What Happened During The 2008 Recession?

In 2008, the stock market plummeted. The Dow had one of the most significant point declines in history.
Congress passed the Struggling Asset Relief Scheme (TARP) to empower the US Treasury to implement a major rescue program for troubled banks. The goal was to avoid a national and global economic meltdown.

What triggered the 2008 financial crisis?

Years of ultra-low interest rates and lax lending rules drove a home price bubble in the United States and internationally, sowing the seeds of the financial crisis. It began with with intentions, as it always does.

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 occurred in the world in 2008?

The financial crisis of 2008, often known as the Global Financial Crisis (GFC), was a major global economic downturn that struck in the early twenty-first century. It was the worst economic downturn since the Great Depression (1929). The “perfect storm” included predatory lending to low-income homebuyers, excessive risk-taking by global financial institutions, and the fall of the US housing bubble. The value of mortgage-backed securities (MBS) tied to American real estate, as well as a complex web of derivatives linked to those MBS, plummeted. Financial institutions all across the world were severely harmed, culminating in the collapse of Lehman Brothers on September 15, 2008, and an international banking crisis that followed.

The preconditions for the financial crisis were multi-causal and complicated. The United States Congress had passed legislation encouraging affordable housing financing about two decades before. Glass-Steagall was overturned in parts in 1999, allowing financial organizations to cross-pollinate their commercial (risk-averse) and investment (risk-seeking) operations. The fast emergence of predatory financial products, which targeted low-income, low-information homeowners, primarily from racial minorities, was arguably the most significant contributor to the conditions essential for financial collapse. Regulators were unaware of this market development, which took the US government off guard.

To keep the global financial system from collapsing, governments used huge bailouts of financial institutions and other palliative monetary and fiscal policies when the crisis began. The crisis triggered the Great Recession, which led in higher unemployment and suicide rates, as well as lower institutional trust and fertility rates, among other things. The European debt crisis was precipitated in large part by the recession.

In response to the crisis, the DoddFrank Wall Street Reform and Consumer Protection Act was passed in the United States in 2010 to “promote financial stability in the United States.” Countries all across the world have embraced the Basel III capital and liquidity criteria.

Who profited the most from the financial crisis of 2008?

Warren Buffett declared in an op-ed piece in the New York Times in October 2008 that he was buying American stocks during the equity downturn brought on by the credit crisis. “Be scared when others are greedy, and greedy when others are fearful,” he says, explaining why he buys when there is blood on the streets.

During the credit crisis, Mr. Buffett was particularly adept. His purchases included $5 billion in perpetual preferred shares in Goldman Sachs (NYSE:GS), which earned him a 10% interest rate and contained warrants to buy more Goldman shares. Goldman also had the option of repurchasing the securities at a 10% premium, which it recently revealed. He did the same with General Electric (NYSE:GE), purchasing $3 billion in perpetual preferred stock with a 10% interest rate and a three-year redemption option at a 10% premium. He also bought billions of dollars in convertible preferred stock in Swiss Re and Dow Chemical (NYSE:DOW), which all needed financing to get through the credit crisis. As a result, he has amassed billions of dollars while guiding these and other American businesses through a challenging moment. (Learn how he moved from selling soft drinks to acquiring businesses and amassing billions of dollars.) Warren Buffett: The Road to Riches is a good place to start.)

What could have been done differently to avoid the 2008 financial crisis?

The catastrophe could have been avoided if two things had happened. The first step would have been to regulate mortgage brokers who made the problematic loans, as well as hedge funds that used excessive leverage. The second would have been seen as a credibility issue early on. The government’s sole option was to buy problematic debts.

What interesting events occurred in 2008?

The United States is experiencing its biggest financial crisis since the Great Depression. The mortgage market tanked, and the Dow Jones Industrial Average dropped 33.8 percent.
Lehman Brothers filed into bankruptcy, and General Motors and Ford Motor Company both posted historic losses.
Citigroup, the nation’s largest bank, posted a loss of about $10 billion in the fourth quarter of 2007.
Countrywide Financial, the nation’s largest mortgage lender, was acquired by Bank of America.
Property prices have continued to decrease in both the United States and Europe, putting homeowners and financial institutions in a difficult position.
President Bush and Congress reached an agreement on a $150 billion economic stimulus program, with most taxpayers receiving refunds ranging from $600 to $1,200.
By defeating Republican John McCain, Barack Obama was elected president of the United States.
Democrats gained five seats in the Senate and strengthened their majority in the House.
The governor of New York, Eliot Spitzer, was forced to resign due to a sex scandal.
The Phoenix Mars Lander from NASA discovered “The Interior Department declared polar bears “vulnerable” under the Endangered Species Act, citing “evidence” of water on Mars.
In the year 2008, Google introduced the first edition of their search engine “Chrome’s “public version” is a web browser.
For employee training, over 7,000 Starbucks outlets took a three-hour coffee break.
The United States’ life expectancy has dropped to 77.8 years, the lowest level since 2004. The United States was also ranked 18th in terms of obesity.
Princeton, California Institute of Technology, Harvard, Swarthmore, Williams, and the United States Military Academy at West Point were among the greatest colleges in the country.
The Dark Knight, Role Models, Mamma Mia!, Twilight, Iron Man, The Incredible Hulk, Forgetting Sarah Marshall, and The House Bunny were the most popular feature films.
Steven Millhauser’s book Dangerous Laughter was a best-seller, and American Idol (FOX) was the most popular television show.
Inflation was 3.84 percent, unemployment was around 5.8 percent, and a gallon of gas cost $3.39 at the pump.
A gallon of milk cost $3.99, a dozen eggs cost $2.29, and a five-pound bag of Yukon Gold potatoes priced $3.99.
The Super Bowl champions were the New York Giants, the World Series champions were the Philadelphia Phillies, and the Stanley Cup champions were the Detroit Red Wings.

World | Nation | Business/Science/Society

U.S. Casualties in Iraq Drop to Lowest Number Since 2003 (June 1): The US military reports that deaths in Iraq fell to 19 in May, the lowest level since the conflict began in 2003.
Suspects in the September 11 Attacks Have Been Arrested (June 5): At Guantnamo Bay, Cuba, Khalid Shaikh Mohammed, who has claimed responsibility for the September 11, 2001 terrorist attacks against the United States, and four others involved in the planning face a tribunal for the first time. The five defendants have all stated that they will defend themselves.
The Constitutional Court of Turkey Rules Against Head Scarves (June 5): The Constitutional Court of Turkey overturns a law passed by Parliament in February and endorsed by Prime Minister Recep Tayyip Erdogan that allowed women to wear headscarves at universities, claiming that it violates the country’s constitution’s secularist principles.
Massive Protests Against Beef Imports in South Korea (June 10): Hundreds of thousands of people protest in Seoul’s streets against the government’s decision to reintroduce American beef imports, which were banned in 2003 after the discovery of mad cow disease in the United States. The protests, which lasted nearly six weeks in Seoul and climax on June 10, reflect widespread displeasure with President Lee, who promised to revive the country’s ailing economy and reach out to the United States. Prime Minister Han Seung-soo and all 15 members of his government have resigned. (21st of June): The United States and South Korea agree that the United States will not export meat from animals older than 30 months. (Tuesday, June 22): Faced with mounting public pressure, the government has decided to put the agreement on hold.
Several Pakistani soldiers are killed in a US attack (June 10): U.S. soldiers launch an air strike against Taliban terrorists who crossed the Pakistan-Afghanistan border and opened fire on American-led forces. Eleven members of a Pakistani paramilitary group are killed, infuriating Pakistani leaders and heightening tensions between the United States and Pakistan.
Ireland Opposes the Treaty on European Union (June 13): Ireland’s dissent, as the only country in the EU’s 27-member bloc to vote on the Lisbon Treaty, jeopardizes the pact’s future, which would have expanded the EU’s clout in global politics.
Taliban Masterminds Brazen Prison Break (June 13): Fighters attack guards outside a Kandahar prison before launching a rocket-propelled grenade at a parked fuel tanker. Several guards are killed in the blast, which also blows a breach in the jail wall. Approximately 900 convicts, including 350 Taliban fighters, have escaped.
Bombings Kill Dozens in Iraq (June 17): An explosive-laden minibus explodes near a packed market in a Shiite suburb of Baghdad, killing at least 60 people and injuring nearly 75 more. An apartment building catches fire as a result of the detonation. (June 18): The US military blames the explosion on Haydar Mehdi Khadum al-Fawadi, a Shiite militia leader who claims he planned the attack to foment sectarian strife between Sunnis and Shiites. (June 26): Two separate attacks in Anbar Province and Mosul result in the deaths of at least 30 persons. The suicide attack in Anbar took place during a meeting of the Awakening Council, a group of moderate Sunnis who support the United States.
Israel and Hamas Reach an Agreement (June 19): Egypt mediates a cease-fire between Israel and Hamas, the militant group that governs Gaza. The accord aims to bring the region’s bloodshed to a halt.
In Zimbabwe, the opposition leader withdraws from the runoff election. (June 22) Morgan Tsvangirai of the Movement for Democratic Change, who was set to face incumbent President Robert Mugabe in a runoff election on June 27th, withdraws from the campaign, citing his inability to subject his followers to violence and intimidation. He further claims that he declined to participate in “this violent, fraudulent charade of an election.” Tsvangirai had been imprisoned by police multiple times in recent weeks, and 85 of his followers had been slain in government-sanctioned anti-opposition violence. (June 27): In an election largely regarded as a fraud, voters head to the polls to cast ballots. Mugabe receives almost 85% of the vote. (June 28): President Bush pushes the United Nations to impose an international arms embargo on Zimbabwe and declares that the US would impose economic penalties on Mugabe. According to Bush, “the world community has condemned the Mugabe regime’s vicious campaign of politically motivated violence and intimidation.”
North Korea Makes Denuclearization Efforts (June 26): Chinese officials receive a list of their nuclear facilities as well as data on the amount of reprocessed plutonium they have. North Korea gets removed off the United States’ list of countries that fund terrorism in exchange for the lifting of some sanctions. (June 27) North Korea destroys a cooling tower at its Yongbyon nuclear power plant.
In a report on post-Hussein Iraq, the US Army makes mistakes (June 30): The Army claims that while it was capable of overthrowing Saddam Hussein, it was not competent to rebuild Iraq into a functional country in a 700-page study titled “On Point II: Transition to the New Campaign.”
Sen. Barack Obama Wins the Democratic Nomination (June 3): On the final day of the 2008 primary season, Sen. Barack Obama wins 2,154 delegates and is declared the Democratic presidential nominee. He is the first black presidential contender to lead a major political party’s ticket. Hillary Clinton has not officially dropped out of the race, but she is likely to do so in the coming days. (June 7): Senator Hillary Clinton suspends her presidential candidacy and supports Barack Obama.
Top Air Force Officers Fired by Defense Secretary (June 5): After an investigation into how fuses for nuclear weapons were accidentally sent to Taiwan, Air Force Secretary Michael Wynne and Air Force Chief of Staff Gen. T. Michael Moseley were compelled to resign.
Five-Year Investigation Finds Bush Exaggerated Iraq Evidence (June 5): According to the Senate Select Committee on Intelligence report, President Bush and his staff deceived the public about linkages between Iraq and al-Qaeda by exaggerating evidence that Saddam Hussein held nuclear, chemical, and biological weapons.
The Supreme Court rules in favor of the detainees at Guantanamo Bay (June 12): In a 5-4 decision, the Supreme Court determines that detainees at Guantnamo Bay, Cuba, have the right to challenge their detention in federal court. It’s the third time the court has ruled against the Bush administration’s approach on detainees.
Extending Unemployment Benefits in the House of Representatives (June 12): The House passes a bill to extend unemployment benefits to 39 weeks, up from 26 weeks, a day after the same measure fails. Benefits would also be extended by a total of 26 weeks for those living in states with unemployment rates of 6% or higher.
California is the first state to perform same-gender marriages (June 16): Couples are flocking to city halls around the state to get married a month after the state supreme court threw down laws forbidding homosexual marriage. After Massachusetts, California is the second state to legalize same-sex marriage. The future of homosexual marriage, however, is in doubt; a vote scheduled for November aims to define marriage as a relationship between a man and a woman.
Bush Urges Congress to Lift Ban on Offshore Drilling (June 18): The president asks Congress to act by July 4 to lift a ban on offshore oil drilling enacted by the first President Bush in 1990. Critics argue that relief from rising gas prices, which have surpassed $4 per gallon, will not come until 2030.
Obama Refuses to Take Public Money in the General Election (June 19): Barack Obama, the presumptive Democratic presidential contender, is the only presidential candidate since the program’s inception to forego taxpayer funding. Obama claims that the decision will provide him with more resources to defend his campaign against Republican accusations.
House Passes Law to Expand Civil Rights for Disabled People (June 25): By a vote of 402 to 17, the House passes a bill that makes it easier for workers to prove discrimination and broadens the definition of disability. It would cover cancer, diabetes, cerebral palsy, epilepsy, and multiple sclerosis.
The United States Supreme Court has ruled in favor of gun rights (June 26, 2008): The Supreme Court determines, 5-4, that an individual’s right to bear arms is protected by the Constitution, but emphasizes that the finding “is not a right to keep and carry any weapon whatever in any form whatsoever and for any purpose.”
The Governor of California declares a drought (June 4): With reservoir levels substantially below average and the state having its driest spring in 88 years, Governor Arnold Schwarzenegger declares a drought and warns of possible rationing. It’s the first time in 17 years that such a pronouncement has been made.
Unemployment Rate Increases (June 6): According to the US Department of Labor, the unemployment rate has increased from 5% to 5.5 percent, the largest monthly increase in 22 years.
Storms wreak havoc on already high rivers and lakes in Iowa, Indiana, and Wisconsin, killing ten people, destroying three dams, and causing tens of thousands of people to flee their homes (June 9). Furthermore, at least 90 roads have been closed.
Tornado Kills Four Boy Scouts (June 11): A tornado sweeps through the Little Sioux Scout Ranch in western Iowa, killing four Boy Scouts and injuring 48 others. In Kansas, a tornado also strikes, killing two people.
Typhoon Fengshen Kills Hundreds in the Philippines (June 21): Typhoon Fengshen kills over 800 people as it strikes a boat. Approximately 500 more people perish as a result of the storm.
Gates’ Day-to-Day Work at Microsoft Comes to an End (June 27): Bill Gates will continue to serve as chairman of the software behemoth, but he will no longer be a full-time employee. He will instead focus his efforts on the Bill and Melinda Gates Foundation.

During the Great Depression, who became wealthy?

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.

How long did it take to recover from the financial crisis of 2008?

When the decade-long expansion in US housing market activity peaked in 2006, the Great Moderation came to an end, and residential development began to decline. Losses on mortgage-related financial assets began to burden global financial markets in 2007, and the US economy entered a recession in December 2007. Several prominent financial firms were in financial difficulties that year, and several financial markets were undergoing substantial upheaval. The Federal Reserve responded by providing liquidity and support through a variety of programs aimed at improving the functioning of financial markets and institutions and, as a result, limiting the damage to the US economy. 1 Nonetheless, the economic downturn deteriorated in the fall of 2008, eventually becoming severe and long enough to be dubbed “the Great Recession.” While the US economy reached bottom in the middle of 2009, the recovery in the years that followed was exceptionally slow in certain ways. In response to the severity of the downturn and the slow pace of recovery that followed, the Federal Reserve provided unprecedented monetary accommodation. Furthermore, the financial crisis prompted a slew of important banking and financial regulation reforms, as well as congressional legislation that had a substantial impact on the Federal Reserve.

Rise and Fall of the Housing Market

Following a long period of expansion in US house building, home prices, and housing loans, the recession and crisis struck. This boom began in the 1990s and accelerated in the mid-2000s, continuing unabated through the 2001 recession. Between 1998 and 2006, average home prices in the United States more than doubled, the largest increase in US history, with even bigger advances in other locations. During this time, home ownership increased from 64 percent in 1994 to 69 percent in 2005, while residential investment increased from around 4.5 percent of US GDP to nearly 6.5 percent. Employment in housing-related sectors contributed for almost 40% of net private sector job creation between 2001 and 2005.

The development of the housing market was accompanied by an increase in household mortgage borrowing in the United States. Household debt in the United States increased from 61 percent of GDP in 1998 to 97 percent in 2006. The rise in home mortgage debt appears to have been fueled by a number of causes. The Federal Open Market Committee (FOMC) maintained a low federal funds rate after the 2001 recession, and some observers believe that by keeping interest rates low for a “long period” and only gradually increasing them after 2004, the Federal Reserve contributed to the expansion of housing market activity (Taylor 2007). Other researchers, on the other hand, believe that such variables can only explain for a small part of the rise in housing activity (Bernanke 2010). Furthermore, historically low interest rates may have been influenced by large savings accumulations in some emerging market economies, which acted to keep interest rates low globally (Bernanke 2005). Others attribute the surge in borrowing to the expansion of the mortgage-backed securities market. Borrowers who were deemed a bad credit risk in the past, maybe due to a poor credit history or an unwillingness to make a big down payment, found it difficult to get mortgages. However, during the early and mid-2000s, lenders offered high-risk, or “subprime,” mortgages, which were bundled into securities. As a result, there was a significant increase in access to housing financing, which helped to drive the ensuing surge in demand that drove up home prices across the country.

Effects on the Financial Sector

The extent to which home prices might eventually fall became a significant question for the pricing of mortgage-related securities after they peaked in early 2007, according to the Federal Housing Finance Agency House Price Index, because large declines in home prices were viewed as likely to lead to an increase in mortgage defaults and higher losses to holders of such securities. Large, nationwide drops in home prices were uncommon in US historical data, but the run-up in home prices was unique in terms of magnitude and extent. Between the first quarter of 2007 and the second quarter of 2011, property values declined by more than a fifth on average across the country. As financial market participants faced significant uncertainty regarding the frequency of losses on mortgage-related assets, this drop in home values contributed to the financial crisis of 2007-08. Money market investors became concerned of subprime mortgage exposures in August 2007, putting pressure on certain financial markets, particularly the market for asset-backed commercial paper (Covitz, Liang, and Suarez 2009). The investment bank Bear Stearns was bought by JPMorgan Chase with the help of the Federal Reserve in the spring of 2008. Lehman Brothers declared bankruptcy in September, and the Federal Reserve aided AIG, a significant insurance and financial services firm, the next day. The Federal Reserve, the Treasury, and the Federal Deposit Insurance Corporation were all approached by Citigroup and Bank of America for assistance.

The Federal Reserve’s assistance to specific financial firms was hardly the only instance of central bank credit expansion in reaction to the crisis. The Federal Reserve also launched a slew of new lending programs to help a variety of financial institutions and markets. A credit facility for “primary dealers,” the broker-dealers that act as counterparties to the Fed’s open market operations, as well as lending programs for money market mutual funds and the commercial paper market, were among them. The Term Asset-Backed Securities Loan Facility (TALF), which was launched in collaboration with the US Department of Treasury, was aimed to relieve credit conditions for families and enterprises by offering credit to US holders of high-quality asset-backed securities.

To avoid an increase in bank reserves that would drive the federal funds rate below its objective as banks attempted to lend out their excess reserves, the Federal Reserve initially funded the expansion of Federal Reserve credit by selling Treasury securities. The Federal Reserve, on the other hand, got the right to pay banks interest on their excess reserves in October 2008. This encouraged banks to keep their reserves rather than lending them out, reducing the need for the Federal Reserve to offset its increased lending with asset reductions.2

Effects on the Broader Economy

The housing industry was at the forefront of not only the financial crisis, but also the broader economic downturn. Residential construction jobs peaked in 2006, as did residential investment. The total economy peaked in December 2007, the start of the recession, according to the National Bureau of Economic Research. The drop in general economic activity was slow at first, but it accelerated in the fall of 2008 when financial market stress reached a peak. The US GDP plummeted by 4.3 percent from peak to trough, making this the greatest recession since World War II. It was also the most time-consuming, spanning eighteen months. From less than 5% to 10%, the jobless rate has more than doubled.

The FOMC cut its federal funds rate objective from 4.5 percent at the end of 2007 to 2 percent at the start of September 2008 in response to worsening economic conditions. The FOMC hastened its interest rate decreases as the financial crisis and economic contraction worsened in the fall of 2008, bringing the rate to its effective floor a target range of 0 to 25 basis points by the end of the year. The Federal Reserve also launched the first of several large-scale asset purchase (LSAP) programs in November 2008, purchasing mortgage-backed assets and longer-term Treasury securities. These purchases were made with the goal of lowering long-term interest rates and improving financial conditions in general, hence boosting economic activity (Bernanke 2012).

Although the recession ended in June 2009, the economy remained poor. Economic growth was relatively mild in the first four years of the recovery, averaging around 2%, and unemployment, particularly long-term unemployment, remained at historically high levels. In the face of this sustained weakness, the Federal Reserve kept the federal funds rate goal at an unusually low level and looked for new measures to provide extra monetary accommodation. Additional LSAP programs, often known as quantitative easing, or QE, were among them. In its public pronouncements, the FOMC began conveying its goals for future policy settings more fully, including the situations in which very low interest rates were likely to be appropriate. For example, the committee stated in December 2012 that exceptionally low interest rates would likely remain appropriate at least as long as the unemployment rate remained above a threshold of 6.5 percent and inflation remained no more than a half percentage point above the committee’s longer-run goal of 2 percent. This “forward guidance” technique was meant to persuade the public that interest rates would remain low at least until specific economic conditions were met, exerting downward pressure on longer-term rates.

Effects on Financial Regulation

When the financial market upheaval calmed, the focus naturally shifted to financial sector changes, including supervision and regulation, in order to avoid such events in the future. To lessen the risk of financial difficulty, a number of solutions have been proposed or implemented. The amount of needed capital for traditional banks has increased significantly, with bigger increases for so-called “systemically essential” institutions (Bank for International Settlements 2011a;2011b). For the first time, liquidity criteria will legally limit the amount of maturity transformation that banks can perform (Bank for International Settlements 2013). As conditions worsen, regular stress testing will help both banks and regulators recognize risks and will require banks to spend earnings to create capital rather than pay dividends (Board of Governors 2011).

New provisions for the treatment of large financial institutions were included in the Dodd-Frank Act of 2010. The Financial Stability Oversight Council, for example, has the authority to classify unconventional credit intermediaries as “Systemically Important Financial Institutions” (SIFIs), putting them under Federal Reserve supervision. The act also established the Orderly Liquidation Authority (OLA), which authorizes the Federal Deposit Insurance Corporation to wind down specific institutions if their failure would pose a significant risk to the financial system. Another section of the legislation mandates that large financial institutions develop “living wills,” which are detailed plans outlining how the institution could be resolved under US bankruptcy law without endangering the financial system or requiring government assistance.

The financial crisis of 2008 and the accompanying recession, like the Great Depression of the 1930s and the Great Inflation of the 1970s, are important areas of research for economists and policymakers. While it may be years before the causes and ramifications of these events are fully known, the attempt to unravel them provides a valuable opportunity for the Federal Reserve and other agencies to acquire lessons that can be used to shape future policy.