The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929. It occurred despite aggressive efforts by the Federal Reserve and Treasury Department to prevent the U.S. banking system from collapsing.
It led to the Great Recession. That's when housing prices fell 31.8 percent, more than during the Depression. Two years after the recession ended, unemployment was still above 9 percent.
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THE collapse of Lehman Brothers, a sprawling global bank, in
September 2008 almost brought down the world’s financial system. It took
huge taxpayer-financed bail-outs to shore up the industry. Even so, the
ensuing credit crunch turned what was already a nasty downturn into the
worst recession in 80 years. Massive monetary and fiscal stimulus
prevented a buddy-can-you-spare-a-dime depression, but the recovery
remains feeble compared with previous post-war upturns. GDP is still
below its pre-crisis peak in many rich countries, especially in Europe,
where the financial crisis has evolved into the euro crisis. The effects
of the crash are still rippling through the world economy: witness the
wobbles in financial markets as America’s Federal Reserve prepares to
scale back its effort to pep up growth by buying bonds.
With half a decade’s hindsight, it is clear the crisis had multiple
causes. The most obvious is the financiers themselves—especially the
irrationally exuberant Anglo-Saxon sort, who claimed to have found a way
to banish risk when in fact they had simply lost track of it. Central
bankers and other regulators also bear blame, for it was they who
tolerated this folly. The macroeconomic backdrop was important, too. The
“Great Moderation”—years of low inflation and stable growth—fostered
complacency and risk-taking. A “savings glut” in Asia pushed down global
interest rates. Some research also implicates European banks, which
borrowed greedily in American money markets before the crisis and used
the funds to buy dodgy securities. All these factors came together to
foster a surge of debt in what seemed to have become a less risky world.
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