recovering global economy, OECD warns https://latimesblogs.latimes.com/world_now/2012/05/eurozone-crisis-global-economy.html subscription https://web.archive.org/web/20241224191234/https://www.latimes.com/archives/blogs/world-now/story/2012-05-22/euro-crisis-imperils-recovering-global-economy-oecd-warns 2024-12-24 Los Angeles Times From its peak in the second quarter of 2007 at $61.4 trillion, household wealth in the United States fell $11 trillion, to $50.4 trillion by the end of the first quarter of 2009, resulting in a decline in consumption, then a decline in business investment.Luhby Tami June 11, 2009 Americans' wealth drops $1.3 trillion: Fed report shows a decline of home values and the stock market cut the nation's wealth to $50.4 trillion https://money.cnn.com/2009/06/11/news/economy/Americans_wealth_drops/?postversion=2009061113 https://web.archive.org/web/20250207103327/https://money.cnn.com/2009/06/11/news/economy/Americans_wealth_drops/?postversion=2009061113 2025-02-07 CNN In the fourth quarter of 2008, the quarter-over-quarter decline in real GDP in the U.S. was 8.4%.https://fred.stlouisfed.org/series/A191RL1Q225SBEA Real Gross Domestic Product April 1947 Federal Reserve Economic Data The U.S. unemployment rate peaked at 11.0% in October 2009, the highest rate since 1983 and roughly twice the pre-crisis rate. The average hours per work week declined to 33, the lowest level since the government began collecting the data in 1964.Labor Force Statistics from the Current Population Survey https://data.bls.gov/timeseries/LNS14000000 https://web.archive.org/web/20250214065916/https://data.bls.gov/timeseries/LNS14000000 2025-02-14 Bureau of Labor StatisticsFebruary 2012 The Recession of 2007–2009 https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf https://web.archive.org/web/20250212015752/https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf 2025-02-12 Bureau of Labor Statistics 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.2023-09-28 What China's economic problems mean for the world https://www.bbc.com/news/business-66840367 https://web.archive.org/web/20250206201909/https://www.bbc.com/news/business-66840367 2025-02-06 2024-03-11 en-GBConsumerSignals https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html https://web.archive.org/web/20241212151939/https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html 2024-12-12 2024-03-11 Deloitte Insights en-us 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 assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis and caused a decrease in international trade. Reductions in the growth rates of developing countries were due to falls in trade, commodity prices, investment and remittances sent from migrant workers (example: ArmeniaAn example of a developing country which suffered decreases in these fields is Armenia. According to World Bank data, the foreign direct investment decreased from 2008 until 2021 (see Foreign direct investment, net inflows (% of GDP) – Armenia https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?end=2019&locations=AM&start=2000 May 12, 2021 data.worldbank.org ). Moreover, the remittances also decreased after 2007/08, then fluctuated (see Personal remittances, received (% of GDP) – Armenia https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?end=2019&locations=AM&start=2000 May 12, 2021 data.worldbank.org ). This led to a dramatic rise in the number of households living below the poverty line (see https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/3705.pdf The global financial crisis and developing countries: taking stock, taking action Overseas Development Institute September 2009 June 17, 2022 July 12, 2020 https://web.archive.org/web/20200712194416/https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/3705.pdf dead ). The poverty headcount ratio at $1.90 (~$US 1.9 2007 in US) a day increased after 2007/08, from 0.9% to 1.2% (see Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population) – Armenia https://data.worldbank.org/indicator/SI.POV.DDAY?locations=AM May 12, 2021 data.worldbank.org ).). States with fragile political systems feared that investors from Western states would withdraw their money because of the crisis.Wenn Bruno January 2013 Exceedingly high interest rates https://www.dandc.eu/en/article/european-bank-regulators-would-do-well-learn-their-latin-american-counterparts https://web.archive.org/web/20241212175814/https://www.dandc.eu/en/article/european-bank-regulators-would-do-well-learn-their-latin-american-counterparts 2024-12-12 D+C Development and Cooperation As part of national fiscal policy response to the Great Recession, governments and central banks, including the Federal Reserve, the European Central Bank and the Bank of England, provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals.The Federal Reserve's Policy Actions during the Financial Crisis and Lessons for the Future https://www.federalreserve.gov/newsevents/speech/kohn20100513a.htm https://web.archive.org/web/20250209211153/https://www.federalreserve.gov/newsevents/speech/kohn20100513a.htm 2025-02-09 2024-03-11 Board of Governors of the Federal Reserve System en In effect, the central banks went from being the "lender of last resort" to the "lender of only resort" for a significant portion of the economy. In some cases the Fed was considered the "buyer of last resort".February 14, 2009 US Congress passes stimulus plan http://news.bbc.co.uk/2/hi/business/7889897.stm https://web.archive.org/web/20250212163027/http://news.bbc.co.uk/2/hi/business/7889897.stm 2025-02-12 BBC NewsSummer 2009 Government Support for Financial Assets and Liabilities Announced in 2008 and Soon Thereafter ($ in billions) 7 Federal Deposit Insurance Corporation https://www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/si_sum09.pdf June 8, 2020 July 31, 2020 https://web.archive.org/web/20200731161912/https://www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/si_sum09.pdf deadCollins Mike July 14, 2015 The Big Bank Bailout https://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/ https://web.archive.org/web/20250208023403/https://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/ 2025-02-08 ForbesJuly 2012 Federal Reserve Liquidity Provision during the Financial Crisis of 2007–2009 http://www.newyorkfed.org/research/staff_reports/sr563.pdf Federal Reserve Bank of New YorkSingh Kavaljit 2010 Fixing Global Finance: A Developing Country Perspective on Global Financial Reforms http://www.bibalex.org/Search4Dev/files/400653/344463.pdf https://web.archive.org/web/20250121112649/http://www.bibalex.org/Search4Dev/files/400653/344463.pdf 2025-01-21 Centre for Research on Multinational Corporations During the fourth quarter of 2008, these central banks purchased US$2.5 trillion (~$US-GDP 2500000000000 2008 in US-GDP) of government debt and troubled private assets from banks. This was 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,Langley Paul https://books.google.com/books?id=FhGaBQAAQBAJ&pg=PA86 Liquidity Lost: The Governance of the Global Financial Crisis 2015 Oxford University Press 978-0-19-968378-9 83–86Krugman Paul Paul Krugman October 12, 2008 Gordon Does Good https://www.nytimes.com/2008/10/13/opinion/13krugman.html subscription https://web.archive.org/web/20250118165542/https://www.nytimes.com/2008/10/13/opinion/13krugman.html 2025-01-18 The New York Times 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 a lot of new currency as a method to combat the liquidity trap.Stiglitz Joseph Joseph Stiglitz November 5, 2010 New $600B Fed Stimulus Fuels Fears of US Currency War https://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears https://web.archive.org/web/20250214143758/https://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears 2025-02-14 Democracy Now Bailouts came in the form of trillions of dollars of loans, asset purchases, guarantees, and direct spending.CNNMoney.com's bailout tracker https://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html https://web.archive.org/web/20090411001652/http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html dead April 11, 2009 CNN Significant controversy accompanied the bailouts, such as in the case of the AIG bonus payments controversy, leading to the development of a variety of "decision making frameworks", to help balance competing policy interests during times of financial crisis.Wafa Tim October 4, 2010 When Policies Collide: A Decision Making Framework for Financial System Overhaul in the 21st Century Social Science Research Network 1686982 Alistair Darling, the U.K.'s Chancellor of the Exchequer at the time of the crisis, stated in 2018 that Britain came within hours of "a breakdown of law and order" the day that Royal Bank of Scotland was bailed-out.Martin Will May 28, 2018 'It sent a tremor down my back': Alistair Darling reveals how Britain came within hours of the 'breakdown of law and order' Business Insider https://www.businessinsider.com/alistair-darling-uk-breakdown-of-law-and-order-financial-crisis-2018-5 Instead of financing more domestic loans, some banks instead spent some of the stimulus money in more profitable areas such as investing in emerging markets and foreign currencies.Wheatley Jonathan Garnham Peter November 5, 2010 Brazil in 'currency war' alert Financial Times https://www.ft.com/content/33ff9624-ca48-11df-a860-00144feab49a In July 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the United States to "promote the financial stability of the United States".111 203 The Basel III capital and liquidity standards were adopted worldwide.Monitoring adoption of Basel standards October 18, 2017 https://www.bis.org/bcbs/implementation/rcap_reports.htm Bank for International Settlements Since the 2008 financial crisis, consumer regulators in America have more closely supervised sellers of credit cards and home mortgages in order to deter anticompetitive practices that led to the crisis.Van Loo Rory April 1, 2015 Helping Buyers Beware: The Need for Supervision of Big Retail https://scholarship.law.bu.edu/faculty_scholarship/29 University of Pennsylvania Law Review 163 5 1311 At least two major reports on the causes of the crisis were produced by the U.S. Congress: the Financial Crisis Inquiry Commission report, released January 2011, and a report by the United States Senate Homeland Security Permanent Subcommittee on Investigations entitled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, released April 2011. In total, 47 bankers served jail time as a result of the crisis, over half of whom were from Iceland, where the crisis was the most severe and led to the collapse of all three major Icelandic banks.Noonan Laura Tilford Cale Milne Richard Mount Ian Wise Peter Who went to jail for their role in the financial crisis? https://ig.ft.com/jailed-bankers/ Financial Times September 20, 2018 In April 2012, Geir Haarde of Iceland became the only politician to be convicted as a result of the crisis.Neate Rupert April 23, 2012 Iceland ex-PM Geir Haarde cleared of bank negligence The Guardian https://www.theguardian.com/world/2012/apr/23/iceland-geir-haarde-found-guiltyApril 23, 2012 Mixed verdict for ex-PM of Iceland in trial tied to banking system's collapse CNN https://www.cnn.com/2012/04/23/world/europe/iceland-haarde-verdict/index.html In the aftermath of the crisis, U.S. authorities intensified enforcement actions against financial misconduct, including high-profile insider trading prosecutions such as that of Raj Rajaratnam, who was convicted in 2011.Burton Katherine Kishan Saijel Raj Rajaratnam Became Billionaire Demanding Edge Bloomberg 19 October 2009 https://www.bloomberg.com/news/articles/2009-10-19/raj-rajaratnam-became-billionaire-demanding-edge 25 April 2026 Only one banker in the United States served jail time as a result of the crisis, Kareem Serageldin, a banker at Credit Suisse who was sentenced to 30 months in jail and returned $24.6 million in compensation for manipulating bond prices to hide $1 billion of losses.Eisinger Jesse April 30, 2014 Why Only One Top Banker Went to Jail for the Financial Crisis The New York Times Magazine https://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html No individuals in the United Kingdom were convicted as a result of the crisis.Snow Jon September 13, 2011 Why have no bankers been arrested? Channel 4 https://www.channel4.com/news/by/jon-snow/blogs/bankers-arrestedScannell Kara Milne Richard August 9, 2017 Who was convicted because of the global financial crisis? Financial Times https://www.ft.com/content/de173cc6-7c79-11e7-ab01-a13271d1ee9c subscription In SEC v. Goldman Sachs, Goldman Sachs paid a $550 million civil penalty and acknowledged that its marketing materials for CDO contained incomplete information, settling securities fraud charges after allegedly anticipating the financial crisis and selling toxic investments to its clients.Morgenson Gretchen Story Louise December 24, 2009 Banks Bundled Bad Debt, Bet Against It and Won The New York Times https://www.nytimes.com/2009/12/24/business/24trading.htmlTreanor Jill 2010-07-16 Goldman Sachs handed record $550m fine over Abacus transaction https://www.theguardian.com/business/2010/jul/16/goldman-sachs-record-abacus-fine 2025-10-02 The Guardian en-GB 0261-3077SEC.gov Goldman, Sachs & Co. and Fabrice Tourre https://www.sec.gov/enforcement-litigation/litigation-releases/lr-21489 2025-10-02 www.sec.gov With fewer resources to risk in creative destruction, the number of patent applications was flat, compared to exponential increases in patent application in prior years.U.S. Patent Statistics http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.pdf United States Patent and Trademark Office April 26, 2014 April 27, 2014 https://web.archive.org/web/20140427010116/http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.pdf dead right|thumb|upright=1.35|Share of income going to the top 1% of earners, one measure of economic inequality in the US from 1913 to 2008. American families did not fare well, nor did the wealthy families.Goodkind Nicole 2023-11-01 Analysis: American inequality is rising despite higher wages CNN Business https://www.cnn.com/2023/11/01/investing/premarket-stocks-trading-wealth-inequality/index.html 2024-03-11 CNN enWealth Inequality in the United States since 1913 https://eml.berkeley.edu/~saez/SaezZucman14slides.pdfStone Chad Trisi Danilo Arloc Sherman Jennifer Beltrán January 13, 2020 A Guide to Statistics on Historical Trends in Income Inequality https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality cbpp.org However, half of the poorer families in the United States did not have wealth declines at all during the crisis because they generally did not own financial investments whose value could fluctuate. The Federal Reserve surveyed 4,000 households from 2007 to 2009, and found that the total wealth of 63% of all Americans declined in that period and 77% of the richest families had a decrease in total wealth, while only 50% of those on the poorer families suffered a decrease.Schlesinger Jill March 25, 2011 Fed Survey: We're 45% Poorer CBS News https://www.cbsnews.com/news/fed-survey-were-45-poorer/Taibbi Matt https://archive.org/details/griftopiabubblem0000taib/page/12 Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America Spiegel & Grau 2010 978-0-385-52995-2 12 Matt TaibbiWolff Edward N. 2010 Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze – An Update to 2007 1585409 10419/57025 free Timeline Global financial crisis in September 2008 Global financial crisis in October 2008 Global financial crisis in November 2008 Global financial crisis in December 2008 Global financial crisis in 2009 United States bear market of 2007–2009 Dodd–Frank Wall Street Reform and Consumer Protection Act Regulatory responses to the subprime crisis Subprime mortgage crisis solutions debate The following is a timeline of the major events of the financial crisis, including government responses, and the subsequent economic recovery.https://www.thebalance.com/2007-financial-crisis-overview-3306138 Here's How They Missed the Early Clues of the Financial Crisis Amadeo Kimberly The Balance Dotdash May 4, 2020https://www.thebalance.com/2008-financial-crisis-timeline-3305540 37 Critical Events of the 2008 Financial Crisis Amadeo Kimberly The Balance Dotdash November 20, 2019 August 2026 InternetArchiveBot https://www.thebalance.com/2009-financial-crisis-bailouts-3305539 How They Stopped the Financial Crisis in 2009 Amadeo Kimberly The Balance Dotdash May 4, 2020 August 2026 InternetArchiveBot https://fraser.stlouisfed.org/timeline/financial-crisis Federal Reserve Bank of St. Louis' Financial Crisis Timeline FRASER Pre-2007 thumb|right|350px|Cost of housing by US state from the year 2000 to 2022 April 28, 2004: A meeting is held in the basement of the Federal Reserve with the Gang of Five (Goldman Sachs, Lehman Brothers, Merrill Lynch, Bear Stearns and Morgan Stanley) and the five members of the Securities and Exchange Commission to create an exemption for the five largest investment banks in the U.S. from having to adhere to the net capital rule. This permitted these banks to take on much more debt.Labaton Stephen 2008-10-03 Agency’s ’04 Rule Let Banks Pile Up New Debt https://www.nytimes.com/2008/10/03/business/03sec.html 2026-08-03 The New York Times en-US 0362-4331 May 19, 2005: Fund manager Michael Burry closed a credit default swap against subprime mortgage bonds with Deutsche Bank valued at $60 million – the first such CDS. He projected they would become volatile within two years of the low "teaser rate" of the mortgages expiring.Lewis Michael Betting on the Blind Side https://www.vanityfair.com/news/2010/04/wall-street-excerpt-201004 January 24, 2021 Vanity Fair March 2010 en-USLewis Michael The Outsiders Who Foresaw The Subprime Crisis https://www.npr.org/templates/story/story.php?storyId=124698825 January 24, 2021 NPR March 15, 2010 2006: After years of price increases, housing prices peaked and mortgage loan delinquency rose—the first sign of the bursting of the United States housing bubble.United States Census Bureau https://www.census.gov/construction/nrs/historical_data/index.html Median and Average Sale Price of Houses SoldQuarterly Homeownership Rates and Seasonally Adjusted Homeownership Rates for the United States: 1997–2014 United States Census May 5, 2006 https://www.census.gov/housing/hvs/data/charts/fig06.pdf Due to increasingly lax underwriting standards, one-third of all mortgages in 2006 were subprime or no-documentation loans,https://www.washingtonpost.com/news/business/wp/2018/10/04/feature/10-years-later-how-the-housing-market-has-changed-since-the-crash/ 10 years later: How the housing market has changed since the crash Michele Lerner The Washington Post October 4, 2018 which comprised 17% of home purchases that year. May 2006: JPMorgan warned clients of a housing downturn, and rising foreclosure rates, especially in sub-prime mortgages.https://www.institutionalinvestor.com/article/b150ny2f12sbsp/the-2007-all-america-fixed-income-research-team The 2007 All-America Fixed-Income Research Team Pam Abramowitz Institutional Investor September 16, 2007 September 7, 2022 August 2006: The yield curve inverted, signaling a recession was likely within a year or two.Haubrich Joseph G. Cherny Kent December 18, 2008 The Yield Curve, December 2008 https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth/yield-curve-archives/yc-20081217 August 8, 2022 August 8, 2022 https://web.archive.org/web/20220808143456/https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth/yield-curve-archives/yc-20081217 dead November 2006: UBS warned of "an impending crisis in the U.S. housing market". 2007 (January–August) February 27, 2007: Stock prices in China and the U.S. fell by the most since 2003 as reports of a decline in home prices and durable goods orders stoked growth fears, with Alan Greenspan predicting a recession.https://money.cnn.com/2007/02/27/markets/markets_0630/index.htm?cnn=yes Brutal day on Wall Street Alexandra Twin CNN February 27, 2007 dead https://web.archive.org/web/20230401120810/https://money.cnn.com/2007/02/27/markets/markets_0630/index.htm?cnn=yes April 1, 2023 Due to increased delinquency rates in subprime lending, Freddie Mac said that it would stop investing in certain subprime loans.https://www.reuters.com/article/idUSN2737639920070227 Fannie, Freddie tout limited subprime exposure Patrick Rucker Reuters February 27, 2007 live https://web.archive.org/web/20221207125813/https://www.reuters.com/article/idUSN2737639920070227 December 7, 2022 April 2, 2007: New Century, an American real estate investment trust specializing in subprime lending and securitization, filed for Chapter 11 bankruptcy protection. This propagated the subprime mortgage crisis.https://www.reuters.com/article/us-newcentury-bankruptcy/new-century-files-for-chapter-11-bankruptcy-idUSN0242080520070403 New Century files for Chapter 11 bankruptcy Jonathan Stempel Reuters April 2, 2007 live https://web.archive.org/web/20230516094211/https://www.reuters.com/article/us-newcentury-bankruptcy/new-century-files-for-chapter-11-bankruptcy-idUSN0242080520070403 May 16, 2023 https://www.nytimes.com/2007/04/02/business/03lend.web.html New Century Files for Bankruptcy Julie Creswell The New York Times April 2, 2007 subscription live https://web.archive.org/web/20230420174043/http://www.nytimes.com/2007/04/02/business/03lend.web.html April 20, 2023 https://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/ https://web.archive.org/web/20070624050024/http://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/ dead June 24, 2007 New Century files for Chapter 11 bankruptcy CNN April 3, 2007https://www.usatoday.com/story/money/business/2013/09/08/chronology-2008-financial-crisis-lehman/2779515/ Timeline: Key events in financial crisis USA Today September 8, 2013 live https://web.archive.org/web/20230324095755/https://www.usatoday.com/story/money/business/2013/09/08/chronology-2008-financial-crisis-lehman/2779515/ March 24, 2023 http://news.bbc.co.uk/2/hi/business/7521250.stm Timeline: Credit crunch to downturn BBC News August 7, 2009 live https://web.archive.org/web/20231201074505/http://news.bbc.co.uk/1/hi/business/7521250.stm December 1, 2023 June 20, 2007: After receiving margin calls, Bear Stearns bailed out two of its hedge funds with $20 billion of exposure to collateralized debt obligations including subprime mortgages.https://www.reuters.com/article/us-subprime-bearstearns/bear-stearns-hedge-funds-near-shutting-down-report-idUSN2021611320070620 Bear Stearns hedge funds near shutting down: report Reuters June 20, 2007 live https://web.archive.org/web/20221207125826/https://www.reuters.com/article/us-subprime-bearstearns/bear-stearns-hedge-funds-near-shutting-down-report-idUSN2021611320070620 December 7, 2022 July 19, 2007: The Dow Jones Industrial Average (DJIA) closed above 14,000 for the first time, at 14,000.41.Dow Jones Industrial Average (^DJI) Charts, Data & News https://finance.yahoo.com/quote/%5EDJI/chart/ 2023-02-15 Yahoo Finance en-US July 30, 2007: IKB Deutsche Industriebank, the first banking casualty of the crisis, announces its bailout by German public financial institution KfW.IKB Deutsche Industriebank KfW backs IKB 2007-07-31 https://www.ikb.de/uploads/media/07_07_30_PME_KfW_staerkt_IKB.pdf August 2026 InternetArchiveBot July 31, 2007: Bear Stearns liquidated the two hedge funds. August 6, 2007: American Home Mortgage filed for bankruptcy. August 9, 2007: BNP Paribas blocked withdrawals from three of its hedge funds with a total of $2.2 billion in assets under management, due to "a complete evaporation of liquidity", making valuation of the funds impossible – a clear sign that banks were refusing to do business with each other.https://www.reuters.com/article/us-bnpparibas-subprime-funds-idUSWEB612920070809 BNP freezes $2.2 bln of funds over subprime Sudip Kar-Gupta Yann Le Guernigou Reuters August 9, 2007Three myths that sustain the economic crisis https://www.theguardian.com/business/economics-blog/2012/aug/05/economic-crisis-myths-sustain Larry Elliott The Guardian August 5, 2012 August 16, 2007: The DJIA closes at 12,945.78 after falling on 12 out of the previous 20 trading days following its peak. It had fallen 1,164.63 or 8.3%. 2007 (September–December) thumb|People queueing outside a Northern Rock branch in the United Kingdom to withdraw their savings during the financial crisis September 14, 2007: Northern Rock, a medium-sized and highly leveraged British bank, received support from the Bank of England.https://www.bankofengland.co.uk/-/media/boe/files/news/2007/september/liquidity-support-facility-for-northern-rock-plc.pdf News Release: Liquidity Support Facility for Northern Rock plc Bank of England September 14, 2007 This led to investors panicking and a bank run.https://www.bbc.com/news/business-41229513 The collapse of Northern Rock: Ten years on Dominic O'Connell BBC News September 12, 2017 September 18, 2007: The Federal Open Market Committee began reducing the federal funds rate from its peak of 5.25% in response to worries about liquidity and confidence.https://money.cnn.com/2007/09/18/news/economy/fed_rates/index.htm https://web.archive.org/web/20070923064052/http://money.cnn.com/2007/09/18/news/economy/fed_rates/index.htm dead September 23, 2007 Interest rates slashed to help economy Paul R. La Monica CNN September 18, 2007https://www.nytimes.com/2007/09/18/business/18cnd-fed.html Markets Soar After Fed Cuts Key Rate by a Half Point Edmund L. Andrews Edmund L. Andrews Jeremy W. Peters Jeremy W. Peters The New York Times September 18, 2007 subscription September 28, 2007: NetBank suffered from bank failure and filed bankruptcy due to exposure to home loans.https://www.nytimes.com/2007/09/29/business/29netbank.html Online Bank Fails, and Regulators Shut It Associated Press The New York Times September 29, 2007 October 9, 2007: The DJIA hit its peak closing price of 14,164.53.https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174 Dow High of 26,828.39 Set on October 3, 2018 Amadeo Kimberly The Balance Dotdash March 20, 2020 May 2, 2019 July 9, 2018 https://web.archive.org/web/20180709035246/https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174 dead October 15, 2007: Citigroup, Bank of America, and JPMorgan Chase announced plans for the $80 billion Master Liquidity Enhancement Conduit to provide liquidity to structured investment vehicles. The plan was abandoned in December.https://www.reuters.com/article/us-financial-supersiv/banks-abandon-plan-for-super-siv-idUSWEN314120071222 Banks abandon plan for Super-SIV Dan Wilchins Reuters December 21, 2007 November 26, 2007: US markets enter a correction as worries about the financial sector continued to mount.Gongloff Mark November 26, 2007 Credit Woes Slam Stocks https://www.wsj.com/articles/SB119608282533903873 August 11, 2024 Wall Street Journal December 2007: Unemployment in the US hit 5%.FRED https://fred.stlouisfed.org/series/UNRATE fred.stlouisfed.org December 12, 2007: The Federal Reserve instituted the Term auction facility to supply short-term credit to banks with sub-prime mortgages.https://www.federalreserve.gov/monetarypolicy/20071212a.htm Press Release Federal Reserve Board of Governors December 12, 2007 December 17, 2007: Delta Financial Corporation filed bankruptcy after failing to securitize subprime loans.https://www.newsday.com/business/technology/ex-delta-chief-starts-mortgage-company-1.516094 Ex-Delta chief starts mortgage company New York Newsday May 20, 2008 June 17, 2022 September 3, 2020 https://web.archive.org/web/20200903224122/https://www.newsday.com/business/technology/ex-delta-chief-starts-mortgage-company-1.516094 dead December 19, 2007: the Standard and Poor's rating agency downgrades the ratings of many monoline insurers which pay out bonds that fail.Bajaj Vikas December 19, 2007 S.&P. Cuts Rating on Bond Insurer https://www.nytimes.com/2007/12/19/business/20cnc-bond.html The New York Times December 31, 2007: Despite volatility through the last day of the year, markets close above where they started the year, with the DJIA closing at 13,264.82, up 6.4% for the year.LaVallee Andrew December 31, 2007 Nasdaq Ends Year on a Down Note But Finishes 2007 With a 9.8% Gain Wall Street Journal https://www.wsj.com/articles/SB119911487920259503 August 11, 2024 2008 (January–August) January 11, 2008: Bank of America agreed to buy Countrywide Financial for $4 billion in stock.https://www.npr.org/2013/01/11/169108131/looking-back-on-bank-of-americas-countrywide-debacle Looking Back On Bank Of America's Countrywide Debacle Jim Zarroli NPR January 11, 2013 January 18, 2008: Stock markets fell to a yearly low as the credit rating of Ambac, a bond insurance company, was downgraded. Meanwhile, an increase in the amount of withdrawals caused Scottish Equitable to implement delays of up to 12 months on people wishing to withdraw money.Twin Alexandra Disastrous Dow tumbles again https://money.cnn.com/2008/01/18/markets/markets_0500/index.htm https://web.archive.org/web/20080119231406/http://money.cnn.com/2008/01/18/markets/markets_0500/index.htm dead January 19, 2008 CNN January 18, 2008 January 21, 2008: As US markets were closed for Martin Luther King Jr. Day, the FTSE 100 Index in the United Kingdom tumbled 323.5 points or 5.5% in its largest crash since the September 11 attacks.Guillén Mauro The Global Economic & Financial Crisis: A Timeline https://lauder.wharton.upenn.edu/wp-content/uploads/2015/06/Chronology_Economic_Financial_Crisis.pdf March 5, 2023 January 22, 2008: The US Federal Reserve cut interest rates by 0.75% to stimulate the economy, the largest drop in 25 years and the first emergency cut since 2001. January 2008: U.S. stocks had the worst January since there was over 2000 concerns about the exposure of companies that issue bond insurance.https://www.post-gazette.com/business/businessnews/2008/01/31/Stocks-erase-early-losses-rise-as-concerns-about-bond-insurers-ease/stories/200801310428 Stocks erase early losses, rise as concerns about bond insurers ease Tim Paradis Pittsburgh Post-Gazette January 31, 2008 February 13, 2008: The Economic Stimulus Act of 2008 was enacted, which included a tax rebate.https://georgewbush-whitehouse.archives.gov/news/releases/2008/02/20080213-3.html President Bush Signs H.R. 5140, the Economic Stimulus Act of 2008 whitehouse.gov February 13, 2008https://www.reuters.com/article/us-usa-economy-stimulus/bush-signs-stimulus-bill-and-cites-economic-resilience-idUSWAT00889920080214 Bush signs stimulus bill and cites economic resilience Jeremy Pelofsky Reuters February 13, 2008 February 22, 2008: The nationalisation of Northern Rock was completed. March 5, 2008: The Carlyle Group received margin calls on its mortgage bond fund.https://www.businesswire.com/news/home/20080305006383/en/Carlyle-Capital-Corporation-Limited-Issues-Update-Liquidity Carlyle Capital Corporation Limited Issues Update on Its Liquidity Business Wire March 5, 2008 March 17, 2008: Bear Stearns, with $46 billion of mortgage assets that had not been written down and $10 trillion in total assets, faced bankruptcy; instead, in its first emergency meeting in 30 years, the Federal Reserve agreed to guarantee its bad loans to facilitate its acquisition by JPMorgan Chase for $2/share. A week earlier, the stock was trading at $60/share and a year earlier it traded for $178/share. The buyout price was increased to $10/share the following week.https://archive.nytimes.com/www.nytimes.com/2008/03/17/business/17bear.html Search JP Morgan Pays $2 a Share for Bear Stearns Andrew Ross Sorkin Andrew Ross Sorkin The New York Times March 17, 2008 February 15, 2025https://www.marketwatch.com/story/jp-morgan-to-buy-bear-stearns-for-2-a-share J.P. Morgan to buy Bear Stearns for $2 a share Alistair Barr Greg Morcroft MarketWatch March 17, 2008https://www.businessinsider.com/the-bear-stearns-books-still-dont-answer-the-most-interesting-questions-2009-5 The Bear Stearns Books Still Don't Answer The Interesting Questions Eric Falkenstein Business Insider May 18, 2009 March 18, 2008: In a contentious meeting, the Federal Reserve cut the federal funds rate by 75 basis points, its 6th cut in 6 months.https://money.cnn.com/2008/03/18/news/economy/fed_rates/index.htm?postversion=2008031816 https://web.archive.org/web/20080321220052/http://money.cnn.com/2008/03/18/news/economy/fed_rates/index.htm?postversion=2008031816 dead March 21, 2008 Fed cuts rates by 3/4 of a point Chris Isidore CNN March 18, 2008 It also allowed Fannie Mae & Freddie Mac to buy $200 billion in subprime mortgages from banks. Officials thought this would contain the possible crisis. The U.S. dollar weakened and commodity prices soared.September 20232018-04-27 Commodities Prices to Rise in 2018 https://blogs.worldbank.org/developmenttalk/commodities-prices-rise-2018 2024-03-11 blogs.worldbank.orgCommodity prices to rise more than expected in 2018 https://www.worldbank.org/en/news/press-release/2018/04/24/commodity-prices-to-rise-more-than-expected-in-2018-world-bank 2024-03-11 World BankWorld Economic Situation And Prospects: March 2018 Briefing, No. 112 Department of Economic and Social Affairs https://www.un.org/development/desa/dpad/publication/world-economic-situation-and-prospects-march-2018-briefing-no-112/ 2024-03-11 www.un.org Late June 2008: Despite the U.S. stock market falling to 20% below its highs, commodity-related stocks soared as oil traded above $140/barrel for the first time and steel prices rose above $1,000 per ton. Worries about inflation combined with a strong demand from China encouraging people to invest in commodities during the 2000s commodities boom.https://money.cnn.com/2008/06/27/markets/oil/ https://web.archive.org/web/20080630113944/http://money.cnn.com/2008/06/27/markets/oil/ dead June 30, 2008 Oil settles at record high above $140 Ben Rooney David Goldman CNN June 27, 2008https://www.bloomberg.com/news/articles/2008-06-27/marcial-u-dot-s-dot-steel-is-on-a-rollbusinessweek-business-news-stock-market-and-financial-advice Marcial: U.S. Steel Is on a Roll Gene G. Marcial Bloomberg News June 27, 2008 July 11, 2008: IndyMac failed. Oil prices peaked at $147.50 July 30, 2008: The Housing and Economic Recovery Act of 2008 was enacted.https://www.hud.gov/hudprograms/hera2008 https://web.archive.org/web/20200608151957/https://www.hud.gov/hudprograms/hera2008 dead June 8, 2020 Housing and Economic Recovery Act of 2008 (HERA) Programs September 20, 2017 United States Department of Housing and Urban Development August 2008: Unemployment hit 6% in the US. 2008 (September) September 7, 2008: The Federal takeover of Fannie Mae and Freddie Mac was implemented.https://money.cnn.com/2008/09/07/news/companies/fannie_freddie/ https://web.archive.org/web/20080910011530/http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/ dead September 10, 2008 U.S. seizes Fannie and Freddie David Ellis CNN September 7, 2008 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.https://money.cnn.com/2008/09/15/news/companies/merrill_bofa_deal/ https://web.archive.org/web/20130920084530/http://money.cnn.com/2008/09/15/news/companies/merrill_bofa_deal/ dead September 20, 2013 Bank of America to buy Merrill Chris Isidore CNN September 15, 2008 Lehman had been in talks to be sold to either Bank of America or Barclays but neither bank wanted to acquire the entire company.https://www.nytimes.com/2008/09/13/business/13rescue.html U.S. Gives Banks Urgent Warning to Solve Crisis The New York Times Eric Dash September 12, 2008 subscription September 16, 2008: The Federal Reserve took over American International Group with $85 billion in debt and equity funding. The Reserve Primary Fund "broke the buck" as a result of its exposure to Lehman Brothers securities.https://www.americanactionforum.org/research/the-federal-reserves-crisis-response/ The Federal Reserve's Crisis Response American Action Network September 12, 2013 September 17, 2008: Investors withdrew $144 billion from U.S. money market funds, the equivalent of a bank run on money market funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls, causing the short-term lending market to freeze. The withdrawal compared to $7.1 billion in withdrawals the week prior. This interrupted the ability of corporations to rollover their short-term debt. The U.S. government extended insurance for money market accounts analogous to bank deposit insurance via a temporary guaranteeGullapalli Diya https://www.wsj.com/articles/SB122186683086958875 The Wall Street Journal Bailout of Money Funds Seems to Stanch Outflow September 20, 2008 subscription and with Federal Reserve programs to purchase commercial paper. September 18, 2008: In a dramatic meeting, United States Secretary of the Treasury Henry Paulson and Chair of the Federal Reserve Ben Bernanke met with Speaker of the United States House of Representatives Nancy Pelosi and warned that the credit markets were close to a complete meltdown. Bernanke requested a $700 billion fund to acquire toxic mortgages and reportedly told them: "If we don't do this, we may not have an economy on Monday".https://www.nytimes.com/2008/10/02/business/02crisis.html As Crisis Spiraled, Alarm Led to Action Joe Nocera Joe Nocera The New York Times October 1, 2008 subscription September 19, 2008: The Federal Reserve created the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility to temporarily insure money market funds and allow the credit markets to continue operating.September 19, 2008 Federal Reserve Board announces two enhancements to its programs to provide liquidity to markets https://www.federalreserve.gov/newsevents/pressreleases/monetary20080919a.htm Board of Governors of the Federal Reserve System en September 20, 2008: Paulson requested the U.S. Congress authorize a $700 billion fund to acquire toxic mortgages, telling Congress "If it doesn't pass, then heaven help us all".https://www.wsj.com/articles/SB122186563104158747 Shock Forced Paulson's Hand Deborah Solomon Liz Rappaport Damian Paletta Jon Hilsenrath The Wall Street Journal September 20, 2008 subscription September 21, 2008: Goldman Sachs and Morgan Stanley converted from investment banks to bank holding companies to increase their protection by the Federal Reserve.https://dealbook.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies/ As Goldman and Morgan Shift, a Wall St. Era Ends The New York Times September 21, 2008 subscriptionhttps://www.cnbc.com/2009/09/18/the-financial-crisis-this-dayone-year-ago-sept-21-2008.html The Financial Crisis: This Day – One Year Ago, Sept. 21, 2008 CNBC September 18, 2009https://www.federalreserve.gov/newsevents/pressreleases/bcreg20080921a.htm Board approves, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies Federal Reserve Board of Governors September 21, 2008https://www.forbes.com/2008/09/22/goldman-morgan-fed-biz-wall-cx_lm_0922bizgoldman.html Say Goodbye To The Investment Banks Liz Moyer Forbes September 21, 2008 September 22, 2008: MUFG Bank acquired 20% of Morgan Stanley.https://money.cnn.com/2008/09/22/news/companies/mufg_morgan_stanley/index.htm https://web.archive.org/web/20080923134926/http://money.cnn.com/2008/09/22/news/companies/mufg_morgan_stanley/index.htm dead September 23, 2008 Morgan Stanley to sell stake to Japan's MUFG David Ellis CNN September 22, 2008 September 23, 2008: Berkshire Hathaway made a $5 billion investment in Goldman Sachs.https://money.cnn.com/2008/09/23/news/companies/goldman_berkshire/ https://web.archive.org/web/20080926053052/http://money.cnn.com/2008/09/23/news/companies/goldman_berkshire/ dead September 26, 2008 Buffett's Berkshire invests $5B in Goldman Tami Luhby CNN September 23, 2008 September 26, 2008: Washington Mutual went bankrupt and was seized by the Federal Deposit Insurance Corporation after a bank run in which panicked depositors withdrew $16.7 billion in 10 days.https://www.cbsnews.com/news/washington-mutual-falls-to-subprime-mess/ Washington Mutual Falls To Subprime Mess CBS News September 26, 2008 September 29, 2008: By a vote of 225–208, with most Democrats in support and Republicans against, the House of Representatives rejected the Emergency Economic Stabilization Act of 2008, which included the $700 billion Troubled Asset Relief Program. In response, the DJIA dropped 777.68 points, or 6.98%, then the largest point drop in history. The S&P 500 Index fell 8.8% and the Nasdaq Composite fell 9.1%.https://money.cnn.com/2008/09/29/news/economy/bailout/ https://web.archive.org/web/20081002032707/http://money.cnn.com/2008/09/29/news/economy/bailout/ dead October 2, 2008 Bailout plan rejected – supporters scramble Chris Isidore CNN September 29, 2008 Several stock market indices worldwide fell 10%. Gold prices soared to $900/ounce. The Federal Reserve doubled its credit swaps with foreign central banks as they all needed to provide liquidity. Wachovia reached a deal to sell itself to Citigroup; however, the deal would have made shares worthless and required government funding.https://money.cnn.com/2008/09/29/news/companies/wachovia_citigroup/index.htm https://web.archive.org/web/20080930030808/http://money.cnn.com/2008/09/29/news/companies/wachovia_citigroup/index.htm dead September 30, 2008 Citigroup buys Wachovia bank assets for $2.2B David Ellis CNN September 29, 2008 September 30, 2008: President George W. Bush addressed the country, saying "Congress must act... Our economy is depending on decisive action from the government. The sooner we address the problem, the sooner we can get back on the path of growth and job creation". The DJIA rebounded 4.7%.https://www.cnbc.com/2009/09/29/the-financial-crisis-this-dayone-year-ago-sept-30-2008.html The Financial Crisis: This Day – One Year Ago, Sept. 30, 2008 CNBC September 30, 2009 2008 (October) October 1, 2008: The U.S. Senate passed the Emergency Economic Stabilization Act of 2008.https://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/ https://web.archive.org/web/20081004001856/http://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/ dead October 4, 2008 Senate passes bailout Jeanne Sahadi CNN October 2, 2008 October 2, 2008: Stock market indices fell 4% as investors were nervous ahead of a vote in the U.S. House of Representatives on the Emergency Economic Stabilization Act of 2008.https://money.cnn.com/2008/10/02/markets/markets_newyork/index.htm https://web.archive.org/web/20081003105114/http://money.cnn.com/2008/10/02/markets/markets_newyork/index.htm dead October 3, 2008 Bailout fears sink stocks Alexandra Twin CNN October 2, 2008 October 3, 2008: The House of Representatives passed the Emergency Economic Stabilization Act of 2008 and the $700 billion Troubled Asset Relief Program.https://hoyer.house.gov/content/congress-passes-emergency-economic-stabilization-act Congress Passes Emergency Economic Stabilization Act Steny Hoyer October 3, 2008 Bush signed the legislation that same day.https://www.smh.com.au/world/economic-rescue-swiftly-signed-into-law-20081004-4tnf.html Economic rescue swiftly signed into law Stephen Collinson The Sydney Morning Herald October 4, 2008 Wachovia reached a deal to be acquired by Wells Fargo in a deal that did not require government funding.https://abcnews.go.com/Business/SmartHome/story?id=5946486&page=1 Wells Fargo Buys Wachovia for $15.1 Billion Sara Lepro ABC News Associated Press October 3, 2008 October 6–10, 2008: From October 6–10, 2008, the Dow Jones Industrial Average (DJIA) closed lower in all five sessions. Volume levels were record-breaking. The DJIA fell 1,874.19 points, or 18.2%, in its worst weekly decline ever on both a points and percentage basis. The S&P 500 fell more than 20%.https://www.telegraph.co.uk/finance/financialcrisis/3174151/Financial-crisis-US-stock-markets-suffer-worst-week-on-record.html https://ghostarchive.org/archive/20220110/https://www.telegraph.co.uk/finance/financialcrisis/3174151/Financial-crisis-US-stock-markets-suffer-worst-week-on-record.html January 10, 2022 live Financial crisis: US stock markets suffer worst week on record The Daily Telegraph October 10, 2008 subscription October 7, 2008: In the U.S., per the Emergency Economic Stabilization Act of 2008, the Federal Deposit Insurance Corporation increased deposit insurance coverage to $250,000 per depositor.https://www.fdic.gov/news/press-releases/2008/pr08093.html Emergency Economic Stabilization Act of 2008 Temporarily Increases Basic FDIC Insurance Coverage from $100,000 to $250,000 Per Depositor Federal Deposit Insurance Corporation October 7, 2008 August 2, 2020 July 10, 2022 https://web.archive.org/web/20220710143330/https://www.fdic.gov/news/press-releases/2008/pr08093.html dead thumb|right|upright=1.6|During the 2008 global financial crisis, the BSE SENSEX experienced a sharp decline. It dropped from over 21,000 points in January 2008 to below 8,000 points in October 2008. https://www.ndtvprofit.com/business/the-sensex-journey-from-2008-to-2013-371137 The Sensex journey: From 2008 to 2013 NDTV Profit 1 November 2013 August 2026 InternetArchiveBot October 8, 2008: The Indonesian stock market halted trading after a 10% drop in one day.https://www.thejakartapost.com/news/2020/03/13/covid-19-indonesia-idx-trading-halted-first-time-2008.html Trading halted for first time since 2008 over pandemic Riska Rahman Prima Wirayani The Jakarta Post March 13, 2020 Global central banks held emergency meetings and coordinated interest rate cuts before the US stock markets opened.https://www.federalreserve.gov/newsevents/pressreleases/monetary20081008a.htm FOMC statement: Federal Reserve and other central banks announce reductions in policy interest rates October 11, 2008: The head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown".https://www.reuters.com/article/us-financial3/imf-warns-of-financial-meltdown-idUSTRE49A36O20081011 IMF warns of financial meltdown Lesley Wroughton Francois Murphy Reuters October 11, 2008 October 14, 2008: Having been suspended for three successive trading days (October 9, 10 and 13), the Icelandic stock market reopened on October 14, with the main index, the OMX Iceland 15, closing at 678.4, which was about 77% lower than the 3,004.6 at the close on October 8, after the value of the three big banks, which had formed 73.2% of the value of the OMX Iceland 15, had been set to zero, leading to the 2008–2011 Icelandic financial crisis.https://www.theguardian.com/business/2008/oct/14/iceland-marketturmoil Iceland markets plummet Julia Kollewe The Guardian October 14, 2008 The Federal Deposit Insurance Corporation created the Temporary Liquidity Guarantee Program to guarantee the senior debt of all FDIC-insured institutions through June 30, 2009.https://www.fdic.gov/news/news/press/2008/pr08100.html FDIC Announces Plan to Free Up Bank Liquidity Federal Deposit Insurance Corporation October 14, 2008 October 16, 2008: A rescue plan was unveiled for Swiss banks UBS AG and Credit Suisse.https://www.theguardian.com/business/2008/oct/16/ubs-creditsuisse Switzerland unveils bank bail-out plan David Gow The Guardian October 16, 2008 October 24, 2008: Many of the world's stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices.https://www.marketwatch.com/story/indexes-fall-hard-on-bloody-friday Indexes fall hard on bloody Friday V. Phani Kumar Marketwatch October 24, 2008 In the U.S., the DJIA fell 3.6%, although not as much as other markets.https://money.cnn.com/2008/10/24/markets/markets_newyork/index.htm https://web.archive.org/web/20081025105403/http://money.cnn.com/2008/10/24/markets/markets_newyork/index.htm dead October 25, 2008 Stocks can't shake the blues Alexandra Twin CNN October 24, 2008 The United States dollar, the Japanese yen and the Swiss franc soared against other major currencies, particularly the British pound and Canadian dollar, as world investors sought safe havens. A currency crisis developed, with investors transferring vast capital resources into stronger currencies, leading many governments of emerging economies to seek aid from the International Monetary Fund.https://www.nytimes.com/2008/10/24/business/worldbusiness/24emerge.html West Is in Talks on Credit to Aid Poorer Nations The New York Times Mark Landler Mark Landler October 23, 2008 subscriptionhttps://www.nytimes.com/2008/10/24/business/worldbusiness/24won.html Trouble Without Borders The New York Times Martin Fackler Martin Fackler (journalist) October 23, 2008 subscription Later that day, the deputy governor of the Bank of England, Charlie Bean, suggested that "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history".https://www.reuters.com/article/britain-bank-bean/financial-crisis-may-be-worst-in-history-boes-bean-idUSLAC00300720081024 Financial crisis may be worst in history – BoE's Bean Reuters October 24, 2008 In a transaction pushed by regulators, PNC Financial Services agreed to acquire National City Corp.https://abcnews.go.com/Business/story?id=6107696 PNC will buy troubled National City Corp. for $5.58 billion Pallavi Gogoi USA Today ABC News October 24, 2008 2008 (November–December) thumb|Restaurant in Bristol, United Kingdom, advertising cheap "Credit Crunch Lunch" 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%.https://money.cnn.com/2008/10/08/news/economy/fed_move/ https://web.archive.org/web/20081011035031/http://money.cnn.com/2008/10/08/news/economy/fed_move/ dead October 11, 2008 Fed: Emergency cut Chris Isidore CNN October 8, 2008 November 10, 2008: American Express converted to a bank holding company.https://money.cnn.com/2008/11/10/news/companies/amex/index.htm https://web.archive.org/web/20081201061642/http://money.cnn.com/2008/11/10/news/companies/amex/index.htm dead December 1, 2008 AmEx becomes bank to stabilize funding Tami Luhby CNN November 10, 2008 November 20, 2008: Iceland obtained an emergency loan from the International Monetary Fund after the failure of banks in Iceland resulted in a devaluation of the Icelandic króna and threatened the government with bankruptcy.http://news.bbc.co.uk/2/hi/in_depth/7738874.stm IMF approves $2.1bn Iceland loan BBC News November 20, 2008 November 25, 2008: The Term Asset-Backed Securities Loan Facility was announced.https://www.federalreserve.gov/monetarypolicy/20081125a.htm Press Release Federal Reserve Board of Governors November 25, 2008 November 29, 2008: Economist Dean Baker observed:There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007 ... While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth.https://prospect.org/economy/credit-crisis-damn-it/ It's Not the Credit Crisis, Damn It! Baker Dean The American Prospect November 29, 2008 December 1, 2008: The NBER announced the US was in a recession and had been since December 2007. The Dow tumbled 679.95 points or 7.8% on the news.It's official: U.S. in a recession since December 2007 December 1, 2008 https://money.cnn.com/2008/12/01/news/economy/recession/ https://web.archive.org/web/20081202181934/http://money.cnn.com/2008/12/01/news/economy/recession/ dead December 2, 2008 May 3, 2023 CNN Money December 6, 2008: The 2008 Greek riots began, sparked in part by economic conditions in the country.June 2024 December 16, 2008: The federal funds rate was lowered to 0%.https://money.cnn.com/2008/12/16/news/economy/fed_decision/index.htm https://web.archive.org/web/20081217062057/http://money.cnn.com/2008/12/16/news/economy/fed_decision/index.htm dead December 17, 2008 Fed slashes key rate to near zero Chris Isidore CNN December 16, 2008 December 20, 2008: Financing under the Troubled Asset Relief Program was made available to General Motors and Chrysler.https://www.forbes.com/2008/12/20/auto-bailout-update-markets-equity-cx_cg_1219markets29.html GM And Chrysler Covered By TARP Carl Gutierrez Forbes December 20, 2008 2009 upright=1.8|thumb|The American Recovery and Reinvestment Act of 2009 provided a payroll tax credit repealed in late 2010. January 6, 2009: Citi claimed that Singapore would experience "the most severe recession in [its] history" in 2009. In the end, the economy grew in 2009 by 0.1% and in 2010 by 14.5%.Chen Xiaoping Shao Yuchen September 11, 2017 Trade policies for a small open economy: The case of Singapore The World Economy 40 11 2500–2511 10.1111/twec.12555 Lim Kevin January 2, 2009 Singapore recession deepens, government cuts 09 outlook Reuters https://www.reuters.com/article/us-singapore-economy-gdp-sb-idUSTRE5010CK20090102 December 19, 2023GDP growth (annual %) – Singapore https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=SG December 19, 2023 January 20–26, 2009: The 2009 Icelandic financial crisis protests intensified and the Icelandic government collapsed.https://www.nytimes.com/2009/01/27/world/europe/27iceland.html Iceland's Government Collapses The New York Times January 26, 2009 subscription February 13, 2009: Congress approved the American Recovery and Reinvestment Act of 2009, a $787 billion economic stimulus package. President Barack Obama signed it February 17.https://money.cnn.com/2009/02/13/news/economy/house_final_stimulus/index.htm https://web.archive.org/web/20090214184708/http://money.cnn.com/2009/02/13/news/economy/house_final_stimulus/index.htm dead February 14, 2009 Senate passes $787 billion stimulus bill Jeanne Sahadi CNN February 15, 2009Wilson Daniel J 2012-08-01 Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/wp10-17bk.pdf American Economic Journal: Economic Policy 4 3 251–282 10.1257/pol.4.3.251 1945-7731https://www.reuters.com/article/us-usa-stimulus/congress-sends-787-billion-stimulus-to-obama-idUSTRE51A61L20090214 Congress sends $787 billion stimulus to Obama Richard Cowan Susan Cornwell Reuters February 15, 2009Sahadi Jeanne Stimulus: How to measure success February 17, 2009 https://money.cnn.com/2009/02/17/news/economy/obama_stimulus_meas_success/index.htm https://web.archive.org/web/20090218094051/http://money.cnn.com/2009/02/17/news/economy/obama_stimulus_meas_success/index.htm dead February 18, 2009 CNN Money 2023-02-12 February 20, 2009: The DJIA closed at a six-year low, amidst worries that the largest banks in the United States would have to be nationalized.https://money.cnn.com/2009/02/20/markets/markets_newyork/ https://web.archive.org/web/20090223101353/http://money.cnn.com/2009/02/20/markets/markets_newyork dead February 23, 2009 Dow closes at 6-year low Alexandra Twin CNN February 20, 2009 February 27, 2009: The DJIA closed at its lowest value since 1997 as the U.S. government increased its stake in Citigroup to 36%, raising further fears of nationalization and a report showed that GDP shrank at the sharpest pace in 26 years.https://money.cnn.com/2009/02/27/markets/markets_newyork/index.htm https://web.archive.org/web/20090228151202/http://money.cnn.com/2009/02/27/markets/markets_newyork/index.htm dead February 28, 2009 Stocks end at 12-year lows Alexandra Twin CNN February 27, 2009 Early March 2009: The drop in stock prices was compared to that of the Great Depression.Kawamoto Dawn https://www.cnet.com/news/dow-jones-decline-rate-mimics-great-depression/ Dow Jones decline rate mimics Great Depression CNET March 2, 2009https://economix.blogs.nytimes.com//2009/03/05/plunging-markets-then-and-now/ Plunging Markets, Then and Now Floyd Norris Floyd Norris The New York Times March 5, 2009 subscription March 3, 2009: President Obama stated that "Buying stocks is a potentially good deal if you've got a long-term perspective on it".Michael Mcauliff https://www.usnews.com/articles/news/obama/2009/03/04/obama-says-buy-stocks-now-good-deals-there-for-long-term-investors.html Obama Says Buy Stocks Now: Good Deals There for Long-Term Investors U.S. News & World Report March 4, 2009 March 6, 2009: The Dow Jones hit its lowest level of 6,469.95, a drop of 54% from its peak of 14,164 on October 9, 2007, over a span of 17 months, before beginning to recover.https://books.google.com/books?id=nKk0DwAAQBAJ Evolutions in Corporate Governance: Towards an Ethical Framework for Business Conduct Alison L. Dempsey Routledge 2017 9781351277389 March 10, 2009: Shares of Citigroup rose 38% after the CEO said that the company was profitable in the first two months of the year and expressed optimism about its capital position going forward. Major stock market indices rose 5–7%, marking the bottom of the stock market decline.https://money.cnn.com/2009/03/10/markets/markets_newyork/index.htm https://web.archive.org/web/20090311163640/http://money.cnn.com/2009/03/10/markets/markets_newyork/index.htm dead March 11, 2009 Stocks: Biggest gains of '09 Alexandra Twin CNN March 10, 2009 March 12, 2009: Stock market indices in the U.S. rose another 4% after Bank of America said it was profitable in January and February and would likely not need more government funding. Bernie Madoff was convicted.https://money.cnn.com/2009/03/12/markets/markets_newyork/index.htm https://web.archive.org/web/20090314001117/http://money.cnn.com/2009/03/12/markets/markets_newyork/index.htm dead March 14, 2009 A three-peat for Wall Street's bulls Alexandra Twin CNN March 12, 2009 First quarter of 2009: For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia,https://pulitzercenter.org/reporting/latvia-sobering-lessons-unregulated-lending Untold Stories: Latvia: Sobering Lessons in Unregulated Lending Pulitzer Center May 18, 2009 June 8, 2020 June 8, 2020 https://web.archive.org/web/20200608151958/https://pulitzercenter.org/reporting/latvia-sobering-lessons-unregulated-lending dead 9.8% in the Euro area and 21.5% for Mexico. April 2, 2009: Unrest over economic policy and bonuses paid to bankers resulted in the 2009 G20 London summit protests. April 10, 2009: Time magazine declared "More Quickly Than It Began, The Banking Crisis Is Over".http://content.time.com/time/business/article/0,8599,1890560,00.html More Quickly Than It Began, The Banking Crisis Is Over Time April 10, 2009 April 29, 2009: The Federal Reserve projected GDP growth of 2.5–3% in 2010; an unemployment plateau in 2009 and 2010 around 10% with moderation in 2011; and inflation rates around 1–2%.https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20090429.pdf Minutes of the Federal Open Market Committee April 28–29, 2009 May 1, 2009: People protested economic conditions globally during the 2009 May Day protests. May 20, 2009: President Obama signed the Fraud Enforcement and Recovery Act of 2009. June 2009: The National Bureau of Economic Research (NBER) declared June 2009 as the end date of the U.S. recession.https://www.barrons.com/articles/SB50001424052970203983104575367471896032724 It's Dippy to Fret About a Double-Dip Recession Mark Hulbert Mark Hulbert Barron's July 15, 2010 The Federal Open Market Committee release in June 2009 stated:... the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.https://www.federalreserve.gov/newsevents/pressreleases/monetary20090624a.htm FOMC Statement June 24, 2009 Federal Reserve June 24, 2009 June 17, 2009: Barack Obama and key advisers introduced a series of regulatory proposals that addressed consumer protection, executive pay, bank capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind down systemically important institutions.https://obamawhitehouse.archives.gov/the-press-office/remarks-president-regulatory-reform Remarks of the President on Regulatory Reform White House June 17, 2009https://www.washingtonpost.com/wp-dyn/content/article/2009/06/14/AR2009061402443_pf.html A New Financial Foundation Timothy Geithner Lawrence Summers Timothy Geithner Lawrence Summers The Washington Post June 14, 2009https://www.treasury.gov/initiatives/Documents/FinalReport_web.pdf Treasury Department Report – Financial Regulatory Reform United States Department of the Treasury December 11, 2009: United States House of Representatives passed bill H.R. 4173, a precursor to what became the Dodd–Frank Wall Street Reform and Consumer Protection Act.https://www.congress.gov/bill/111th-congress/house-bill/4173 H.R.4173: Dodd-Frank Wall Street Reform and Consumer Protection Act U.S. Congress July 21, 2010 2010 January 22, 2010: President Obama introduced "The Volcker Rule" limiting the ability of banks to engage in proprietary trading, named after Paul Volcker, who publicly argued for the proposed changes.https://economix.blogs.nytimes.com/2010/01/22/glass-steagall-vs-the-volcker-rule/ Glass-Steagall vs. the Volcker Rule The New York Times Louis Uchitelle January 22, 2010https://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012104935.html Obama's 'Volcker Rule' shifts power away from Geithner David Cho David Cho (journalist) Binyamin Appelbaum Binyamin Appelbaum The Washington Post January 22, 2010 Obama also proposed a Financial Crisis Responsibility Fee on large banks. January 27, 2010: President Obama declared on "the markets are now stabilized, and we've recovered most of the money we spent on the banks".https://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/agency_reports/Documents/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf Troubled Asset Relief Program: Two Year Retrospective United States Department of the Treasury First quarter 2010: Delinquency rates in the United States peaked at 11.54%.Delinquency Rate on Single-Family Residential Mortgages, Booked in Domestic Offices, All Commercial Banks January 1991 https://fred.stlouisfed.org/series/DRSFRMACBS Federal Reserve Economic Data April 15, 2010: U.S. Senate introduced bill S.3217, Restoring American Financial Stability Act of 2010.https://www.congress.gov/bill/111th-congress/senate-bill/3217 S.3217: Restoring American Financial Stability Act of 2010 – U.S. Congress Congress.gov July 21, 2010 May 2010: The U.S. Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule against proprietary trading was not part of the legislation.https://www.nytimes.com/interactive/2010/05/20/business/20100520-regulation-graphic.html New York Times-Major Parts of the Financial Regulation Overhaul-May 2010 The New York Times May 20, 2010 subscription July 21, 2010: Dodd–Frank Wall Street Reform and Consumer Protection Act enacted.https://www.congress.gov/bill/111th-congress/house-bill/04173#major%20actions Bill Summary & Status – 111th Congress (2009–2010) – H.R.4173 – All Information – THOMAS (Library of Congress) Library of Congress July 21, 2010https://www.marketwatch.com/story/senate-defeats-filibuster-threat-on-bank-bill-2010-07-15 Bank-reform bill sent to Obama Ronald D. Orol MarketWatch December 29, 2010 September 12, 2010: European regulators introduced Basel III regulations for banks, which increased capital ratios, limits on leverage, narrowed the definition of capital to exclude subordinated debt, limited counter-party risk, and added liquidity requirements.http://www.bis.org/press/p100912.pdf Group of Governors and Heads of Supervision announces higher global minimum capital standards September 12, 2010https://www.brookings.edu/research/basel-iii-the-banks-and-the-economy/ Basel III, the Banks, and the Economy Brookings Institution July 26, 2010 Elliott Douglas J. Critics argued that Basel III didn't address the problem of faulty risk-weightings. Major banks suffered losses from AAA-rated created by financial engineering (which creates apparently risk-free assets out of high risk collateral) that required less capital according to Basel II. Lending to AA-rated sovereigns has a risk-weight of zero, thus increasing lending to governments and leading to the next crisis.https://www.economist.com/blogs/freeexchange/2010/09/basel_iii Third time's the charm? The Economist September 13, 2010 Johan Norberg argued that regulations (Basel III among others) have indeed led to excessive lending to risky governments (see Euro area crisis) and the European Central Bank pursues even more lending as the solution.https://reason.com/2012/04/17/financial-crisis-ii/ Financial Crisis II: European governments fail to learn from history Norberg Johan Reason May 2012 November 3, 2010: To improve economic growth, the Federal Reserve announced another round of quantitative easing, dubbed QE2, which included the purchase of $600 billion in long-term Treasuries over the following eight months.https://money.cnn.com/2010/11/03/news/economy/fed_decision/index.htm https://web.archive.org/web/20101104002354/http://money.cnn.com/2010/11/03/news/economy/fed_decision/index.htm dead November 4, 2010 QE2: Fed pulls the trigger Annalyn Censky CNN November 3, 2010 Post-2010 March 2011: Two years after the nadir of the crisis, many stock market indices were 75% above their lows set in March 2009. Nevertheless, the lack of fundamental changes in banking and financial markets worried many market participants, including the International Monetary Fund.Norris Floyd Floyd Norris Crisis Is Over, but Where's the Fix? The New York Times https://www.nytimes.com/2011/03/11/business/economy/11norris.html March 10, 2011 subscription 2011: Median household wealth fell 35% in the U.S., from $106,591 to $68,839 between 2005 and 2011.Kurtzleben Danielle Middle class households' wealth fell 35 percent from 2005 to 2011 https://www.vox.com/2014/8/23/6057467/middle-class-households-wealth-fell-35-percent-from-2005-to-2011 Vox Media August 23, 2014 May 2012: The Manhattan District Attorney indicted Abacus Federal Savings Bank and 19 employees for selling fraudulent mortgages to Fannie Mae. The bank was acquitted in 2015. Abacus was the only bank prosecuted for misbehavior that precipitated the crisis. July 26, 2012: During the European debt crisis, President of the European Central Bank Mario Draghi announced that "The ECB is ready to do whatever it takes to preserve the euro".https://money.cnn.com/2012/07/26/investing/draghi-ecb/index.htm https://web.archive.org/web/20120727153830/http://money.cnn.com/2012/07/26/investing/draghi-ecb/index.htm dead July 27, 2012 Draghi to the rescue Ben Rooney CNN July 26, 2012 August 2012: In the United States, many homeowners still faced foreclosure and could not refinance or modify their mortgages. Foreclosure rates remained high.Cautious Moves on Foreclosures Haunting Obama https://www.nytimes.com/2012/08/20/business/economy/slow-response-to-housing-crisis-now-weighs-on-obama.html Binyamin Appelbaum Binyamin Appelbaum The New York Times August 19, 2012 subscription September 13, 2012: To improve lower interest rates, support mortgage markets, and make financial conditions more accommodative, the Federal Reserve announced another round of quantitative easing, dubbed QE3, which included the purchase of $40 billion in long-term Treasuries each month.https://money.cnn.com/2012/09/13/news/economy/federal-reserve-qe3/index.html https://web.archive.org/web/20120915084841/http://money.cnn.com/2012/09/13/news/economy/federal-reserve-qe3/index.html dead September 15, 2012 Federal Reserve launches QE3 Annalyn Censky CNN September 13, 2012 2014: A report showed that the distribution of household incomes in the United States became more unequal during the post-2008 economic recovery, a first for the United States but in line with the trend over the last ten economic recoveries since 1949.Tcherneva Pavlina R. This Chart Shows Just How (Un)Equal Things Are During A 'Champion' Of The 99%'s Administration http://www.ijreview.com/2014/08/165868-chart-shows-just-unequal-things-champion-99s-administration/ Independent Journal Review August 2014 https://web.archive.org/web/20140913062459/http://www.ijreview.com/2014/08/165868-chart-shows-just-unequal-things-champion-99s-administration/ September 13, 2014 deadBinyamin Appelbaum Binyamin Appelbaum Fed Says Growth Lifts the Affluent, Leaving Behind Everyone Else https://www.nytimes.com/2014/09/05/business/economy/least-affluent-families-incomes-are-declining-fed-survey-shows.html The New York Times September 4, 2014 subscription Income inequality in the United States grew from 2005 to 2012 in more than 2 out of 3 metropolitan areas.Chokshi Niraj Income inequality seems to be rising in more than 2 in 3 metro areas https://www.washingtonpost.com/blogs/govbeat/wp/2014/08/11/income-inequality-seems-to-be-rising-in-more-than-2-in-3-metro-areas/ The Washington Post August 11, 2014 June 2015: A study commissioned by the ACLU found that white home-owning households recovered from the financial crisis faster than black home-owning households, widening the racial wealth gap in the U.S.Sarah Burd-Sharps Rebecca Rasch https://www.ssrc.org/publications/view/impact-of-the-us-housing-crisis-on-the-racial-wealth-gap-across-generations/ Impact of the US Housing Crisis on the Racial Wealth Gap Across Generations Social Science Research Council and the ACLU. June 2015 2017: Per the International Monetary Fund, from 2007 to 2017, "advanced" economies accounted for only 26.5% of global GDP (PPP) growth while emerging and developing economies accounted for 73.5% of global GDP (PPP) growth.https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/index.aspx International Monetary Fund, World Economic Outlook Database International Monetary Fund August 2023: UBS reaches an agreement with the United States Department of Justice to pay a combined $1.435 billion in civil penalties to settle a legacy matter from 2006–2007 related to the issuance, underwriting and sale of residential mortgage-backed securities.https://www.cnbc.com/2023/08/14/ubs-to-pay-1point4-billion-for-fraud-in-mortgage-backed-securities.html UBS to pay $1.4 billion over fraud in residential mortgage-backed securities CNBC Goswami Rohan August 14, 2023 August 22, 2023 In 2023, the failure of Silicon Valley Bank kicked off a banking crisis in the United States, triggering a sharp decline in global bank stock prices and swift response by regulators to prevent potential global contagion. Many investors feared it would evolve into a global financial crisis. Fears of “too big to fail” US banks were reminiscent of the 2008 crisis. In the table, the names of emerging and developing economies are shown in boldface type, while the names of developed economies are in Roman (regular) type. left The top twenty growing economies (by increase in GDP (PPP) from 2007 to 2017) 50 35 14,148 Economy Incremental GDP (billions in USD) (01) China 14,147 (02) India 5,348 (03) United States 4,913 (—) European Union 4,457 (04) Indonesia 1,632 (05) Turkey 1,024 (06) Japan 1,003 (07) Germany 984 (08) Russia 934 (09) Brazil 919 (10) South Korea 744 (11) Mexico 733 (12) Saudi Arabia 700 (13) United Kingdom 671 (14) France 566 (15) Nigeria 523 (16) Egypt 505 (17) Canada 482 (18) Iran 462 (19) Thailand 447 (20) Philippines 440 88% The twenty largest economies contributing to global GDP (PPP) growth (2007–2017)https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/index.aspx World Economic Outlook Database International Monetary Fund Federal actions towards the crisis thumb|Housing Finance Reform Bill The expansion of central bank lending in response to the crisis was not confined to the Federal Reserve's provision of aid to individual financial institutions. The Federal Reserve has also conducted several innovative lending programs to improve liquidity and strengthen different financial institutions and markets, such as Freddie Mac and Fannie Mae. In this case, the major problem in the market is the lack of free cash reserves and flows to secure the loans. The Federal Reserve took many steps to deal with financial market liquidity worries. One of these steps was a credit line for major traders, who act as the Fed's partners in open market activities.Fox Justin 2013-11-01 What We've Learned from the Financial Crisis Harvard Business Review https://hbr.org/2013/11/what-weve-learned-from-the-financial-crisis 2023-09-29 0017-8012 Also, loan programs were set up to make the money market mutual funds and commercial paper market more flexible. Also, the Term Asset-Backed Securities Loan Facility (TALF) was put in place thanks to a joint effort with the US Department of the Treasury. This plan made it easier for consumers and businesses to get credit by giving Americans who owned high-quality asset-backed securities more credit. Before the crisis, the Federal Reserve's stocks of Treasury securities were sold to pay for the increase in credit. This method was meant to keep banks from trying to give out their extra savings, which could cause the federal funds rate to drop below where it was supposed to be.2023-08-14 Financial crisis of 2007–08 Definition, Causes, Effects, & Facts Britannica Money https://www.britannica.com/money/topic/financial-crisis-of-2007-2008 2023-09-29 However, in October 2008, the Federal Reserve was granted the power to provide banks with interest payments on their surplus reserves. This created a motivation for banks to retain their reserves instead of disbursing them, thus reducing the need for the Federal Reserve to hedge its increased lending by decreases in alternative assets.Visualizing the Financial Crisis Yale School of Management https://som.yale.edu/centers/program-on-financial-stability/the-global-financial-crisis/financialcrisischarts 2023-09-29 Money market funds also went through runs when people lost faith in the market. To keep it from getting worse, the Fed said it would give money to mutual fund companies. Also, the Department of Treasury said that it would briefly cover the assets of the fund. Both of these things helped get the fund market back to normal, which helped the commercial paper market, which most businesses use to run. The FDIC also did several things, such as raising the insurance cap from $100,000 to $250,000, to boost customer trust. thumb|Headquarters of the United States Federal Reserve System They engaged in quantitative easing, which added more than $4 trillion to the financial system and got banks to start lending again, both to each other and to people. Many homeowners who were trying to keep their homes from going into default got housing credits. A package of policies was passed that let borrowers refinance their loans even though the value of their homes was less than what they still owed on their mortgages.Novik Vitaliy 2020-11-15 How The 2008 Financial Crisis Was Solved https://bigeconomics.org/how-the-2008-financial-crisis-was-solved/ 2023-10-05 Big Economics en-US Causes section March 2026 Subprime crisis background information Subprime crisis impact timeline Subprime mortgage crisis solutions debate Indirect economic effects of the subprime mortgage crisis Great Recession Inverted yield curve thumb|upright=1.4|right|The Federal Reserve raised the Federal funds rate causing an Inverted yield curve to slow inflation and get prices and commodity prices down, that usually puts the economy into a recession. #F5A623 solid 3px 30 year mortgage average #F8E71C solid 3px 30 Year Treasury Bond #000000 solid 3px 10 Year Treasury Bond #9013FE solid 3px 2 Year Treasury Bond #4A90E2 solid 3px 3 month Treasury Bond #D0021B solid 4px Effective Federal Funds Rate #E786F9 solid 4px CPI inflation year/year lightgrey Recessions While the causes of the bubble and subsequent crash are disputed, the precipitating factor for the Financial Crisis of 2007–2008 was the bursting of the United States housing bubble and the subsequent subprime mortgage crisis, which occurred due to a high default rate and resulting foreclosures of mortgage loans, particularly adjustable-rate mortgages. Some or all of the following factors contributed to the crisis: In its January 2011 report, the Financial Crisis Inquiry Commission (FCIC, a committee of U.S. congressmen) concluded that the financial crisis was avoidable and was caused by:https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United Stateshttps://cybercemetery.unt.edu/archive/fcic/20110310173538/http://www.fcic.gov/report Financial Crisis Inquiry Commission – Get the Reporthttps://www.nytimes.com/2011/01/26/business/economy/26inquiry.html Financial Crisis Was Avoidable, Inquiry Concludes Sewell Chan Sewell Chan The New York Times January 25, 2011 subscriptionhttp://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_conclusions.pdf Conclusions of the Financial Crisis Inquiry Commission Stanford Universityhttps://www.lexisnexis.com/LegalNewsRoom/financial-fraud-law/b/blog/posts/financial-meltdown-was-avoidable-crisis-commission-finds Financial Meltdown Was Avoidable, Crisis Commission Finds LexisNexis "widespread failures in financial regulation and supervision", including the Federal Reserve's failure to stem the tide of toxic assets. "dramatic failures of corporate governance and risk management at many systemically important financial institutions" including too many financial firms acting recklessly and taking on too much risk. "a combination of excessive borrowing, risky investments, and lack of transparency" by financial institutions and by households that put the financial system on a collision course with crisis. ill preparation and inconsistent action by government and key policy makers lacking a full understanding of the financial system they oversaw that "added to the uncertainty and panic". a "systemic breakdown in accountability and ethics" at all levels. "collapsing mortgage-lending standards and the mortgage securitization pipeline". deregulation of 'over-the-counter' derivatives, especially credit default swaps. "the failures of credit rating agencies" to correctly price risk. "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" (known as the Levin–Coburn Report) by the United States Senate concluded that the crisis was the result of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street".https://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf Senate Financial Crisis Report, 2011 April 13, 2011 The high delinquency and default rates by homeowners, particularly those with subprime credit, led to a rapid devaluation of mortgage-backed securities including bundled loan portfolios, derivatives and credit default swaps. As the value of these assets plummeted, buyers for these securities evaporated and banks who were heavily invested in these assets began to experience a liquidity crisis. Securitization, a process in which many mortgages were bundled together and formed into new financial instruments called mortgage-backed securities, allowed for shifting of risk and lax underwriting standards. These bundles could be sold as (ostensibly) low-risk securities partly because they were often backed by credit default swap insurance.Stulz René M Credit Default Swaps and the Credit Crisis Journal of Economic Perspectives February 2010 24 1 73–92 10.1257/jep.24.1.73 free Because mortgage lenders could pass these mortgages (and the associated risks) on in this way, they could and did adopt loose underwriting criteria. Lax regulation allowed predatory lending in the private sector,The 2008 Housing Crisis https://www.americanprogress.org/issues/economy/reports/2017/04/13/430424/2008-housing-crisis/ Center for American Progress Colin McArthur Sarah Edelman April 13, 2017Victimizing the Borrowers: Predatory Lending's Role in the Subprime Mortgage Crisis https://knowledge.wharton.upenn.edu/article/victimizing-the-borrowers-predatory-lendings-role-in-the-subprime-mortgage-crisis/ Wharton School of the University of Pennsylvania February 20, 2008 especially after the federal government overrode anti-predatory state laws in 2004.Lest We Forget: Why We Had A Financial Crisis https://www.forbes.com/sites/stevedenning/2011/11/22/5086/ Steve Denning Forbes November 22, 2011 The Community Reinvestment Act (CRA),https://www.federalreserve.gov/consumerscommunities/cra_about.htm The Fed – Community Reinvestment Act Federal Reserve Board of Governors a 1977 U.S. federal law designed to help low- and moderate-income Americans get mortgage loans required banks to grant mortgages to higher risk families.The Clinton-Era Roots of the Financial Crisis https://www.wsj.com/articles/the-clintonera-roots-of-the-financial-crisis-1376348141 Phil Gramm Mike Solon Phil Gramm The Wall Street Journal August 12, 2013 subscriptionHere's How The Community Reinvestment Act Led To The Housing Bubble's Lax Lending https://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6 John Carney Business Insider June 27, 2009https://communitycapital.unc.edu/research/debunking-the-cra-myth-again/ UNC Center Study Debunks Role of CRA in Housing Crisis Carolina Reid Ellen Seidman Janneke Ratcliffe Josh Silver Lei Ding Mark Willis University of North Carolina at Chapel Hill January 2013 June 8, 2020 August 17, 2020 https://web.archive.org/web/20200817140907/https://communitycapital.unc.edu/research/debunking-the-cra-myth-again/ deadFederal Reserve Board – Community Reinvestment Act (CRA) https://www.federalreserve.gov/consumerscommunities/cra_about.htm May 25, 2021 Board of Governors of the Federal Reserve System Granted, in 2009, Federal Reserve economists found that "only a small portion of subprime mortgage originations [related] to the CRA", and that "CRA-related loans appear[ed] to perform comparably to other types of subprime loans". These findings "run counter to the contention that the CRA contributed in any substantive way to the [mortgage crisis]."Bhutta Neil Canner Glenn B. March 1, 2009 Did the CRA cause the mortgage market meltdown? Federal Reserve Bank of Minneapolis https://www.minneapolisfed.org:443/article/2009/did-the-cra-cause-the-mortgage-market-meltdown 2023-02-01 Reckless lending by lenders such as Bank of America's Countrywide Financial unit was increasingly incentivized and even mandated by government regulation.Perry Mark J. Dell Robert January 18, 2011 How Government Failure Caused the Great Recession https://www.huffpost.com/entry/post_1596_b_810563 May 25, 2021 HuffPost This may have caused Fannie Mae and Freddie Mac to lose market share and to respond by lowering their own standards.https://books.google.com/books?id=pTgiRDj-uIYC&pg=PA62 Zombie Economics: How Dead Ideas Still Walk among Us John Quiggin Princeton University Press 2010 62 978-1400842087 Mortgage guarantees by Fannie Mae and Freddie Mac, quasi-government agencies, which purchased many subprime loan securitizations.https://www.cato.org/sites/cato.org/files/pubs/pdf/bp120.pdf Fannie, Freddie, and the Subprime Mortgage Market Calabria Mark Cato Institute March 7, 2011 The implicit guarantee by the U.S. federal government created a moral hazard and contributed to a glut of risky lending. Government policies that encouraged home ownership, providing easier access to loans for subprime borrowers; overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate; questionable trading practices on behalf of both buyers and sellers; compensation structures by banks and mortgage originators that prioritize short-term deal flow over long-term value creation; and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making.Money, Power and Wall Street, Part 1 https://www.pbs.org/wgbh/frontline/documentary/money-power-wall-street/? PBS 2012Keller Christopher Stocker Michael Executive Compensation's Role in the Financial Crisis https://www.law.com/corpcounsel/almID/1202426091714%26slreturn%3D20121002110606/?slreturn=20200507194358 The National Law Journal November 18, 2008 June 8, 2020 September 4, 2020 https://web.archive.org/web/20200904013634/https://www.law.com/corpcounsel/almID/1202426091714%26slreturn%3D20121002110606/?slreturn=20200507194358 dead The 1999 Gramm-Leach-Bliley Act, which partially repealed the Glass-Steagall Act, effectively removed the separation between investment banks and depository banks in the United States and increased speculation on the part of depository banks.Weissman Robert Reflections on Glass-Steagall and Maniacal Deregulation https://www.commondreams.org/views/2009/11/12/reflections-glass-steagall-and-maniacal-deregulation Common Dreams November 12, 2009 Credit rating agencies and investors failed to accurately price the financial risk involved with mortgage loan-related financial products, and governments did not adjust their regulatory practices to address changes in financial markets.la Strategische Unternehmensfuehrung Nr. 1, 1999. Munich, St. Gallen 1999, 1436-5812https://www.faz.net/aktuell/wirtschaft/unternehmen/alan-greenspan-die-ratingagenturen-wissen-nicht-was-sie-tun-1464553.html Alan Greenspan: 'Die Ratingagenturen wissen nicht was sie tun' Frankfurter Allgemeine Zeitung September 22, 2007 Kuls Norbert Tigges Claus January 28, 2021 June 2, 2020 https://web.archive.org/web/20210128114206/https://www.faz.net/aktuell/wirtschaft/unternehmen/alan-greenspan-die-ratingagenturen-wissen-nicht-was-sie-tun-1464553.html dead https://georgewbush-whitehouse.archives.gov/news/releases/2008/11/20081115-1.html Declaration of the Summit on Financial Markets and the World Economy White House November 15, 2008 Variations in the cost of borrowing.Chari V.V. Christiano Lawrence Kehoe Patrick J. Facts and Myths about the Financial Crisis of 2008 https://www.minneapolisfed.org/research/wp/wp666.pdf Federal Reserve Bank of Minneapolis October 2008 Fair value accounting was issued as U.S. accounting standard SFAS 157 in 2006 by the privately run Financial Accounting Standards Board (FASB)—to which the SEC had delegated the task of establishing financial reporting standards.Laux Christian Did Fair-Value Accounting Contribute to the Financial Crisis? https://www.nber.org/papers/w15515 Working Paper Series National Bureau of Economic Research November 2009 10.3386/w15515 free This required that tradable assets such as mortgage securities be valued according to their current market value rather than their historic cost or some future expected value. When the market for such securities became volatile and collapsed, the resulting loss of value had a major financial effect upon the institutions holding them even if they had no immediate plans to sell them.Young M.R. Miller P.B.W. The role of fair value accounting in the subprime mortgage meltdown Journal of Accountancy May 2008 34–38 Easy availability of credit in the US, fueled by large inflows of foreign funds after the 1998 Russian financial crisis and 1997 Asian financial crisis of the 1997–1998 period, led to a housing construction boom and facilitated debt-financed consumer spending. As banks began to give out more loans to potential home owners, housing prices began to rise. Lax lending standards and rising real estate prices also contributed to the real estate bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load.https://www.nytimes.com/2008/09/24/business/economy/24text-bush.html President Bush's Address to Nation The New York Times September 24, 2008 subscriptionhttps://www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm Four Questions About the Financial Crisis Ben S. Bernanke Ben Bernanke Federal Reserve Board of Governors April 14, 2009https://www.nytimes.com/2009/03/02/opinion/02krugman.html Krugman Paul Paul Krugman Revenge of the Glut The New York Times March 2, 2009 subscription As part of the housing and credit booms, the number of mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors to invest in the U.S. housing market. As housing prices declined, these investors reported significant losses.http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/exesum.pdf IMF Loss Estimates International Monetary Fund April 2009 Falling prices also resulted in homes worth less than the mortgage loans, providing borrowers with a financial incentive to enter foreclosure. Foreclosure levels were elevated until early 2014.https://www.forbes.com/sites/erincarlyle/2015/01/15/foreclosure-filings-drop-by-18-in-2014-hit-lowest-level-since-2006-realtytrac-says/?sh=32f65d3948e5 2014 Foreclosure Filings Hit Lowest Level Since 2006, RealtyTrac Says Forbes January 15, 2015 drained significant wealth from consumers, losing up to $4.2 trillionhttp://www.mybudget360.com/the-balance-sheet-recession-42-trillion-lost-in-residential-real-estate-value-yet-mortgage-debt-down-by-140-billion/ Estimate of Household Wealth Lost Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses were estimated in the trillions of U.S. dollars globally. Financialization – the increased use of leverage in the financial system. Financial institutions such as investment banks and hedge funds, as well as certain, differently regulated banks, assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or losses.https://www.ft.com/content/9c158a92-1a3c-11de-9f91-0000779fd2ac We Need a Better Cushion Against Risk Financial Times March 26, 2009 subscription These losses affected the ability of financial institutions to lend, slowing economic activity. Some critics contend that government mandates forced banks to extend loans to borrowers previously considered uncreditworthy, leading to increasingly lax underwriting standards and high mortgage approval rates.How Government Created the Financial Crisis https://www.hoover.org/research/how-government-created-financial-crisis May 25, 2021 Hoover InstitutionJoe Carter July 31, 2017 How government regulation—not free markets—caused the financial crisis https://blog.acton.org/archives/97027-how-government-regulation-not-free-markets-caused-the-financial-crisis.html May 25, 2021 Acton Institute PowerBlog en-USFebruary 20, 2009 Altruism: The Moral Root of the Financial Crisis https://theobjectivestandard.com/2009/02/altruism-financial-crisis/ May 25, 2021 The Objective Standard en-US Salsman Richard M.Michel Norbert Government Policies Caused The Financial Crisis And Made the Recession Worse https://www.forbes.com/sites/norbertmichel/2015/01/26/government-policies-caused-the-financial-crisis-and-made-the-recession-worse/ May 25, 2021 Forbes These, in turn, led to an increase in the number of homebuyers, which drove up housing prices. This appreciation in value led many homeowners to borrow against the equity in their homes as an apparent windfall, leading to over-leveraging. Subprime lending Subprime mortgage crisis thumb|upright=1.6|US subprime lending expanded dramatically 2004–2006 The relaxing of credit lending standards by investment banks and commercial banks allowed for a significant increase in subprime lending. Subprime had not become less risky; Wall Street just accepted this higher risk.https://books.google.com/books?id=HSkjB_PGp98C Uncontrolled Risk Williams Mark McGraw-Hill Education April 12, 2010 978-0-07-163829-6 125 Due to competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers. In the view of some analysts, the relatively conservative government-sponsored enterprises (GSEs) policed mortgage originators and maintained relatively high underwriting standards prior to 2003. However, as market power shifted from securitizers to originators, and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated. The riskiest loans were originated in 2004–2007, the years of the most intense competition between securitizers and the lowest market share for the GSEs. The GSEs eventually relaxed their standards to try to catch up with the private banks.Labaton Stephen https://www.nytimes.com/2008/10/03/business/03sec.html The Reckoning-Agency 04 Rule Lets Banks Pile on Debt The New York Times October 2, 2008 subscriptionDuhigg Charles Charles Duhigg https://www.nytimes.com/2008/10/05/business/05fannie.html The Reckoning-Pressured to Take More Risk, Fannie Reached Tipping Point The New York Times October 4, 2008 subscription A contrarian view is that Fannie Mae and Freddie Mac led the way to relaxed underwriting standards, starting in 1995, by advocating the use of easy-to-qualify automated underwriting and appraisal systems, by designing no-down-payment products issued by lenders, by the promotion of thousands of small mortgage brokers, and by their close relationship to subprime loan aggregators such as Countrywide.https://books.google.com/books?id=H0ceRXT8Hc8C Joseph Fried Who Really Drove the Economy into the Ditch? New York City Algora Publishing 2012 16–42, 67–119 9780875869445 Housing in the New Millennium: A Home without Equity Is Just a Rental with debt Graham Fisher June 29, 2001 1162456 Depending on how "subprime" mortgages are defined, they remained below 10% of all mortgage originations until 2004, when they rose to nearly 20% and remained there through the 2005–2006 peak of the United States housing bubble.https://www.jchs.harvard.edu/research-areas/reports/state-nations-housing-2008 The State of the Nation's Housing 2008 Joint Center for Housing Studies June 23, 2008 Role of affordable housing programs The majority report of the Financial Crisis Inquiry Commission, written by the six Democratic appointees, the minority report, written by three of the four Republican appointees, studies by Federal Reserve economists, and the work of several independent scholars generally contend that government affordable housing policy was not the primary cause of the financial crisis. Although they concede that governmental policies had some role in causing the crisis, they contend that GSE loans performed better than loans securitized by private investment banks, and performed better than some loans originated by institutions that held loans in their own portfolios. In his dissent to the majority report of the Financial Crisis Inquiry Commission, conservative American Enterprise Institute fellow Peter J. WallisonWallison Peter J. Peter J. Wallison https://www.aei.org/research-products/book/dissent-from-the-majority-report-of-the-financial-crisis-inquiry-commission-2/ Dissent from the Majority Report of the Financial Crisis Inquiry Commission American Enterprise Institute - AEI American Enterprise Institute December 9, 2008 stated his belief that the roots of the financial crisis can be traced directly and primarily to affordable housing policies initiated by the United States Department of Housing and Urban Development (HUD) in the 1990s and to massive risky loan purchases by government-sponsored entities Fannie Mae and Freddie Mac. Based upon information in the SEC's December 2011 securities fraud case against six former executives of Fannie and Freddie, Peter Wallison and Edward Pinto estimated that, in 2008, Fannie and Freddie held 13 million substandard loans totaling over $2 trillion.https://www.aei.org/articles/why-the-left-is-losing-the-argument-over-the-financial-crisis/ Peter J. Wallison Peter J. Wallison Edward Pinto Why the Left Is Losing the Argument over the Financial Crisis American Enterprise Institute - AEI American Enterprise Institute December 27, 2011 In the early and mid-2000s, the Bush administration called numerous times for investigations into the safeness of the GSEs and their swelling portfolio of subprime mortgagesJanuary 2026. On September 10, 2003, the United States House Committee on Financial Services held a hearing, at the urging of the administration, to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight (OFHEO) that had uncovered accounting discrepancies within the two entities.Just the Facts: The Administration's Unheeded Warnings About the Systemic Risk Posed by the GSEs https://georgewbush-whitehouse.archives.gov/news/releases/2008/09/20080919-15.html White House September 19, 2008OFHEO Report on Systemic Risk https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/Systemic-Risk-Fannie-Mae,-Freddie-Mac-and-the-Role-of-OFHEO.aspx Federal Housing Finance Agency February 4, 2003 June 10, 2020 September 4, 2020 https://web.archive.org/web/20200904010022/https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/Systemic-Risk-Fannie-Mae,-Freddie-Mac-and-the-Role-of-OFHEO.aspx dead The hearings never resulted in new legislation or formal investigation of Fannie Mae and Freddie Mac, as many of the committee members refused to accept the report and instead rebuked OFHEO for their attempt at regulation.House Hearing on OFHEO Report http://commdocs.house.gov/committees/bank/hba97754.000/hba97754_0f.htm United States House of Representatives Some, such as Wallison, believe this was an early warning to the systemic risk that the growing market in subprime mortgages posed to the U.S. financial system that went unheeded.Peter J. Wallison Peter J. Wallison Ominous Signs http://www.international-economy.com/TIE_Su04_Wallison.pdf The International Economy A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid-level income (LMI) borrowers and neighborhoods, representing 10% of all U.S. mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998,https://www.treasury.gov/press-center/press-releases/Documents/crareport.pdf The Community Reinvestment Act After Financial Modernization Robert E. Litan Nicolas P. Retsinas Eric S. Belsky Susan White Haag United States Department of the Treasury April 15, 2000 but in the run-up to the crisis, fully 25% of all subprime lending occurred at CRA-covered institutions and another 25% of subprime loans had some connection with CRA.https://prospect.org/article/liberals-cause-sub-prime-crisis/ Robert Gordon Did Liberals Cause the Sub-Prime Crisis? The American Prospect April 7, 2008 However, most sub-prime loans were not made to the LMI borrowers targeted by the CRA,Robert W. K. Fiscal Aspects of Aviation Management Southern Illinois University Press 2000Demyanyk Yuliya Van Hemert Otto 2011 Understanding the Subprime Mortgage Crisis https://www.jstor.org/stable/20869292 The Review of Financial Studies 24 6 1848–1880 10.1093/rfs/hhp033 20869292 0893-9454 especially in the years 2005–2006 leading up to the crisis,Wray Randall L. 2007 Lessons from the Subprime Meltdown. https://www.frbsf.org/economic-research/files/Kojucharov-Martin-Martin-Xu.pdf Working Paper No. 522 Levy Economics Institute of Bard CollegeAvery Robert B. Brevoort Kenneth P. 2015 The Subprime Crisis: Is Government Housing Policy to Blame? https://www.jstor.org/stable/43556179 The Review of Economics and Statistics 97 2 352–363 10.1162/REST_a_00491 43556179 0034-6535 nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending.Demyank Y. Hemert V. O. Understanding the subprime mortgage crisis Review of Financial Studies 24 6 10.1093/rfs/hhp033 June 2011 1848–1880There was "citation needed" just before this. Does this source not support the text? January 2024 To other analysts the delay between CRA rule changes in 1995 and the explosion of subprime lending is not surprising, and does not exonerate the CRA. They contend that there were two, connected causes to the crisis: the relaxation of underwriting standards in 1995 and the ultra-low interest rates initiated by the Federal Reserve after the terrorist attack on September 11, 2001. Both causes had to be in place before the crisis could take place.https://books.google.com/books?id=H0ceRXT8Hc8C Joseph Fried Who Really Drove the Economy into the Ditch? New York City Algora 2012 5 9780875869445 Critics also point out that publicly announced CRA loan commitments were massive, totaling $4.5 trillion in the years between 1994 and 2007.https://books.google.com/books?id=H0ceRXT8Hc8C Joseph Fried Who Really Drove the Economy into the Ditch? New York City Algora 2012 148 9780875869445 They also argue that the Federal Reserve's classification of CRA loans as "prime" is based on the faulty and self-serving assumption that high-interest-rate loans (3 percentage points over average) equal "subprime" loans.https://books.google.com/books?id=H0ceRXT8Hc8C Joseph Fried Who Really Drove the Economy into the Ditch? New York City Algora 2012 140–141 9780875869445 Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio magazine, Michael Lewis spoke with one trader who noted that "There weren't enough Americans with [bad] credit taking out [bad loans] to satisfy investors' appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps, collateralized debt obligations and synthetic CDOs. By March 2011, the FDIC had paid out $9 billion (c. $US-GDP 9000000000 2011 in US-GDPUS-GDP) to cover losses on bad loans at 165 failed financial institutions.FDIC's Tab For Failed U.S. Banks Nears $9 Billion The Wall Street Journal March 16, 2011 https://www.wsj.com/articles/SB10001424052748704396504576204752754667840 Robin Sidel subscriptionhttps://www.seacoastonline.com/article/20110317/NEWS/110319829 US banking regulator's tab for failed banks nears $9B The Portsmouth Herald March 17, 2011 The Congressional Budget Office estimated, in June 2011, that the bailout to Fannie Mae and Freddie Mac exceeds $300 billion (c. $US-GDP 300000000000 2011 in US-GDPUS-GDP) (calculated by adding the fair value deficits of the entities to the direct bailout funds at the time).https://books.google.com/books?id=H0ceRXT8Hc8C Joseph Fried Who Really Drove the Economy into the Ditch? New York City Algora 2012 75 9780875869445 Economist Paul Krugman argued in January 2010 that the simultaneous growth of the residential and commercial real estate pricing bubbles and the global nature of the crisis undermines the case made by those who argue that Fannie Mae, Freddie Mac, CRA, or predatory lending were primary causes of the crisis. In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes.https://krugman.blogs.nytimes.com/2010/01/07/cre-ative-destruction/ CRE-ative destruction Paul Krugman Paul Krugman The New York Times January 7, 2010 Countering Krugman, Wallison wrote: "It is not true that every bubble—even a large bubble—has the potential to cause a financial crisis when it deflates." Wallison notes that other developed countries had "large bubbles during the 1997–2007 period" but "the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 1997–2007 [bubble] deflated." According to Wallison, the reason the U.S. residential housing bubble (as opposed to other types of bubbles) led to financial crisis was that it was supported by a huge number of substandard loans—generally with low or no downpayments.https://www.aei.org/research-products/book/dissent-from-the-majority-report-of-the-financial-crisis-inquiry-commission-2/ Peter J. Wallison Peter J. Wallison Dissent from the Majority Report of the Financial Crisis Inquiry Commission American Enterprise Institute January 2011 Krugman's contention (that the growth of a commercial real estate bubble indicates that U.S. housing policy was not the cause of the crisis) is challenged by additional analysis. After researching the default of commercial loans during the financial crisis, Xudong An and Anthony B. Sanders reported (in December 2010): "We find limited evidence that substantial deterioration in CMBS [commercial mortgage-backed securities] loan underwriting occurred prior to the crisis."46th Annual AREUEA Conference Paper Sanders Anthony B. An Xudong Default of CMBS Loans During the Crisis November 29, 2010 1717062 Other analysts support the contention that the crisis in commercial real estate and related lending took place after the crisis in residential real estate. Business journalist Kimberly Amadeo reported: "The first signs of decline in residential real estate occurred in 2006. Three years later, commercial real estate started feeling the effects."Closing quotation mark was missing, unclear where quotation should end January 2024Amadeo Kimberly Commercial Real Estate and the Economy https://www.thebalance.com/what-is-commercial-real-estate-3305914 Dotdash February 28, 2019 August 4, 2021 June 8, 2020 https://web.archive.org/web/20210804083227/https://www.thebalance.com/what-is-commercial-real-estate-3305914 dead Denice A. Gierach, a real estate attorney and CPA, wrote: ... most of the commercial real estate loans were good loans destroyed by a really bad economy. In other words, the borrowers did not cause the loans to go bad-it was the economy.https://www.hg.org/legal-articles/waiting-for-the-other-shoe-to-drop-in-commercial-real-estate-18275 Gierach Denice A. Waiting for the other shoe to drop in commercial real estate hg.org Growth of the housing bubble 2000s United States housing bubble thumb|upright=1.35|A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2016 (not adjusted for inflation) Between 1998 and 2006, the price of the typical American house increased by 124%.CSI: credit crunch https://www.economist.com/special-report/2007/10/20/csi-credit-crunch The Economist October 18, 2007 During the 1980s and 1990s, the national median home price ranged from 2.9 to 3.1 times median household income. By contrast, this ratio increased to 4.0 in 2004, and 4.6 in 2006.https://economictimes.indiatimes.com/the-financial-crisis-blame-game/articleshow/3617818.cms The Financial Crisis Blame Game Ben Steverman David Bogoslaw The Economic Times October 18, 2008 This housing bubble resulted in many homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation. In a Peabody Award-winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with products such as the mortgage-backed security and the collateralized debt obligation that were assigned safe ratings by the credit rating agencies.May 9, 2008 The Giant Pool of Money https://www.thisamericanlife.org/355/the-giant-pool-of-money This American Life In effect, Wall Street connected this pool of money to the mortgage market in the US, with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans to small banks that funded the brokers and the large investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted, and continued strong demand began to drive down lending standards. The collateralized debt obligation in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. This essentially places cash payments from multiple mortgages or other debt obligations into a single pool from which specific securities draw in a specific sequence of priority. Those securities first in line received investment-grade ratings from rating agencies. Securities with lower priority had lower credit ratings but theoretically a higher rate of return on the amount invested.Eavis Peter CDO Explained https://money.cnn.com/2007/11/24/magazines/fortune/eavis_cdo.fortune/index.htm https://web.archive.org/web/20071130030408/http://money.cnn.com/2007/11/24/magazines/fortune/eavis_cdo.fortune/index.htm dead November 30, 2007 CNN November 25, 2007 By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.https://books.google.com/books?id=_4Nkye6tpWcC&pg=PA128 Banking and Finance: Theory, Law and Practice Gomez Clifford PHI Learning November 30, 2011 9788120342378 https://www.economist.com/finance-and-economics/2008/10/23/a-helping-hand-to-homeowners A Helping Hand to Homeowners The Economist October 23, 2008 subscription As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006.https://www.reuters.com/article/us-usa-housing-foreclosures/foreclosure-rate-almost-doubled-in-2007-report-idUSN2849823320080129 Foreclosure rate almost doubled in 2007: report Al Yoon Reuters January 29, 2008 This increased to 2.3 million in 2008, an 81% increase vs. 2007.https://www.reuters.com/article/us-usa-mortgages-foreclosures/foreclosures-soar-81-percent-in-2008-idUSTRE50E1KV20090115 Foreclosures soar 81 percent in 2008 Lynn Adler Reuters January 15, 2009 By August 2008, approximately 9% of all U.S. mortgages outstanding were either delinquent or in foreclosure.https://www.bespacific.com/delinquencies-and-foreclosures-increase-in-latest-mba-national-delinquency-survey/ Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey Sabrina I. Pacifici Bespacific September 6, 2008 By September 2009, this had risen to 14.4%.https://www.reuters.com/article/usa-housing-foreclosures/update-4-one-in-7-u-s-mortgages-foreclosing-or-delinquent-idUSN1937065020091119 Update 4—One in 7 U.S. mortgages foreclosing or delinquent Julie Haviv Reuters November 19, 2009https://www.nytimes.com/2009/11/20/business/20mortgage.html U.S. Mortgage Delinquencies Reach a Record High David Streitfeld David Streitfeld The New York Times November 20, 2009 subscription After the bubble burst, Australian economist John Quiggin wrote: "And, unlike the Great Depression, this crisis was entirely the product of financial markets. There was nothing like the postwar turmoil of the 1920s, the struggles over gold convertibility and reparations, or the Smoot-Hawley tariff, all of which have shared the blame for the Great Depression." Instead, Quiggin lays the blame for the 2008 near-meltdown on financial markets, on political decisions to lightly regulate them, and on rating agencies which had self-interested incentives to give good ratings.https://books.google.com/books?id=pTgiRDj-uIYC&pg=PA62 Zombie Economics: How Dead Ideas Still Walk among Us John Quiggin Princeton University Press 2010 63–64 978-1400842087 Easy credit conditions Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%.Open Market Operations Archive https://www.federalreserve.gov/monetarypolicy/openmarket_archive.htm Federal Reserve Board of GovernorsOpen Market Operations https://www.federalreserve.gov/monetarypolicy/openmarket.htm Federal Reserve Board of Governors This was done to soften the effects of the collapse of the dot-com bubble and the September 11 attacks, as well as to combat a perceived risk of deflation.https://books.google.com/books?id=oGKpAgAAQBAJ&pg=PT38 China's Role in Global Economic Recovery Xiaolan Fu Routledge March 12, 2012 9781136632488 As early as 2002, it was apparent that credit was fueling housing instead of business investment as some economists went so far as to advocate that the Fed "needs to create a housing bubble to replace the Nasdaq bubble".https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html Dubya's Double Dip? Krugman Paul Paul Krugman The New York Times August 2, 2002 subscription Moreover, empirical studies using data from advanced countries show that excessive credit growth contributed greatly to the severity of the crisis.Babecký Jan Havránek Tomáš Matějů Jakub Rusnák Marek Šmídková Kateřina Vašíček Bořek Leading indicators of crisis incidence: Evidence from developed countries Journal of International Money and Finance June 2013 35 1–19 10.1016/j.jimonfin.2013.01.001 10419/153919 free thumb|right|upright=1.6|US current account deficit Additional downward pressure on interest rates was created by a growing U.S. current account deficit, which peaked along with the housing bubble in 2006. Federal Reserve chairman Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, in the process bidding up bond prices and lowering interest rates.https://www.federalreserve.gov/boarddocs/speeches/2005/20050414/default.htm The Global Saving Glut and U.S. Current Account Deficit Ben Bernanke Ben Bernanke Federal Reserve Board of Governors April 14, 2005 Bernanke explained that between 1996 and 2004, the U.S. current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the country to borrow large sums from abroad, much of it from countries running trade surpluses. These were mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the US) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the U.S. to finance its imports. All of this created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend either because they had very high personal savings rates (as high as 40% in China) or because of high oil prices. Ben Bernanke referred to this as a "saving glut".https://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm Global Imbalances: Recent Developments and Prospects Ben S. Bernanke Ben S. Bernanke Federal Reserve Board of Governors September 11, 2007 A flood of funds (capital or liquidity) reached the U.S. financial markets. Foreign governments supplied funds by purchasing Treasury bonds and thus avoided much of the direct effect of the crisis. U.S. households used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities.No source September 2019 The Fed then raised the Fed funds rate significantly between July 2004 and July 2006.https://www.federalreserve.gov/releases/h15/data.htm Fed Historical Data-Fed Funds Rate Federal Reserve Board of Governors This contributed to an increase in one-year and five-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners.John Mastrobattista https://www.nationalreview.com/2009/02/fixing-mortgages-john-mastrobattista/ Fixing Mortgages National Review February 17, 2009 This may have also contributed to the deflation of the housing bubble, as asset prices generally move inversely to interest rates. It became riskier to speculate in housing.Max Sarah https://money.cnn.com/2004/07/13/real_estate/buying_selling/risingrates/ https://web.archive.org/web/20040806084614/http://money.cnn.com/2004/07/13/real_estate/buying_selling/risingrates/ dead August 6, 2004 The Bubble Question CNN July 27, 2004https://www.bloomberg.com/news/articles/2004-07-18/is-a-housing-bubble-about-to-burst Is a Housing Bubble About to Burst? Bloomberg News July 19, 2004 subscription U.S. housing and financial assets dramatically declined in value after the housing bubble burst.https://www.economist.com/briefing/2009/01/22/when-a-flow-becomes-a-flood When a Flow Becomes a Flood The Economist January 22, 2009 subscriptionAltman Roger C. Roger Altman January 2009 The Great Crash of 2008 https://www.foreignaffairs.com/articles/united-states/2009-01-01/great-crash-2008 https://web.archive.org/web/20250214112812/https://www.foreignaffairs.com/articles/united-states/2009-01-01/great-crash-2008 2025-02-14 Foreign Affairs Weak and fraudulent underwriting practices Subprime lending standards declined in the U.S.: in early 2000, a subprime borrower had a FICO score of 660 or less. By 2005, many lenders dropped the required FICO score to 620, making it much easier to qualify for prime loans and making subprime lending a riskier business. Proof of income and assets were de-emphasized. Loans at first required full documentation, then low documentation, then no documentation. One subprime mortgage product that gained wide acceptance was the no income, no job, no asset verification required (NINJA) mortgage. Informally, these loans were aptly referred to as "liar loans" because they encouraged borrowers to be less than honest in the loan application process.https://books.google.com/books?id=HSkjB_PGp98C Uncontrolled Risk Williams Mark McGraw-Hill Education April 12, 2010 978-0-07-163829-6 124 Testimony given to the Financial Crisis Inquiry Commission by whistleblower Richard M. Bowen III on events during his tenure as the Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group for Citigroup, where he was responsible for over 220 professional underwriters, suggests that by 2006 and 2007, the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citigroup from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents). This, despite the fact that each of these 1,600 originators was contractually responsible (certified via representations and warrantees) that its mortgage originations met Citigroup standards. Moreover, during 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased to over 80% of production".http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0407-Bowen.pdf Hearing on Subprime Lending And Securitization And Government Sponsored Enterprises Stanford University April 7, 2010 In separate testimony to the Financial Crisis Inquiry Commission, officers of Clayton Holdings, the largest residential loan due diligence and securitization surveillance company in the United States and Europe, testified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators' underwriting standards. The analysis, conducted on behalf of 23 investment and commercial banks, including 7 "too big to fail" banks, additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e. those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors.Raters Ignored Proof of Unsafe Loans, Panel Is Told https://www.nytimes.com/2010/09/27/business/27ratings.html The New York Times Gretchen Morgenson Gretchen Morgenson September 26, 2010 subscriptionAll Clayton Trending Reports 1st quarter 2006 – 2nd quarter 2007 https://fraser.stlouisfed.org/files/docs/historical/fct/fcic/fcic_docs_clayton_alltrending_20100923.pdf FRASER 2007 Predatory lending Predatory lending refers to the practice of unscrupulous lenders enticing borrowers to enter into unfair or abusive secured loans for inappropriate purposes.https://www.thestreet.com/personal-finance/mortgages/what-is-predatory-lending-14953861 What Is Predatory Lending? Brian O'Connell TheStreet May 9, 2019 https://dfi.wa.gov/financial-education/information/predatory-lending Predatory Lending Washington State Department of Financial Institutionshttps://www.law.cornell.edu/wex/predatory_lending predatory lending Legal Information Institute In June 2008, Countrywide Financial was sued by then California Attorney General Jerry Brown for unfair business practices and false advertising, alleging that Countrywide used "deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors".https://www.oag.ca.gov/news/press-releases/brown-sues-countrywide-mortgage-deception Brown Sues Countrywide For Mortgage Deception Attorney General of California June 25, 2008 In May 2009, Bank of America modified 64,000 Countrywide loans as a result.https://dsnews.com/news/loss-mitigation/05-31-2009/bofa-modifies-64000-countrywide-loans-2009-06-01 BofA Modifies 64,000 Countrywide Loans DS News May 31, 2009 When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender. One Countrywide employee, who would later plead guilty to two counts of wire fraud and spent 18 months in prison, stated that, "If you had a pulse, we gave you a loan."https://www.nbcnews.com/id/wbna29827248 If you had a pulse, we gave you a loan Richard Greenberg Richard Greenberg Chris Hansen Chris Hansen NBC News March 22, 2009 Former employees from Ameriquest, which was the United States' leading wholesale lender, described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits. There is growing evidence that such mortgage frauds may be a cause of the crisis.https://www.thenation.com/article/archive/road-ruin-mortgage-fraud-scandal-brewing/ Road to Ruin: Mortgage Fraud Scandal Brewing May 13, 2009 American News Project Deregulation and lack of regulation Government policies and the subprime mortgage crisis According to Barry Eichengreen, the roots of the financial crisis lay in the deregulation of financial markets.Eichengreen Barry Globalizing Capital: A History of the International Monetary System - Third Edition 2019 Princeton University Press 978-0-691-19390-8 3rd 216 10.2307/j.ctvd58rxg j.ctvd58rxg A 2012 OECD studySystemically Important Banks and Capital Regulation Challenges 10.1787/5kg0ps8cq8q6-en OECD Economics Department Working Papers 2012 Slovik Patrick free suggested that bank regulation based on the Basel accords encouraged unconventional business practices and contributed to or reinforced the financial crisis. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include: Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), which phased out several restrictions on banks' financial practices, broadened their lending powers, allowed credit unions and savings and loans to offer checkable deposits, and raised the deposit insurance limit from $40,000 to $100,000 (thereby potentially lessening depositor scrutiny of lenders' risk management policies).Federal Deposit Insurance Corporation History of the Eighties – Lessons for the Future December 1997 https://www.fdic.gov/bank/historical/history/3_85.pdf In October 1982, U.S. president Ronald Reagan signed into law the Garn–St. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s.Leibold Arthur Barth James R. Trimbath Susanne Yago Glenn Some Hope for the Future After a Failed National Policy for Thrifts The Savings and Loan Crisis: Lessons from a Regulatory Failure Milken Institute 978-1-4020-7871-2 58–59 July 29, 2004 https://archive.org/details/savingsloancrisi00jame/page/58Strunk Case Where Deregulation Went Wrong: A Look at the Causes Behind the Savings and Loan Failures in the 1980s U.S. League of Savings Institutions 14–16 978-0-929097-32-9 1988 https://archive.org/details/wherederegulatio0000stru/page/14) In November 1999, U.S. president Bill Clinton signed into law the Republican-sponsored Gramm–Leach–Bliley Act, which repealed provisions of the Glass-Steagall Act that prohibited a bank holding company from owning other financial companies. The repeal effectively removed the separation that previously existed between Wall Street investment banks and depository banks, providing a government stamp of approval for a universal risk-taking banking model. Investment banks such as Lehman became competitors with commercial banks.https://books.google.com/books?id=HSkjB_PGp98C Uncontrolled Risk Williams Mark McGraw-Hill Education April 12, 2010 978-0-07-163829-6 44 Some analysts say that this repeal directly contributed to the severity of the crisis, while others downplay its impact since the institutions that were greatly affected did not fall under the jurisdiction of the act itself.Edey Malcolm The global financial crisis and its effects Economic Papers Wiley 28 3 2009 186–195 10.1111/j.1759-3441.2009.00032.x https://dealbook.nytimes.com/2012/05/21/reinstating-an-old-rule-is-not-a-cure-for-crisis/ Reinstating an Old Rule Is Not a Cure for Crisis Andrew Ross Sorkin Andrew Ross Sorkin The New York Times May 22, 2012 subscription In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC conceded that self-regulation of investment banks contributed to the crisis.https://www.nytimes.com/2008/09/27/business/27sec.html?em SEC Concedes Oversight Flaws The New York Times Stephen Labaton September 27, 2008 subscriptionhttps://www.nytimes.com/2008/10/03/business/03sec.html?em The Reckoning The New York Times Stephen Labaton October 3, 2008 subscription Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.Krugman Paul Paul Krugman 2009 The Return of Depression Economics and the Crisis of 2008 W. W. Norton Company Limited 978-0-393-07101-6 https://archive.org/details/returnofdepressi00krug This was despite the Long-Term Capital Management debacle in 1998, in which a highly leveraged shadow institution failed with systemic implications and was bailed out. Regulators and accounting standard-setters allowed depository banks like Citigroup to move significant assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. Bloomberg News estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.https://quantnet.com/threads/banks-hidden-junk-menaces-1-trillion-purge.2444/ Banks' Hidden Junk Menaces $1 Trillion Purge Bloomberg News This increased uncertainty during the crisis regarding the financial position of the major banks.https://bazaarmodel.net/phorum/read.php?1,5059 Citigroup SIV Accounting Tough to Defend Bloomberg News Jonathan Weil Jonathan Weil October 24, 2007 Off-balance sheet entities were also used in the Enron scandal, which brought down Enron in 2001.Healy Paul M. Palepu Krishna G. The Fall of Enron Journal of Economic Perspectives 17 2 Spring 2003 13 10.1257/089533003765888403 As early as 1997, Federal Reserve chairman Alan Greenspan fought to keep the derivatives market unregulated.Government regulation and derivative contracts Alan Greenspan Alan Greenspan Coral Gables, Florida https://www.federalreserve.gov/boarddocs/speeches/1997/19970221.htm February 21, 1997 With the advice of the Working Group on Financial Markets,https://home.treasury.gov/system/files/236/Over-the-Counter-Derivatives-Market-Commodity-Exchange-Act.pdf Lawrence Summers Lawrence Summers Alan Greenspan Alan Greenspan Arthur Levitt Arthur Levitt William Ranier Over-the-Counter Derivatives Markets and the Commodity Exchange Act: Report of The President's Working Group on Financial Markets United States Department of the Treasury November 1999 the U.S. Congress and President Bill Clinton and the Republican-controlled U.S. Congress allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Written by Congress with lobbying from the financial industry, it banned the further regulation of the derivatives market. Derivatives such as credit default swaps (CDS) could be used to hedge or speculate against particular credit risks without necessarily owning the underlying debt instruments. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.https://www.forbes.com/2009/05/18/geithner-derivatives-plan-opinions-contributors-figlewski.html Geithner's Plan for Derivatives Stephen Figlewski Forbes May 18, 2009 live March 15, 2010 https://web.archive.org/web/20100315111008/http://www.forbes.com/2009/05/18/geithner-derivatives-plan-opinions-contributors-figlewski.html Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.https://www.economist.com/finance-and-economics/2008/09/18/a-nuclear-winter A Nuclear Winter? The Economist September 18, 2008 subscriptionhttp://news.bbc.co.uk/2/hi/business/2817995.stm Buffett warns on investment 'time bomb' BBC News March 4, 2003 A 2011 paper suggested that Canada's avoidance of a banking crisis in 2008 (as well as in prior eras) could be attributed to Canada possessing a single, powerful, overarching regulator, while the United States had a weak, crisis-prone and fragmented banking system with multiple competing regulatory bodies.Bordo Michael D. Redish Angela Rockoff Hugh Why didn't Canada have a banking crisis in 2008 (or in 1930, or 1907, or …)? The Economic History Review February 2015 68 1 218–243 10.1111/1468-0289.665 Increased debt burden or overleveraging thumb|upright=1.35|Leverage ratios of investment banks increased significantly between 2003 and 2007 thumb|upright=1.35|Household debt relative to disposable income and GDP Prior to the crisis, financial institutions became highly leveraged, increasing their appetite for risky investments and reducing their resilience in case of losses. Much of this leverage was achieved using complex financial instruments such as off-balance sheet securitization and derivatives, which made it difficult for creditors and regulators to monitor and try to reduce financial institution risk levels.Chang V. Newman R. Walters R.J. Wills G.B. Review of economic bubbles International Journal of Information Management: The Journal for Information Professionals 2016 36 4 497–506 10.1016/j.ijinfomgt.2016.02.007 "Citation needed" template removed because this citation was immediately after it. Does it not support the text? September 2019 U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis.https://www.economist.com/united-states/2008/11/20/the-end-of-the-affair The End of the Affair The Economist October 30, 2008 subscription This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn.http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2009/april/yellen-minsky-meltdown-central-bankers/ Janet L. Yellen A Minsky Meltdown: Lessons for Central Bankers Federal Reserve Bank of San Francisco April 16, 2009 Key statistics include: Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period, contributing to economic growth worldwide.Greenspan Alan Alan Greenspan Kennedy James March 2007 Sources and Uses of Equity Extracted from Homes https://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf https://web.archive.org/web/20250209071858/https://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf 2025-02-09 Federal Reserve Board of Governorshttps://seekingalpha.com/article/33336-home-equity-extraction-the-real-cost-of-free-cash Home Equity Extraction: The Real Cost of 'Free Cash' Seeking Alpha April 25, 2007 Iacono TimApril 23, 2007 Spending boosted by home equity loans: Greenspan https://www.reuters.com/article/us-usa-greenspan-equity/spending-boosted-by-home-equity-loans-greenspan-idUSN2330071920070423 Reuters U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion (c. $US-GDP 10500000000000 2008 in US-GDPUS-GDP).Barr Colin The $4 trillion housing headache https://money.cnn.com/2009/05/27/news/mortgage.overhang.fortune/index.htm https://web.archive.org/web/20090529194753/http://money.cnn.com/2009/05/27/news/mortgage.overhang.fortune/index.htm dead May 29, 2009 CNN May 27, 2009 U.S. household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990. In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%.https://www.ft.com/content/774c0920-fd1d-11dd-a103-000077b07658 Japan's lessons for a world of balance-sheet deflation Financial Times February 17, 2009 subscription From 2004 to 2007, the top five U.S. investment banks each significantly increased their financial leverage, which increased their vulnerability to a financial shock. Changes in capital requirements, intended to keep U.S. banks competitive with their European counterparts, allowed lower risk weightings for AAA-rated securities. The shift from first-loss tranches to AAA-rated tranches was seen by regulators as a risk reduction that compensated the higher leverage.Unintended Consequences https://archive.org/details/unintendedconseq0000cona registration Edward Conard Edward Conard 2012 Penguin Group 145–155 978-1-4708-2357-3 These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of U.S. nominal GDP for 2007. Lehman Brothers went bankrupt and was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support.https://www.nytimes.com/2008/10/03/business/03sec.html Agency's '04 Rule Let Banks Pile Up New Debt, and Risk The New York Times Stephen Labaton October 3, 2008 subscription Fannie Mae and Freddie Mac, two U.S. government-sponsored enterprises, owned or guaranteed nearly $5 trillion (c. $US-GDP 5000000000000 2008 in US-GDPUS-GDP) trillion in mortgage obligations at the time they were placed into conservatorship by the U.S. government in September 2008.https://www.aei.org/research-products/report/the-last-trillion-dollar-commitment/ The Last Trillion Dollar Commitment Charles W. Calomiris American Enterprise Institute - AEI Charles Calomiris American Enterprise Institute September 30, 2008https://www.bloomberg.com/news/articles/2008-09-11/u-s-considers-bringing-fannie-freddie-on-to-budget U.S. Considers Bringing Fannie & Freddie Onto Budget Dawn Kopecki Bloomberg News September 11, 2008 subscription These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations; yet they were not subject to the same regulation as depository banks.https://www.nytimes.com/2010/04/02/opinion/02krugman.html Paul Krugman Paul Krugman Financial Reform 101 The New York Times April 1, 2010 subscription Behavior that may be optimal for an individual, such as saving more during adverse economic conditions, can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save or pay down debt simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets. In April 2009, Federal Reserve vice-chair Janet Yellen discussed these paradoxes: Once this massive credit crunch hit, it didn't take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firms—and indeed essential to return the economy to a normal state—nevertheless magnify the distress of the economy as a whole. Financial innovation and complexity thumb|upright=1.35|right|IMF Diagram of CDO and RMBS The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.No source September 2019 CDO issuance grew from an estimated $20 billion in Q1 2004 to its peak of over $180 billion by Q1 2007, then declined back under $20 billion by Q1 2008. Further, the credit quality of CDO's declined from 2000 to 2007, as the level of subprime and other non-prime mortgage debt increased from 5% to 36% of CDO assets. As described in the section on subprime lending, the CDS and portfolio of CDS called synthetic CDO enabled a theoretically infinite amount to be wagered on the finite value of housing loans outstanding, provided that buyers and sellers of the derivatives could be found. For example, buying a CDS to insure a CDO ended up giving the seller the same risk as if they owned the CDO, when those CDO's became worthless.Lewis Michael Michael Lewis March 15, 2010 The Big Short W. W. Norton & Company 978-0-393-07223-5 thumb|upright=1.35|right|Diagram of CMLTI 2006 – NC2 This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this provided the ground for fraudulent acts, misjudgments and finally market collapse.http://fcic.law.stanford.edu/resource/staff-data-projects/story-of-a-security Financial Crisis Inquiry Commission – story of a security Stanford University Economists have studied the crisis as an instance of cascades in financial networks, where institutions' instability destabilized other institutions and led to knock-on effects.Elliott Matthew Golub Benjamin Jackson Matthew O. Financial Networks and Contagion The American Economic Review 104 10 2014 3115–3153 0002-8282 10.1257/aer.104.10.3115 https://resolver.caltech.edu/CaltechAUTHORS:20141114-080019333Gai Prasanna Kapadia Sujit Contagion in financial networks Proceedings of the Royal Society A: Mathematical, Physical and Engineering Sciences 8 August 2010 466 2120 2401–2423 10.1098/rspa.2009.0410 2010RSPSA.466.2401G Martin Wolf, chief economics commentator at the Financial Times, wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: "an enormous part of what banks did in the early part of this decade—the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself—was to find a way round regulation."https://www.ft.com/content/095722f6-6028-11de-a09b-00144feabdc0 Reform of Regulation and Incentives Martin Wolf Martin Wolf Financial Times June 23, 2009 subscription Incorrect pricing of risk thumb|A protester on Wall Street in the wake of the AIG bonus payments controversy is interviewed by news media. Mortgage risks were underestimated by almost all institutions in the chain from originator to investor by underweighting the possibility of falling housing prices based on historical trends of the past 50 years. Limitations of default and prepayment models, the heart of pricing models, led to overvaluation of mortgage and asset-backed products and their derivatives by originators, securitizers, broker-dealers, rating-agencies, insurance underwriters and the vast majority of investors (with the exception of certain hedge funds).https://claremontreviewofbooks.com/reckless-optimism/ Reckless Optimism Samuelson Robert J. Claremont Review of Books XII 1 2011 13Kourlas James Lessons Not Learned From the Housing Crisis https://atlassociety.org/commentary/commentary-blog/4959-lessons-not-learned-from-the-housing-crisis- The Atlas Society April 12, 2012 June 8, 2020 June 8, 2020 https://web.archive.org/web/20200608160526/https://atlassociety.org/commentary/commentary-blog/4959-lessons-not-learned-from-the-housing-crisis- dead While financial derivatives and structured products helped partition and shift risk between financial participants, it was the underestimation of falling housing prices and the resultant losses that led to aggregate risk. For a variety of reasons, market participants did not accurately measure the risk inherent with financial innovation such as MBS and CDOs or understand its effect on the overall stability of the financial system. The pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. Banks estimated that $450 billion of CDO were sold between "late 2005 to the middle of 2007"; among the $102 billion of those that had been liquidated, JPMorgan estimated that the average recovery rate for "high quality" CDOs was approximately 32 cents on the dollar, while the recovery rate for mezzanine capital CDO was approximately five cents for every dollar. AIG insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S. taxpayers provided over $180 billion in government loans and investments in AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.https://www.bogleheads.org/forum/viewtopic.php?t=27156 Credit Swap Disclosure Obscures True Financial Risk Shannon D. Harrington Abigail Moses Bloomberg News November 6, 2008This URL is not in fact Bloomberg but a forum post quoting it. Forums are not reliable sources. Cite the Bloomberg article directly instead January 2024Byrnes Nanette https://www.bloomberg.com/news/articles/2009-03-17/whos-who-on-aigs-list-of-counterparties Who's Who on AIG List of Counterparties Bloomberg News March 17, 2009 The Financial Crisis Inquiry Commission (FCIC) made the major government study of the crisis. It concluded in January 2011: The Commission concludes AIG failed and was rescued by the government primarily because its enormous sales of credit default swaps were made without putting up the initial collateral, setting aside capital reserves, or hedging its exposure—a profound failure in corporate governance, particularly its risk management practices. AIG's failure was possible because of the sweeping deregulation of over-the-counter (OTC) derivatives, including credit default swaps, which effectively eliminated federal and state regulation of these products, including capital and margin requirements that would have lessened the likelihood of AIG's failure.Phil Angelides Phil Angelides Financial Crisis Inquiry Report https://books.google.com/books?id=QIKfTVrhNfMC&pg=PA352 2011 DIANE 352 9781437980721Jerry M. Rosenberg The Concise Encyclopedia of The Great Recession 2007–2012 https://archive.org/details/conciseencyclope0000rose registration 2012 Scarecrow Press 244 9780810883406Asli Yüksel Mermod Samuel O. Idowu Corporate Social Responsibility in the Global Business World https://books.google.com/books?id=KVqRAAAAQBAJ&pg=PA127 2013 Springer 127 9783642376207 The limitations of a widely used financial model also were not properly understood.Regnier Pat https://money.com/new-theories-attempt-to-explain-the-financial-crisis/ New theories attempt to explain the financial crisis Money February 27, 2009Salmon Felix Recipe for Disaster: The Formula That Killed Wall Street 17 Wired 3 https://www.wired.com/2009/02/wp-quant/ February 23, 2009 This formula assumed that the price of CDS was correlated with and could predict the correct price of mortgage-backed securities. Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies. According to one Wired article: Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril ... Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees. As financial assets became more complex and harder to value, investors were reassured by the fact that the international bond rating agencies and bank regulators accepted as valid some complex mathematical models that showed the risks were much smaller than they actually were.Floyd Norris Floyd Norris https://www.nytimes.com/2008/11/25/business/25assess.html?hp News Analysis: Another Crisis, Another Guarantee The New York Times November 24, 2008 subscription George Soros commented that "The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility."Soros George George Soros The worst market crisis in 60 years Financial Times https://www.ft.com/content/24f73610-c91e-11dc-9807-000077b07658 January 22, 2008 subscription A conflict of interest between investment management professional and institutional investors, combined with a global glut in investment capital, led to bad investments by asset managers in over-priced credit assets. Professional investment managers generally are compensated based on the volume of client assets under management. There is, therefore, an incentive for asset managers to expand their assets under management in order to maximize their compensation. As the glut in global investment capital caused the yields on credit assets to decline, asset managers were faced with the choice of either investing in assets where returns did not reflect true credit risk or returning funds to clients. Many asset managers continued to invest client funds in over-priced (under-yielding) investments, to the detriment of their clients, so they could maintain their assets under management. They supported this choice with a "plausible deniability" of the risks associated with subprime-based credit assets because the loss experience with early "vintages" of subprime loans was so low.Calomiris Charles W The Subprime Turmoil: What's Old, What's New, and What's Next The Journal of Structured Finance 30 April 2009 15 1 6–52 10.3905/JSF.2009.15.1.006 Despite the dominance of the above formula, there are documented attempts of the financial industry, occurring before the crisis, to address the formula limitations, specifically the lack of dependence dynamics and the poor representation of extreme events.Lipton Alexander Andrew Rennie 2007 Credit Correlation: Life after Copulas 1478374 World Scientific The volume Credit Correlation: Life After Copulas, published in 2007 by World Scientific, summarizes a 2006 conference held by Merrill Lynch in London where several practitioners attempted to propose models rectifying some of the copula limitations. See also the article by Donnelly and EmbrechtsDonnelly Catherine Embrechts Paul The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis ASTIN Bulletin May 2010 40 1 1–33 10.2143/AST.40.1.2049222 20.500.11850/20517 free and the book by Brigo, Pallavicini and Torresetti, that reports relevant warnings and research on CDOs appeared in 2006.Damiano Andrea Roberto Brigo Pallavicini Torresetti Credit Models and the Crisis 2012 10.1002/9781118374733 978-0-470-66566-4 February 2026 Boom and collapse of the shadow banking system thumb|upright=1.6|right|Securitization markets were impaired during the crisis There is strong evidence that the riskiest, worst performing mortgages were funded through the "shadow banking system" and that competition from the shadow banking system may have pressured more traditional institutions to lower their underwriting standards and originate riskier loans. In a June 2008 speech, President and CEO of the Federal Reserve Bank of New York Timothy Geithner—who in 2009 became United States Secretary of the Treasury—placed significant blame for the freezing of credit markets on a run on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls. Further, these entities were vulnerable because of asset–liability mismatch, meaning that they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would force them to engage in rapid deleveraging, selling their long-term assets at depressed prices. He described the significance of these entities: In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. Assets financed overnight in tri-party repo grew to $2.5 trillion. Assets held in hedge funds grew to roughly $1.8 trillion. The combined balance sheets of the five largest investment banks totaled $4 trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $6 trillion, and total assets of the entire banking system were about $10 trillion. The combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles. Economist Paul Krugman, laureate of the Nobel Memorial Prize in Economic Sciences, described the run on the shadow banking system as the "core of what happened" to cause the crisis. He referred to this lack of controls as "malign neglect" and argued that regulation should have been imposed on all banking-like activity. Without the ability to obtain investor funds in exchange for most types of mortgage-backed securities or asset-backed commercial paper, investment banks and other entities in the shadow banking system could not provide funds to mortgage firms and other corporations.Geithner Timothy F. Timothy F. Geithner June 9, 2008 Reducing Systemic Risk in a Dynamic Financial System https://www.newyorkfed.org/newsevents/speeches/2008/tfg080609.html Federal Reserve Bank of New York This meant that nearly one-third of the U.S. lending mechanism was frozen and continued to be frozen into June 2009.https://www.city-journal.org/html/can-feds-uncrunch-credit-13139.html Can the Fed's Uncrunch Credit? Nicole Gelinas City Journal Winter 2009 According to the Brookings Institution, at that time the traditional banking system did not have the capital to close this gap: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization were "likely to vanish forever, having been an artifact of excessively loose credit conditions". While traditional banks raised their lending standards, it was the collapse of the shadow banking system that was the primary cause of the reduction in funds available for borrowing. Commodity prices 2000s commodities boom thumb|upright=1.4|Global copper prices thumb|upright=1.4|right|Fertilizer prices #00A2FF solid 3px DAP #61D836 solid 3px Potassium chloride #929292 solid 3px Phosphorite #F8BA00 solid 3px Triple Superphosphate #FF2600 solid 3px Urea In a 2008 paper, Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas argued that the financial crisis was attributable to "global asset scarcity, which led to large capital flows toward the United States and to the creation of asset bubbles that eventually burst".Ricardo J. Caballero Emmanuel Farhi Pierre-Olivier Gourinchas https://www.jstor.org/stable/27720394 27720394 Financial Crash, Commodity Prices and Global Imbalances Brookings Papers on Economic Activity 2008 Fall 2008 2 1–55 10.1353/eca.0.0013 Caballero, Farhi, and Gourinchas argued "that the sharp rise in oil prices following the subprime crisis – nearly 100 percent in just a matter of months and on the face of recessionary shocks – was the result of a speculative response to the financial crisis itself, in an attempt to rebuild asset supply. That is, the global economy was subject to one shock with multiple implications rather than to two separate shocks (financial and oil)." Long-only commodity index funds became popular – by one estimate investment increased from $90 billion in 2006 to $200 billion at the end of 2007, while commodity prices increased 71% – which raised concern as to whether these index funds caused the commodity bubble. The empirical research has been mixed.Irwin Scott H. Sanders Dwight R. June 1, 2010 The Impact of Index and Swap Funds on Commodity Futures Markets https://www.oecd-ilibrary.org/agriculture-and-food/the-impact-of-index-and-swap-funds-on-commodity-futures-markets_5kmd40wl1t5f-en OECD Working Paper OECD Food, Agriculture and Fisheries Papers 10.1787/5kmd40wl1t5f-en The Globals Savings Glut The cause of the global asset bubble can be partially attributable to the global savings glut. As theorized by Andrew Metrick, the demand for safe assets following the Asian Financial Crisis coupled with the lack of circulating treasuries created an unmet demand for "risk free" assets. Thus, institutional investors like sovereign wealth funds and pension funds began purchasing synthetic safe assets like Triple-A Mortgage Backed Securities.Gorton Gary Metrick Andrew Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide 2012 10.3386/w17778 As a consequence, the demand for so-called safe assets fueled the free flow of capital into housing in the United States. This greatly worsened the crisis as banks and other financial institutions were incentivized to issue more mortgages than before. Monetary policy Criticism of the Federal Reserve Some commentators and economists associated with the Austrian School of economics, including former U.S. Congressman Ron Paul and historian Tom Woods, have offered a libertarian interpretation of the crisis which differs from the explanations centered on deregulation and government oversight. In Ron Paul's book, End the Fed, Paul argues that the Federal Reserve's prolonged policy of artificially low interest rates in the early 2000s created a credit bubble that allowed for speculative investments and unsustainable levels of debt, particularly in housing.Paul Ron Commentary: Bailouts will lead to rough economic ride https://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html https://web.archive.org/web/20080924112027/https://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html 2008-09-24 2025-07-13 CNNBeers Brian 2009-09-17 End the Fed, Save the Dollar: Ron Paul https://www.cnbc.com/2009/09/17/end-the-fed-save-the-dollar-ron-paul.html 2025-07-13 CNBCDoherty Brian 2009-10-27 Fed Up https://reason.com/2009/10/27/fed-up/ 2025-07-13 Reason.com en-US In Tom Woods' book Meltdown, he also contends that Federal Reserve manipulation of the money supply and credit markets distorted normal price signals, leading to widespread malinvestment, resulting in an inevitable correction.Woods Thomas E. https://books.google.com/books?id=iKxQqw-et-QC&q=Meltdown%3A+A+Free-Market+Look+at+Why+the+Stock+Market+Collapsed%2C+the+Economy+Tanked%2C+and+Government+Bailouts+Will+Make+Things+Worse Meltdown: The Classic Free-Market Analysis of the 2008 Financial Crisis 2009-02-09 Simon and Schuster 978-1-59698-106-52009-04-03 Buchanan: Should we kill the Fed? https://www.nbcnews.com/id/wbna30031803 2025-07-13 NBC News Paul and Woods also criticized Fannie Mae's and Freddie Mac's role in the crisis, asserting that the entities engaged in excessive risk-taking by expanding homeownership beyond sustainable levels.Gjelten Tom 2009-06-23 Economic Crisis Stirs Free-Market Debate https://www.npr.org/2009/06/23/105783108/economic-crisis-stirs-free-market-debate 2025-07-13 NPR2008-09-23 Ron Paul Weighs In On The Financial Catastrophe https://www.npr.org/2008/09/23/94926280/ron-paul-weighs-in-on-the-financial-catastrophe 2025-07-13 NPR In doing this, the government intervention created moral hazard by assuring large financial institutions that they would receive government support in times of crisis, which Paul and Woods believe encouraged riskier behavior.Dowd Kevin January 1, 2009 Moral Hazard and the Financial Crisis https://www.researchgate.net/publication/241272512 ResearchGate Systemic crisis of capitalism In a 1998 book, John McMurtry suggested that a financial crisis is a systemic crisis of capitalism itself.https://books.google.com/books?id=m7Mbb1aMWAkC McMurty John John McMurtry (academic) December 10, 1998 Pluto Press The Cancer Stage of Capitalism 978-0-7453-1347-4 In his 1978 book, The Downfall of Capitalism and Communism, Ravi Batra suggests that growing inequality of financial capitalism produces speculative bubbles that burst and result in depression and major political changes. He also suggested that a "demand gap" related to differing wage and productivity growth explains deficit and debt dynamics important to stock market developments.Batra Ravi Ravi Batra https://truthout.org/articles/weapons-of-mass-exploitation/ Weapons of Mass Exploitation? Truthout May 8, 2011 John Bellamy Foster, a political economy analyst and editor of the Monthly Review, believed that the decrease in GDP growth rates since the early 1970s is due to increasing market saturation.https://monthlyreview.org/articles/the-financialization-of-capital-and-the-crisis/ The Financialization of Capital and the Crisis John Bellamy Foster Monthly Review April 1, 2008 Marxian economics followers Andrew Kliman, Michael Roberts, and Guglielmo Carchedi, in contradistinction to the Monthly Review school represented by Foster, pointed to capitalism's long-term tendency of the rate of profit to fall as the underlying cause of crises generally. From this point of view, the problem was the inability of capital to grow or accumulate at sufficient rates through productive investment alone. Low rates of profit in productive sectors led to speculative investment in riskier assets, where there was potential for greater return on investment. The speculative frenzy of the late 1990s and 2000s was, in this view, a consequence of a rising organic composition of capital, expressed through the fall in the rate of profit. According to Michael Roberts, the fall in the rate of profit "eventually triggered the credit crunch of 2007 when credit could no longer support profits".Roberts Michael https://thenextrecession.wordpress.com/2011/07/03/carchedi-foster-and-the-causes-of-crisis/ Carchedi, Foster and the causes of crisis July 3, 2011 In 2005 book, The Battle for the Soul of Capitalism, John C. Bogle wrote that "Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long". Echoing the central thesis of James Burnham's 1941 seminal book, The Managerial Revolution, Bogle cites issues, including:Bogle John 2005 The Battle for the Soul of Capitalism https://archive.org/details/battleforsoulo00bogl registration Yale University Press 978-0-300-11971-8 that "manager's capitalism" replaced "owner's capitalism", meaning management runs the firm for its benefit rather than for the shareholders, a variation on the principal–agent problem; the burgeoning executive compensation; the management of earnings, mainly a focus on share price rather than the creation of genuine value; and the failure of gatekeepers, including auditors, boards of directors, Wall Street analysts, and career politicians. In his book The Big Mo, Mark Roeder, a former executive at the Swiss-based UBS Bank, suggested that large-scale momentum, or The Big Mo, "played a pivotal role" in the financial crisis. Roeder suggested that "recent technological advances, such as computer-driven trading programs, together with the increasingly interconnected nature of markets, has magnified the momentum effect. This has made the financial sector inherently unstable."https://books.google.com/books?id=jrnFCB2lNAEC The Big Mo: Why Momentum Now Rules Our World Mark Roeder Mark Roeder Virgin Books 2011 978-0-7535-3937-8 Robert Reich attributed the economic downturn to the stagnation of wages in the United States, particularly those of the hourly workers who comprise 80% of the workforce. This stagnation forced the population to borrow to meet the cost of living.https://www.guernicamag.com/the_heart_of_the_economic_mess/ Reich Robert Robert Reich The Heart of the Economic Mess Guernica July 25, 2008 Economists Ailsa McKay and Margunn Bjørnholt argued that the financial crisis and the response to it revealed a crisis of ideas in mainstream economics and within the economics profession, and call for a reshaping of both the economy, economic theory and the economics profession.Bjørnholt Margunn Margunn Bjørnholt McKay Ailsa Ailsa McKay Bjørnholt Margunn Margunn Bjørnholt McKay Ailsa Ailsa McKay Counting on Marilyn Waring: New Advances in Feminist Economics http://www.margunnbjornholt.no/wp-content/uploads/2014/05/Advances-in-Feminist-Economics-in-Times-of-Economic-Crisis.pdf 2014 Demeter Press 7–20 Advances in Feminist Economics in Times of Economic Crisis 978-1-927335-27-7 Wrong banking model: resilience of credit unions A report by the International Labour Organization concluded that cooperative banking institutions were less likely to fail than their competitors during the crisis. The cooperative banking sector had 20% market share of the European banking sector, but accounted for only 7% of all the write-downs and losses between the third quarter of 2007 and first quarter of 2011.https://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/---coop/documents/publication/wcms_207768.pdf Resilience in a downturn International Labour Organisation In 2008, in the U.S., the rate of commercial bank failures was almost triple that of credit unions, and almost five times the credit union rate in 2010.https://www.fool.com/investing/general/2011/11/22/in-pictures-banks-vs-credit-unions-in-the-financia.aspx In Pictures: Banks vs. Credit Unions in the Financial Crisis Matt Cropp November 22, 2011 The Motley Fool Credit unions increased their lending to small- and medium-sized businesses while overall lending to those businesses decreased.https://www.sba.gov/advocacy/how-did-bank-lending-small-business-united-states-fare-after-financial-crisis How Did Bank Lending to Small Business in the United States Fare After the Financial Crisis? Small Business Administration November 29, 2018 August 28, 2019 https://web.archive.org/web/20190828223019/https://www.sba.gov/advocacy/how-did-bank-lending-small-business-united-states-fare-after-financial-crisis dead Prediction by economists Economists, particularly followers of mainstream economics, mostly failed to predict the crisis.https://www.bloomberg.com/news/articles/2009-04-15/what-good-are-economists-anyway What Good Are Economists Anyway? Peter Coy Bloomberg Businessweek April 16, 2009 subscription The Wharton School of the University of Pennsylvania's online business journal examined why economists failed to predict a major global financial crisis and concluded that economists used mathematical models that failed to account for the critical roles that banks and other financial institutions, as opposed to producers and consumers of goods and services, play in the economy.https://knowledge.wharton.upenn.edu/article/why-economists-failed-to-predict-the-financial-crisis/ Why Economists Failed to Predict the Financial Crisis Wharton School of the University of Pennsylvania May 13, 2009 Several followers of heterodox economics predicted the crisis, with varying arguments. Dirk Bezemerhttps://mpra.ub.uni-muenchen.de/15892/ "No One Saw This Coming": Understanding Financial Crisis Through Accounting Models Bezemer Dirk J Munich Personal RePEc Archive June 2009 credits 12 economists with predicting the crisis: Dean Baker, Wynne Godley, Fred Harrison, Michael Hudson, Eric Janszen, Med Jones, Steve Keen, Jakob Broechner Madsen & Jens Kjaer Sørensen, Kurt Richebächer, Nouriel Roubini, Peter Schiff, and Robert Shiller. Shiller, a founder of the Case–Shiller index that measures home prices, wrote an article a year before the collapse of Lehman Brothers in which he predicted that a slowing U.S. housing market would cause the housing bubble to burst, leading to financial collapse.https://www.project-syndicate.org/commentary/bubble-trouble Bubble Trouble Robert J. Shiller Robert J. Shiller Project Syndicate September 17, 2007 subscription Peter Schiff regularly appeared on television in the years before the crisis and warned of the impending real estate collapse.https://money.cnn.com/2009/01/20/magazines/fortune/okeefe_schiff.fortune/index.htm https://web.archive.org/web/20090125102645/http://money.cnn.com/2009/01/20/magazines/fortune/okeefe_schiff.fortune/index.htm dead January 25, 2009 Peter Schiff: Oh, he saw it coming Brian O'Keefe CNN January 23, 2009 The Austrian School regarded the crisis as a vindication and classic example of a predictable credit-fueled bubble caused by laxity in monetary supply.https://mises.org/library/austrian-business-cycle-theory-and-global-financial-crisis-confessions-mainstream-economist Austrian Business Cycle Theory and the Global Financial Crisis: Confessions of a Mainstream Economist Jerry Tempelman Mises Institute July 30, 2014 There were other economists that did warn of a pending crisis.https://www.economist.com/leaders/2007/11/15/americas-vulnerable-economy Recession in America The Economist November 15, 2007 The former governor of the Reserve Bank of India, Raghuram Rajan, had predicted the crisis in 2005 when he became chief economist at the International Monetary Fund. In 2005, at a celebration honoring Alan Greenspan, who was about to retire as chairman of the US Federal Reserve, Rajan delivered a controversial paper that was critical of the financial sector.Raghuram Rajan Has Financial Development Made the World Riskier? NBER Working Paper No. 11728 November 2005 10.3386/w11728 free In that paper, Rajan "argued that disaster might loom".Justin Lahart https://www.wsj.com/articles/SB123086154114948151 Mr Rajan Was Unpopular (But Prescient) at Greenspan Party The Wall Street Journal January 2, 2009 subscription Rajan argued that financial sector managers were encouraged to "take risks that generate severe adverse consequences with small probability but, in return, offer generous compensation the rest of the time. These risks are known as tail risks. But perhaps the most important concern is whether banks will be able to provide liquidity to financial markets so that if the tail risk does materialize, financial positions can be unwound and losses allocated so that the consequences to the real economy are minimized." Stock trader and financial risk engineer Nassim Nicholas Taleb, author of the 2007 book The Black Swan, spent years warning against the breakdown of the banking system in particular and the economy in general owing to their use of and reliance on bad risk models and reliance on forecasting, and framed the problem as part of "robustness and fragility".https://www.huffpost.com/entry/why-nassim-taleb-is-the-t_b_263194 Why Nassim Taleb is the True Predictor of this Crisis Pablo Triana HuffPost August 19, 2009https://www.fooledbyrandomness.com/imbeciles.htm The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore fooledbyrandomness.com April 2007 He also took action against the establishment view by making a big financial bet on banking stocks and making a fortune from the crisis ("They didn't listen, so I took their money").https://www.nytimes.com/2009/01/04/magazine/04risk-t.html The New York Times Joe Nocera Joe Nocera Risk Mismanagement January 4, 2009 subscription According to David Brooks from The New York Times, "Taleb not only has an explanation for what's happening, he saw it coming."https://www.nytimes.com/2008/10/28/opinion/28brooks.html The New York Times David Brooks David Brooks (commentator) The Behavioral Revolution October 28, 2008 subscription Popular articles published in the mass media have led the general public to believe that the majority of economists have failed in their obligation to predict the financial crisis. For example, an article in The New York Times noted that economist Nouriel Roubini warned of such crisis as early as September 2006, and stated that the profession of economics is bad at predicting recessions.https://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html Dr. Doom Stephen Mihm August 15, 2008 New York Times Magazine subscription According to The Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him "Dr. Doom".https://www.theguardian.com/business/2009/jan/24/nouriel-roubini-credit-crunch Emma Brockes He Told Us So The Guardian January 24, 2009 London In a 2012 article in the journal Japan and the World Economy, Andrew K. Rose and Mark M. Spiegel used a Multiple Indicator Multiple Cause (MIMIC) model on a cross-section of 107 countries to evaluate potential causes of the 2008 crisis. The authors examined various economic indicators, ignoring contagion effects across countries. The authors concluded: "We include over sixty potential causes of the crisis, covering such categories as: financial system policies and conditions; asset price appreciation in real estate and equity markets; international imbalances and foreign reserve adequacy; macroeconomic policies; and institutional and geographic features. Despite the fact that we use a wide number of possible causes in a flexible statistical framework, we are unable to link most of the commonly cited causes of the crisis to its incidence across countries. This negative finding in the cross-section makes us skeptical of the accuracy of 'early warning' systems of potential crises, which must also predict their timing."Rose Andrew K. Spiegel Mark M. Cross-country causes and consequences of the 2008 crisis: Early warning Japan and the World Economy January 2012 24 1 1–16 10.1016/j.japwor.2011.11.001 IndyMac The first visible institution to run into trouble in the United States was the Southern California–based IndyMac, a spin-off of Countrywide Financial. Before its failure, IndyMac Bank was the largest savings and loan association in the Los Angeles market and the seventh-largest mortgage loan originator in the United States.https://www.businesswire.com/news/home/20080408005471/en/IndyMac-Bancorp-Announces-Earnings-Webcast-Teleconference-Call IndyMac Bancorp Announces Earnings Webcast & Teleconference Call for First Quarter 2008 Financial Results Business Wire August 8, 2008 The failure of IndyMac Bank on July 11, 2008, was (until the crisis precipitated even larger failures) the fourth-largest bank failure in United States history,Shalal-Esa Andrea FACTBOX: Top ten U.S. bank failures https://www.reuters.com/article/us-washingtonmutual-jpmorgan-failures-fa/factbox-top-ten-u-s-bank-failures-idUSTRE48P0YC20080926 Reuters September 25, 2008 and the second-largest failure of a regulated thrift.https://www.foxnews.com/printer_friendly_wires/2008Jul11/0,4675,IndyMac,00.html Government shuts down mortgage lender IndyMac Alex Veiga Associated Press Fox News July 12, 2008 IndyMac Bank's parent corporation was IndyMac Bancorp until the FDIC seized IndyMac Bank.https://www.thestreet.com/investing/stocks/indymac-bancorp-to-liquidate-10431578 IndyMac Bancorp to Liquidate LaCapra Lauren Tara TheStreet.com August 1, 2008 IndyMac Bancorp filed for Chapter 7 bankruptcy in July 2008. IndyMac Bank was founded as Countrywide Mortgage Investment in 1985 by David S. Loeb and Angelo Mozilohttps://www.businesswire.com/news/home/20030702005243/en/David-S.-Loeb-Chairman-IndyMac-Bancorp-Passes David S. Loeb, Former Chairman of IndyMac Bancorp, Inc., Passes Away Business Wire July 2, 2003https://www.latimes.com/archives/la-xpm-2003-jul-03-me-loeb3-story.html David Loeb, 79; Founded Mortgage Banking Firms Roger Vincent Los Angeles Times July 3, 2003 subscription as a means of collateralizing Countrywide Financial loans too big to be sold to Freddie Mac and Fannie Mae. In 1997, Countrywide spun off IndyMac as an independent company run by Mike Perry, who remained its CEO until the downfall of the bank in July 2008.https://www.wsj.com/articles/SB121581435073947103 Crisis Deepens as Big Bank Fails: IndyMac Seized In Largest Bust In Two Decades Damian Paletta Enrich David The Wall Street Journal July 12, 2008 subscription The primary causes of its failure were largely associated with its business strategy of originating and securitizing Alt-A loans on a large scale. This strategy resulted in rapid growth and a high concentration of risky assets. From its inception as a savings association in 2000, IndyMac grew to the seventh largest savings and loan and ninth largest originator of mortgage loans in the United States. During 2006, IndyMac originated over $90 billion (~$US-GDP 90000000000 2006 in US-GDP) of mortgages. IndyMac's aggressive growth strategy, use of Alt-A and other nontraditional loan products, insufficient underwriting, credit concentrations in residential real estate in the California and Florida markets—states, alongside Nevada and Arizona, where the housing bubble was most pronounced—and heavy reliance on costly funds borrowed from a Federal Home Loan Bank (FHLB) and from brokered deposits, led to its demise when the mortgage market declined in 2007. IndyMac often made loans without verification of the borrower's income or assets, and to borrowers with poor credit histories. Appraisals obtained by IndyMac on underlying collateral were often questionable as well. As an Alt-A lender, IndyMac's business model was to offer loan products to fit the borrower's needs, using an extensive array of risky option-adjustable-rate mortgages (option ARMs), subprime loans, 80/20 loans, and other nontraditional products. Ultimately, loans were made to many borrowers who simply could not afford to make their payments. The thrift remained profitable only as long as it was able to sell those loans in the secondary mortgage market. IndyMac resisted efforts to regulate its involvement in those loans or tighten their issuing criteria: see the comment by Ruthann Melbourne, Chief Risk Officer, to the regulating agencies.https://www.treasury.gov/about/organizational-structure/ig/Documents/oig09032.pdf Audit Report – SAFETY AND SOUNDNESS: Material Loss Review of IndyMac Bank, FSB United States Department of the Treasury February 26, 2009https://www.fdic.gov/news/news/press/2009/pr09001.html FDIC Board Approves Letter of Intent to Sell IndyMac Federal Federal Deposit Insurance Corporation January 2, 2009http://files.ots.treas.gov/comments/20478116-56b7-4810-938b-60b7688f9652.pdf Letter from IndyMac February 24, 2014 dead https://web.archive.org/web/20120216201626/http://files.ots.treas.gov/comments/20478116-56b7-4810-938b-60b7688f9652.pdf February 16, 2012 On May 12, 2008, in the "Capital" section of its last 10-Q, IndyMac revealed that it may not be well capitalized in the future.http://www.secinfo.com/dVut2.t668.htm#msef Indymac Bancorp Inc – '10-Q' for 3/31/08 U.S. Securities and Exchange Commission IndyMac reported that during April 2008, Moody's and Standard & Poor's downgraded the ratings on a significant number of Mortgage-backed security (MBS) bonds—including $160 million (~$US-GDP 160000000 2008 in US-GDP) issued by IndyMac that the bank retained in its MBS portfolio. IndyMac concluded that these downgrades would have harmed its risk-based capital ratio as of June 30, 2008. Had these lowered ratings been in effect on March 31, 2008, IndyMac concluded that the bank's capital ratio would have been 9.27% total risk-based. IndyMac warned that if its regulators found its capital position to have fallen below "well capitalized" (minimum 10% risk-based capital ratio) to "adequately capitalized" (8–10% risk-based capital ratio) the bank might no longer be able to use brokered deposits as a source of funds. Senator Charles Schumer (D-NY) later pointed out that brokered deposits made up more than 37% of IndyMac's total deposits, and asked the Federal Deposit Insurance Corporation (FDIC) whether it had considered ordering IndyMac to reduce its reliance on these deposits.https://www.nytimes.com/2008/12/23/business/23thrift.html Irregularity Is Uncovered at IndyMac Bank Edmund L. Andrews Edmund L. Andrews The New York Times December 22, 2008 subscription With $18.9 billion in total deposits reported on March 31, Senator Schumer would have been referring to a little over $7 billion in brokered deposits. While the breakout of maturities of these deposits is not known exactly, a simple averaging would have put the threat of brokered deposits loss to IndyMac at $500 million a month, had the regulator disallowed IndyMac from acquiring new brokered deposits on June 30. IndyMac was taking new measures to preserve capital, such as deferring interest payments on some preferred securities. Dividends on common shares had already been suspended for the first quarter of 2008, after being cut in half the previous quarter. The company still had not secured a significant capital infusion nor found a ready buyer.https://www.thestreet.com/markets/rates-and-bonds/indymac-seeks-to-preserve-capital-10416473 Indymac Seeks to Preserve Capital PHILIP VAN DOORN TheStreet.com May 13, 2008 IndyMac reported that the bank's risk-based capital was only $47 million above the minimum required for this 10% mark. But it did not reveal some of that $47 million (~$US-GDP 47000000 2008 in US-GDP) capital it claimed it had, as of March 31, 2008, was fabricated.http://securities.stanford.edu/filings-documents/1040/IMB_01/201099_r01c_08CV03812.pdf Robert C. Daniels, et al. v. IndyMac Bancorp, Inc., et al. Category:July_15,_2008#IndyMac_Bank_placed_into_conservatorship_by_US_Government IndyMac Bank placed into conservatorship by US Government When home prices declined in the latter half of 2007 and the secondary mortgage market collapsed, IndyMac was forced to hold $10.7 billion (~$US-GDP 10700000000 2007 in US-GDP) of loans it could not sell in the secondary market. Its reduced liquidity was further exacerbated in late June 2008 when account holders withdrew $1.55 billion (~$US-GDP 1550000000 2008 in US-GDP) or about 7.5% of IndyMac's deposits. This bank run on the thrift followed the public release of a letter from Senator Charles Schumer to the FDIC and OTS. The letter outlined the senator's concerns with IndyMac. While the run was a contributing factor in the timing of IndyMac's demise, the underlying cause of the failure was the unsafe and unsound way it was operated. On June 26, 2008, Senator Charles Schumer (D-NY), a member of the Senate Banking Committee, chairman of Congress' Joint Economic Committee and the third-ranking Democrat in the Senate, released several letters he had sent to regulators, in which he was"concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers." Some worried depositors began to withdraw money.https://money.cnn.com/2008/07/13/news/companies/schumer_indymac/index.htm https://web.archive.org/web/20080715170320/http://money.cnn.com/2008/07/13/news/companies/schumer_indymac/index.htm dead July 15, 2008 Schumer: Don't blame me for IndyMac failure CNN July 13, 2008https://www.wsj.com/articles/SB121607771017452513 The $4 Billion Senator The Wall Street Journal July 15, 2008 subscription On July 7, 2008, IndyMac announced on the company blog that it: Had failed to raise capital since its May 12, 2008, quarterly earnings report; Had been notified by bank and thrift regulators that IndyMac Bank was no longer deemed "well-capitalized". IndyMac announced the closure of both its retail lending and wholesale divisions, halted new loan submissions, and cut 3,800 jobs.Veiga Alex IndyMac stops new mortgage loans, to cut workforce by half https://www.mercurynews.com/2008/07/07/indymac-stops-new-mortgage-loans-to-cut-workforce-by-half/ Mercury News Associated Press July 7, 2008 subscription On July 11, 2008, citing liquidity concerns, the FDIC put IndyMac Bank into conservatorship. A bridge bank, IndyMac Federal Bank, FSB, was established to assume control of IndyMac Bank's assets, its secured liabilities, and its insured deposit accounts. The FDIC announced plans to open IndyMac Federal Bank, FSB on July 14, 2008. Until then, depositors would have access to their insured deposits through ATMs, their existing checks, and their existing debit cards. Telephone and Internet account access was restored when the bank reopened.https://www.reuters.com/article/indymac-idUSWAO00014120080711 IndyMac Taken Over By Regulators John Poirier Karey Wutkowski Rachelle Younglai Reuters July 11, 2008https://ml-implode.com/info/indy-fdic.pdf IndyMac Bank FDIC Notification to All Employees Evan Wagner July 11, 2008https://www.foxnews.com/story/federal-regulators-close-california-mortgage-lender Fox News Associated Press Federal Regulators Close California Mortgage Lender July 11, 2008 The FDIC guarantees the funds of all insured accounts up to US$100,000, and declared a special advance dividend to the roughly 10,000 depositors with funds in excess of the insured amount, guaranteeing 50% of any amounts in excess of $100,000. Yet, even with the pending sale of Indymac to IMB Management Holdings, an estimated 10,000 uninsured depositors of Indymac are still at a loss of over $270 million.https://www.latimes.com/archives/la-xpm-2009-feb-28-fi-indymac28-story.html IndyMac's shuffle ran over depositors William Heisel Los Angeles Times February 28, 2009 subscriptionhttps://www.fdic.gov/bank/individual/failed/IndyMac.html FDIC: Failed Bank Information – Bank Closing Information for IndyMac Bank, F.S.B., Pasadena, CA Federal Deposit Insurance Corporation With $32 billion in assets, IndyMac Bank was one of the largest bank failures in American history.https://www.nytimes.com/2008/07/13/business/worldbusiness/13iht-indy.4.14456887.html IndyMac one of the largest bank failures in U.S. history Louise Story The New York Times July 13, 2008 subscription IndyMac Bancorp filed for Chapter 7 bankruptcy on July 31, 2008. Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial, as they could no longer obtain financing through the credit markets. Over 100 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its fire-sale to JP Morgan Chase. The financial institution crisis hit its peak in September and October 2008. Several major institutions either failed, were acquired under duress, or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Citigroup, and AIG. On October 6, 2008, three weeks after Lehman Brothers filed the largest bankruptcy in U.S. history, Lehman's former CEO Richard S. Fuld Jr. found himself before Representative Henry A. Waxman, the California Democrat who chaired the House Committee on Oversight and Government Reform. Fuld said he was a victim of the collapse, blaming a "crisis of confidence" in the markets for dooming his firm.James Sterngold https://www.bloomberg.com/news/articles/2010-04-29/how-much-did-lehman-ceo-dick-fuld-really-make How Much Did Lehman CEO Dick Fuld Really Make? Bloomberg Businessweek April 29, 2010 subscription Notable books and films In 2006, Peter Schiff authored a book titled Crash Proof: How to Profit From the Coming Economic Collapse, which was published in February 2007 by Wiley. The book describes various features of the economy and housing market that led to the United States housing bubble, and warns of the impending decline. After many of the predictions came to pass, a second edition titled Crash Proof 2.0 was published in 2009, which included a "2009 update" addendum at the end of each chapter. It was featured on The New York Times Best Seller list. Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worse, by Tom Woods, was published in February 2009 by Regnery Publishing. It was featured on The New York Times Best Seller list for 10 weeks. The American documentary program Frontline produced several episodes investigating various aspects of the crisis: "Inside the Meltdown" (Season 2009: Episode 8) "Ten Trillion and Counting" (Season 2009: Episode 9) "Breaking the Bank" (Season 2009: Episode 15) "The Warning" (Season 2009: Episode 2) A 2010 documentary film, Overdose: A Film about the Next Financial Crisis, describes how the financial crisis came about and how the solutions that have been applied by many governments are setting the stage for the next crisis. The film is based on the book Financial Fiasco by Johan Norberg and features Alan Greenspan, with funding from the libertarian think tank Cato Institute.https://www.cato.org/events/overdose-film-about-next-financial-crisis Overdose: A Film about the Next Financial Crisis Cato Institute May 17, 2010 In October 2010, a documentary film about the crisis, Inside Job directed by Charles Ferguson, was released by Sony Pictures Classics. In 2011, it won the Academy Award for Best Documentary Feature at the 83rd Academy Awards.Oscars 2011: Inside Job banks best documentary award https://www.theguardian.com/film/2011/feb/28/inside-job-best-documentary-oscar The Guardian February 28, 2011 Set on the night before the crisis broke, the 2011 film Margin Call is a movie that follows traders through a sleepless 24 hours as they try to contain the damage after an analyst discovers information that is likely to ruin their firm, and possibly the whole economy.https://www.vox.com/culture/2018/9/14/17856048/movies-financial-crisis-streaming-lehman-brothers-versailles-big-short-inside-job 5 movies that explain what caused the financial crisis, and what happened after Alissa Wilkinson Vox Media September 15, 2018 The 2011 film Too Big to Fail is based on Andrew Ross Sorkin's 2009 non-fiction book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System – and Themselves. Michael Lewis authored a best-selling non-fiction book about the crisis, entitled The Big Short. In 2015, it was adapted into a film of the same name, which won the Academy Award, BAFTA Award, Critics' Choice Movie Award, and Writers Guild of America Award, all for Best Adapted Screenplay. One point raised is to what extent those outside of the markets themselves (i.e., not working for a mainstream investment bank) could forecast the events and be generally less myopic. Simon Reid-Henry's 2019 book Empire of Democracy describes how liberal normsJanuary 2025 in the West were replaced by populism as a consequence of the 2007–08 financial crisis, as well as neoliberal policiesJanuary 2025 that had emerged in previous decades which hollowed out government and changed voter expectations. Virág Blazsek's book, Banking Bailout Law: A Comparative Study of the United States, United Kingdom and the European Union (Routledge, 2020) examines the 2008 Global Financial Crisis-related bank bailout and resolution techniques through case studies from the United States, the EU, the United Kingdom, Spain and Hungary. The book identifies the advantages and disadvantages of different legal and regulatory approaches and proposes a regulatory framework intended to better address future financial crises.Blazsek Virág Banking Bailout Law: A Comparative Study of the United States, United Kingdom and the European Union October 27, 2020 Routledge 9780367410339 1st New York (US) & London (UK) See also 20em Banking (Special Provisions) Act 2008 (United Kingdom) 2008–2009 Keynesian resurgence 2010 United States foreclosure crisis 2012 May Day protests 2000s commodities boom Crisis theory Kondratiev wave List of acronyms associated with the eurozone crisis List of bank failures in the United States (2008–present) List of banks acquired or bankrupted during the Great Recession List of banks acquired or bankrupted in the United States during the 2008 financial crisis List of economic crises List of entities involved in 2007–2008 financial crises List of largest bank failures in the United States Stock market crashes in India Low-Income Countries Under Stress Mark-to-market accounting Neoliberalism Occupy movement Pessimism porn PIGS (economics) Private equity in the 2000s Subprime crisis impact timeline Chicago plan Notes References The initial articles and some subsequent material were adapted from the Wikinfo article Financial crisis of 2007–2008 released under the GNU Free Documentation License Version 1.2 Further reading Kotz David M. The Rise and Fall of Neoliberal Capitalism 2015 Harvard University Press 978-0-674-72565-2 j.ctt21pxkf9 John Lanchester, The Invention of Money: How the heresies of two bankers became the basis of our modern economy, The New Yorker, August 5 & 12, 2019, pp. 28–31 Julien Mercille & Enda Murphy, 2015, Deepening neoliberalism, austerity, and crisis: Europe's treasure Ireland, Palgrave Macmillan, Basingstoke. Nomi Prins: Collusion: How Central Bankers Rigged the World, Nation Books 2018, 978-1568585628. Patterson Laura A. Koller Cynthia A. Economic Crisis and Crime Diffusion of Fraud Through Subprime Lending: The Perfect Storm Sociology of Crime, Law and Deviance 2011 25–45 10.1108/S1521-6136(2011)0000016005 978-0-85724-801-5 Charles Read (2022). Calming the storms : the carry trade, the banking school and British financial crises since 1825. Cham, Switzerland, pp. 295–305. Tooze Adam Adam Tooze Crashed: How a Decade of Financial Crises Changed the World New York Viking Press 2018 9780670024933 https://books.google.com/books?id=om2mDwAAQBAJ Peter Wallison, Bad History, Worse Policy (Washington, D.C.: American Enterprise Institute, 2013) 978-0-8447-7238-7. Palais-Royal Initiative18 high-ranking former ministers, Central Bank governors and/or officials in national or international institutions: Sergey_Aleksashenko Former Deputy Governor, Central Bank of Russia. Hamad_Al_Sayari Former Governor, Saudi Arabian Monetary Agency. Jack_T._Boorman Former Department Director and Special Advisor to the Managing Director, IMF. Michel_Camdessus Former Managing Director, IMF. Andrew Crockett Former General Manager, BIS. Guillermo_De_la_Dehesa Former State Secretary of Economy and Finance, Spain. Arminio_Fraga Former Governor, Central Bank of Brazil. Toyoo_Gyohten Former Vice Minister of Finance, Japan. Xiaolian_Hu Vice President of China Society of Finance and Banking. André_Icard Former Deputy General Manager, BIS. Horst_Koehler Former Managing Director, IMF. Alexandre_Lamfalussy Former General Manager, BIS. Guillermo Ortiz Former Governor, Banco de México. Tommaso_Padoa-Schioppa (†) Former Minister of Finance, Italy. Maria Ramos Former Director General, National Treasury, South Africa. Y. Venugopal Reddy Former Governor, Reserve Bank of India. Edwin_M._Truman Former Assistant Secretary for International Affairs of the U.S. Treasury. Paul_A._Volcker Former Chairman, Federal Reserve Board. Joined by Isabelle Mateos y Lago Advisor, IMF. Pietro Catte Director, International Research Department, Banca d’Italia. Corrinne Ho Senior Economist, BIS. Irena Asmundson Economist, IMF. (8 February 2011): Reform of the International Monetary System: A Cooperative Approach for the 21st Century (pdf, 20 p) External links Reports on causes Final Report of the Financial Crisis Inquiry Commission Archived website of the Financial Crisis Inquiry Commission (maintained by the Stanford University and the Stanford Law School) Wall Street and the Financial Crisis: Anatomy of a Financial Collapse https://web.archive.org/web/20110418203336/http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf April 18, 2011 , Majority and Minority Staff Report, United States Senate Homeland Security Permanent Subcommittee on Investigations, April 13, 2011 What Caused the Crisis: A collection of papers at the Federal Reserve Bank of St. Louis Journalism and interviews Inside the Meltdown – PBS Frontline documentation including additional background article and in-depth interviews "Money, Power & Wall Street" – PBS Frontline documentation including additional background article and in-depth interviews Stewart, James B., Eight Days: the battle to save the American financial system, The New Yorker magazine, September 21, 2009. pp. 58–81. Summarizing September 15–23, 2008, with interviews of Paulson, Bernanke, and Geithner by James Stewart Panic, Fear, and Regret – audio interviews with Timothy Geithner, Ben Bernanke and Henry Paulson from Marketplace Business and economics Money Banks Category:Great Recession Category:2000s in economic history Category:2007 in economic history Category:2008 in economic history Category:Economic bubbles Category:Economy of the United States Category:Economy of the United Kingdom Category:Financial crises in the United States Category:Great Recession in the United Kingdom Category:Great Recession in the United States Category:Presidency of Barack Obama Category:Presidency of George W. Bush Category:Premiership of Gordon Brown Category:September 2008 in North America Category:Stock market crashes in the United States Category:Systemic risk Category:Global economic crises