The failure or risk of failure at major financial institutions around the world, beginning with the bailout of investment bank Bear Stearns in March 2008 and the failure of Lehman Brothers in September 2008, was the immediate or proximate cause of the crisis in 2008. Many of these institutions had invested in hazardous securities that lost a significant portion of their value when the housing bubbles in the United States and Europe deflated between 2007 and 2009, depending on the country. Furthermore, many institutions have become reliant on volatile short-term (overnight) funding markets.
Many financial institutions dropped credit requirements to keep up with global demand for mortgage securities, resulting in massive gains for their investors. They were also willing to share the risk. When the bubbles burst, household debt levels skyrocketed.
What corporation was responsible for the financial crisis of 2008?
The following is a chronology of the important events of the financial crisis, as well as government responses and the economic recovery that followed:
There is a compelling case for credit tightening. Hundreds of millions of homeowners who had significant equity in their homes two years ago now have little or none. The current economic crisis is the worst since the Great Depression. This has an impact on credit decisions. A homeowner who owns her home has a low risk of defaulting on a vehicle loan or credit card debt. They’ll use this equity to avoid losing their car and/or having a default recorded on their credit report. A homeowner with no equity, on the other hand, is a major default risk. Businesses’ creditworthiness is determined by their expected profits in the future. In November 2008, profit prospects appear to be significantly lower than they were in November 2007… While many banks are clearly on the verge of failure, consumers and businesses would have a considerably more difficult time obtaining credit right now even if the financial system were in perfect condition. The economy’s problem is a loss of about $6 trillion in house wealth and an even larger amount in stock wealth.
- The 2008 Greek riots began on December 6, 2008, motivated in part by the country’s economic woes.
- General Motors and Chrysler were granted financing under the Troubled Asset Relief Program on December 20, 2008.
- Citi predicted that Singapore would endure “the most severe recession in Singapore’s history” in 2009. In the end, the GDP increased by 3.1 percent in 2009 and 3.1 percent in 2010.
- The 2009 Icelandic financial crisis erupted on January 2026, and the Icelandic government fell apart.
- Congress passed the American Recovery and Reinvestment Act of 2009, a $787 billion economic stimulus package, on February 13, 2009. On the same day, President Barack Obama signed it.
- The DJIA fell to a 6-year low on February 20, 2009, amid fears that the country’s main banks would have to be nationalized.
- The DJIA fell to its lowest level since 1997 on February 27, 2009, when the US government boosted its share in Citigroup to 36 percent, reigniting worries of nationalization, and a study revealed that GDP decreased at the fastest rate in 26 years.
- Early in March 2009, the stock market plunge was compared to the Great Depression.
- “Buying equities is a potentially terrific deal if you have a long-term perspective on it,” Obama said on March 3, 2009.
- Over the course of 17 months, the Dow Jones fell to its lowest level of 6,443.27, a 54 percent decrease from its top of 14,164 on October 9, 2007, before beginning to recover.
- Citigroup’s stock soared 38% on March 10, 2009, after the CEO announced that the firm was profitable in the first two months of the year and expressed optimism about the company’s capital position moving forward. The bottom of the stock market slump was reached when major stock market indices rose 5-7 percent.
- March 12, 2009: U.S. stock market indices rose another 4% after Bank of America said that it was profitable in January and February and would not require additional government support. Bernie Madoff has been found guilty.
- In the first quarter of 2009, the annualized rate of GDP drop in Germany was 14.4 percent, 15.2 percent in Japan, 7.4 percent in the UK, 18 percent in Latvia, 9.8 percent in the Eurozone, and 21.5 percent in Mexico.
- The 2009 G-20 London summit riots were sparked by unrest over economic policy and bonuses paid to bankers.
- “More Quickly Than It Began, The Banking Crisis Is Over,” Time magazine declared on April 10, 2009.
- On April 29, 2009, the Federal Reserve forecasted GDP growth of 2.53% in 2010, an unemployment rate of roughly 10% in 2009 and 2010 with a moderated rate in 2011, and inflation rates of 12%.
- On May 1, 2009, people all over the world protested economic circumstances as part of the 2009 May Day rallies.
- The Fraud Enforcement and Recovery Act of 2009 was signed by President Barack Obama on May 20, 2009.
- The National Bureau of Economic Research (NBER) deemed June 2009 to be the end of the recession in the United States. In a June 2009 statement, the Federal Open Market Committee stated:
…the rate of shrinkage in the economy is slowing. In recent months, financial market conditions have generally improved. Household spending has begun to stabilize, but it is still hampered by job losses, weaker housing wealth, and tight credit. Businesses are reducing fixed investment and employment, but they appear to be making headway in aligning inventory levels with sales. Despite the fact that economic activity is likely to remain weak for some time, the Committee remains optimistic that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will all contribute to a gradual return to sustainable economic growth in a price-stabilized environment.
- Barack Obama and key advisers unveiled a series of regulatory proposals on June 17, 2009, addressing consumer protection, executive pay, bank capital requirements, expanded regulation of the shadow banking system and derivatives, and increased authority for the Federal Reserve to safely wind down systemically important institutions.
- The United States House of Representatives passed bill H.R.4173 on December 11, 2009, which was a forerunner of the DoddFrank Wall Street Reform and Consumer Protection Act.
- President Barack Obama announced “The Volcker Rule,” which limits banks’ capacity to engage in proprietary trading and is named after Paul Volcker, who publicly campaigned for the proposed changes. Obama has advocated a fee on huge banks to cover the costs of the financial crisis.
- “The markets have now stabilized, and we’ve recovered the majority of the money we spent on the banks,” President Obama said on January 27, 2010.
- The Restoring American Financial Stability Act of 2010 (S.3217) was presented in the United States Senate on April 15, 2010.
- The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the US Senate in May 2010. The legislation did not include the Volcker Rule, which prohibits proprietary trading.
- The DoddFrank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010.
- 12 September 2010: Basel III standards for banks boosted capital ratios, leverage restrictions, reduced the definition of capital to exclude subordinated debt, limited counter-party risk, and enhanced liquidity requirements, according to European authorities. Basel III, critics claimed, did not address the issue of erroneous risk-weightings. According to Basel II, major banks sustained losses from AAA-rated assets manufactured via financial engineering (creating ostensibly risk-free assets out of high-risk collateral) that required less capital. The risk-weight of lending to AA-rated sovereigns is zero, resulting in more lending to governments and the next crisis. According to Johan Norberg, restrictions (such as Basel III) have led to excessive lending to riskier governments (see European sovereign-debt crisis), and the European Central Bank is pursuing even greater lending as a remedy.
- Wednesday, November 3, 2010: The Federal Reserve launched another round of quantitative easing, termed QE2, to boost economic development, which includes the purchase of $600 billion in long-term Treasuries over the next eight months.
- March 2011: Many stock market indices were 75 percent higher than their March 2009 lows, two years after the crisis’s nadir. Nonetheless, many market participants, including the International Monetary Fund, were concerned about the lack of substantial improvements in banking and financial markets.
- Between 2005 and 2011, the median household wealth in the United States declined by 35%, from $106,591 to $68,839 dollars.
- Abacus Federal Savings Bank and 19 employees were indicted by the Manhattan District Attorney in May 2012 for marketing Fannie Mae false mortgages. In 2015, the bank was cleared of any wrongdoing. The only bank punished for wrongdoing that contributed to the crisis was Abacus.
- During the European debt crisis, Mario Draghi, President of the European Central Bank, stated, “The ECB is prepared to do whatever it takes to protect the euro.”
- August 2012: Many homeowners in the United States were still facing foreclosure and were unable to refinance or alter their mortgages. The number of people facing foreclosure has been high.
- 13 September 2012: The Federal Reserve launched another round of quantitative easing, termed QE3, in order to cut interest rates, boost mortgage markets, and make financial conditions more accommodating. QE3 comprised the monthly purchase of $40 billion in long-term Treasuries.
- 2014: A survey found that during the post-2008 economic recovery, the distribution of household incomes in the United States got more uneven, a first for the country but consistent with the trend of the previous ten economic recoveries since 1949. Between 2005 and 2012, income disparity increased in more than two out of every three metropolitan areas in the United States.
- June 2015: According to an ACLU-commissioned study, white homeowners rebounded from the financial crisis faster than black homeowners, expanding the racial wealth disparity in the United States.
- According to the International Monetary Fund, “advanced” economies contributed for only 26.5 percent of global GDP (PPP) growth from 2007 to 2017, while emerging and developing economies accounted for 73.5 percent.
The names of emerging and developing economies appear in boldface type in the table, whereas developed economies’ names are in Roman (normal) font.
Who is responsible for the 2008 Great Recession?
The Lenders are the main perpetrators. The mortgage originators and lenders bear the brunt of the blame. That’s because they’re the ones that started the difficulties in the first place. After all, it was the lenders who made loans to persons with bad credit and a high chance of default. 7 This is why it happened.
What corporations were responsible for the financial crisis?
Bear Stearns, Citibank, and Lehman Brothers were among the largest shareholders. Subprime mortgages were given by banks because derivatives made them more money than the loans itself.
How did Goldman Sachs contribute to the financial meltdown?
By selling subprime mortgage-backed securities, Goldman Sachs contributed to the financial disaster. In 2006, the bank’s mortgage bond branch, Alternative Mortgage Products, sold $12.9 billion in subprime mortgage bonds. This elevated Goldman Sachs to the 15th largest seller of subprime mortgage bonds, representing a 59 percent rise in its subprime business over the previous year. Goldman Sachs sold $135 billion in bonds backed by bad mortgages from 2001 to 2007. New Century, the second largest subprime lender in the United States until it went bankrupt in 2007, was the bank’s largest creditor.
In a news release dated April 26, 2010, Carl Levin, the Democratic senator who chairs the Senate Permanent Subcommittee on Investigations, stated: “From 2004 to 2007, Goldman Sachs assisted lenders such as Long Beach, Fremont, and New Century in securitizing high-risk, low-quality loans, obtaining favorable credit ratings for the resulting residential mortgage-backed securities (RMBS), and selling the RMBS securities to investors, pushing billions of dollars of risky mortgages into the financial system in exchange for lucrative fees.”
When Allan Sloan of the Washington Post asked mortgage specialists to choose the worst subprime mortgage product sold by a major bank in 2007, they chose a Goldman Sachs bond dubbed the “2006-S3 GSAMP Trust”.
One-sixth of the mortgages underpinning the bond defaulted within 18 months of Goldman Sachs selling it to investors. Some investors lost all of their money. Sloan stated how Goldman Sachs’ subprime bond contributed to the financial crisis’ losses and foreclosures:
“This issue, which is backed by extremely hazardous second-mortgage loans, has all of the components that contributed to the housing boom and bust. It had speculators looking for quick profits in hot property markets, loans that appear to have been created with little or no serious scrutiny by lenders, and finally, Wall Street, which cranked out mortgage ‘product’ because purchasers demanded it.”
Goldman Sachs’ sub-prime business was the subject of a five-month investigation by the McClatchy media group in 2009. According to the findings of the probe, “Goldman had joined other Wall Street firms in establishing a massive secondary market for subprime mortgages, turning them into securities and transferring many of those securities offshore to avoid federal tax and securities restrictions.” Pension funds and labor unions are suing Goldman Sachs, alleging that the bank failed to warn them about the risks when it sold them subprime mortgage-backed bonds. According to McClatchy, Goldman Sachs sold $40 billion in assets backed by 200,000 bad mortgages in 2006 and 2007.
During the 2008 financial crisis, which two automakers received assistance from the US government?
According to Dziczek, the auto sector in the United States would still exist today if not for the bailout. However, it would be smaller and focused exclusively in the South’s lower-wage, nonunion assembly factories.
“Eventually, the economy would have returned to equilibrium,” Dziczek added. “The Upper Midwest, on the other hand, would have taken decades to recover from the blow. Government involvement saved General Motors and Chrysler, as well as the supply network that linked them to other firms like Ford, Honda, Toyota, and Nissan.”
According to the Bureau of Labor Statistics, auto manufacturing employment declined by more than one-third during the Great Recession, resulting in a loss of 334,000 jobs. According to a representative for the United Autoworkers, the union’s membership has dropped by 150,000. Those job losses were progressively reversed during the next decade, as automobile sales rebounded and production stepped up. In July 2016, employment in the auto manufacturing industry in the United States finally surpassed its pre-recession level (957,000 in December 2007). The UAW is still short of its pre-recession high of over 50,000 members.
Despite the bailout and rebirth of some auto-dependent areas, many union autoworkers are worse off financially than they were before the Great Recession, according to Dziczek. The bailouts resulted in a ten-year pay freeze for workers hired before 2007, with the highest hourly wage remaining at $28. Workers hired after 2007 were compensated on a two-tier wage-and-benefit scheme, with the lowest tier paying $16 an hour and the highest tier paying $20 an hour. The two-tier system is being phased out under the UAW’s 2015 contracts with GM, Ford, and Fiat Chrysler. By 2023, post-2007 recruits will have caught up to the top heritage compensation of $28 per hour.
The bailout, according to Dziczek, saved domestic automakers and spared catastrophic economic deterioration in auto-dependent areas throughout the Upper Midwest. Hundreds of thousands of autoworker jobs were also spared, according to her, despite the fact that many union autoworkers have lost ground economically. “The U.S. automakers had to pay a wage that was comparable with international producers in order to receive the funding,” she said. “The UAW evolved from wage setters to wage takers as a result of the loss of membership and negotiating ability.”
This story is part of a year-long project called Divided Decade, which looks at how the financial crisis transformed America.
(Updated November 14, 2018): In an earlier version of this story, the employment figures for auto manufacturing in the United States were wrong. The text has been updated to reflect the changes.
Was the financial crisis caused by Freddie Mac and Fannie Mae?
Fannie Mae and Freddie Mac took on more risk than they should have as government-sponsored companies. They failed to protect taxpayers, who were ultimately forced to bear the brunt of the losses. They did not, however, create the housing downturn. They didn’t saturate the market with high-risk loans.
Which businesses prospered during the Great Depression?
Chrysler responded to the financial crisis by slashing costs, increasing economy, and improving passenger comfort in its vehicles. While sales of higher-priced vehicles fell, those of Chrysler’s lower-cost Plymouth brand soared. According to Automotive News, Chrysler’s market share increased from 9% in 1929 to 24% in 1933, surpassing Ford as America’s second largest automobile manufacturer.
During the Great Depression, the following Americans benefited from clever investments, lucky timing, and entrepreneurial vision.