The 2008 Financial Crisis was sparked by a loss of confidence by investors in the mortgage and loan markets in the United States. The close interaction of banks across the world resulted in a global liquidity crisis. There was sudden reduction in the easy availability of loans or credit from banks and mortgage as lenders insisted on stringent checks before any bank or mortgage loans were approved.
Facts about 2008 Financial Crisis
The financial crisis was sparked by loan companies supplying easy, expensive home loans by borrowers who had a poor credit history, or could not prove their incomes, and held a greater risk of loan default than prime borrowers - these risky transactions were known as subprime loans.
From 1997 until 2007 it was easy to get a loan or a mortgage. New loans were made attractive to borrowers and many people re-mortgaged their homes due to low interest rates. As a result of easy credit, house prices rose and both US and foreign investors, including many banks, invested in subprime loans which gave a good return on the investment.
House builders, reacting to the increased number of people who could obtain loans, built too many houses. In 2007 the price of houses began to fall and the housing buble began to collapse.
Interest rates rose, and numerous subprime mortgage borrowers began to default on their loans. Subprime borrowers found that the value of many homes dropped below the value of the remaining mortgage debt (negative equity).
During 2007, almost 1.3 million Americans lost their homes due to foreclosure as lenders and loan companies repossessed mortgaged properties when the borrowers failed to keep up their mortgage payments.
The United States Federal Reserve (Fed) injected 43 billion US Dollars and lowered interest rates as the housing crisis began to grow.
The financial crisis spreads to Europe. The Internet bank 'NetBank' goes bankrupt and the British Government is forced to take over Northern Rock, a major UK bank, as the disaster deepens. In December 2007 the European Central Bank (ECB) lends $500bn to banks at below-market rates.
The 2008 financial crisis is heralded in January 2008 as shares begin to fall on the stock markets. House prices continue to fall, unemployment begins to rise as jobs are cut and houses continue to be repossessed.
In March 2008 the investment bank Bear Stearns becomes a major casualty and is bought out by JP Morgan. By August Morgan Stanley, Washington Mutual and Goldman Sachs all come under pressure.
By September 2008 Merrill Lynch is sold to the Bank of America. Washington Mutual and the Wachovia go bankrupt but the when the Lehman Brothers also go bankrupt it triggers a worldwide financial panic.
The US government is forced to take over 'Fannie Mae' (Federal National Mortgage Association) and 'Freddie Mac' (Federal Home Loan Mortgage Corporation), two massive firms that had guaranteed thousands of sub-prime mortgages, fearing that a systemic global financial crisis would prompt the biggest depression since the 1930s.
Countries across the world begin to fall into recession, three major banks of Iceland (Glitnir, Kaupthing, and Landsbanki) are nationalized.
The stock market continues to fall and confused governments frantically cut interest rates to ease the situation in a desperate, coordinated attempt to prevent the collapse of the banking sector.
Global stock markets report the biggest annual falls for 24 years and the G20, an international forum for the governments and central bank governors from 20 major economies, agrees on a global stimulus package worth $5 trillion
In 2010 the financial crisis hit Greece, Portugal and Ireland who were bailed out by the Eurozone on condition they implement austerity measures.
The 2009 Wall Street Reform and Consumer Protection Act was passed by Congress on December 11, 2009.
On January 27, 2010 President Barack Obama declared that, "the markets are now stabilized, and we've recovered most of the money we spent on the banks."
The Restoring American Financial Stability Act of 2010 was passed on May 20, 2010.
The Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted on July 21, 2010.
US Congress released the Financial Crisis Inquiry Commission report in January 2011, and another report entitled Wall Street and the Financial Crisis was released in April 2011.
The storm of buyouts, bankruptcies, bailouts and collapses that had resulted in a terrible period of recession in the United States lasted until 2013.
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