Financial crisis of 2007–2008

global financial crisis2008 financial crisisfinancial crisis of 2007–08financial crisisfinancial crisis of 2007–2010late-2000s financial crisisfinancial crisis of 20082008 global financial crisisfinancial crisis of 2007-20082008 economic crisis
The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s.wikipedia
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Great Recession

late-2000s recessionrecessionlate 2000s recession
The crisis was nonetheless followed by a global economic downturn, the Great Recession.
The Great Recession stemmed from the collapse of the United States real-estate market, in relation to the financial crisis of 2007 to 2008 and U.S. subprime mortgage crisis of 2007 to 2009, though policies of other nations contributed also.

Subprime mortgage crisis

2007 subprime mortgage financial crisissubprime crisissubprime mortgages
April 2007: New Century, an American REIT specializing in sub-prime mortgages, filed for Chapter 11 bankruptcy protection. This propagated the sub-prime crisis, through securitization, to banks around the world.
The United States subprime mortgage crisis was a nationwide financial crisis, occurring between 2007 and 2010, that contributed to the U.S. recession of December 2007 – June 2009.

Lehman Brothers

LehmanLehman Brothers Holdings Inc.Lehman Brothers Kuhn Loeb
It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years. The same day, Bank of America purchased Merrill Lynch.
Lehman's bankruptcy filing is the largest in US history, and is thought to have played a major role in the unfolding of the late-2000s global financial crisis.

Bailout

bail outbailed outbailouts
Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system.
In the financial crisis of 2007-2008, large amounts of government support were used to protect the financial system, and many of those actions were attacked as bailouts.

Securitization

securitizedsecuritisationsecuritizing
April 2007: New Century, an American REIT specializing in sub-prime mortgages, filed for Chapter 11 bankruptcy protection. This propagated the sub-prime crisis, through securitization, to banks around the world. Securitization. Many mortgages were bundled together and formed into new financial instruments called mortgage-backed securities, in a process known as securitization. These bundles could be sold as (ostensibly) low-risk securities partly because they were often backed by credit default swaps insurance. Because mortgage lenders could pass these mortgages (and the associated risks) on in this way, they could and did adopt loose underwriting criteria (due in part to outdated and lax regulation).
Off-balance sheet securitizations also played a large role in the high leverage level of U.S. financial institutions before the 2008 financial crisis, and the need for bailouts.

Basel III

Third Basel Accord3Basel Core Principles
The Basel III capital and liquidity standards were adopted by countries around the world.
This third installment of the Basel Accords (see Basel I, Basel II) was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08.

BNP Paribas

BNPBanque de Paris et des Pays-BasParibas
August 9, 2007: BNP Paribas, a French investment bank, blocked withdrawals from two of its hedge funds – a clear sign that banks were refusing to do business with each other.
It became one of the five largest banks in the world following the 2008 financial crisis.

Goldman Sachs

Goldman, Sachs & Co.Goldman Sachs InternationalGoldman Sachs Group
September 21, 2008: Goldman Sachs and Morgan Stanley converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve.
As a result of its involvement in securitization during the subprime mortgage crisis, Goldman Sachs suffered during the 2007-2008 financial crisis, and received a $10 billion investment from the United States Department of the Treasury as part of the Troubled Asset Relief Program, a financial bailout created by the Emergency Economic Stabilization Act of 2008.

Merrill Lynch

Merrill Lynch & Co.Merrill Lynch & CompanyMerrill Lynch & Co
September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years. The same day, Bank of America purchased Merrill Lynch. Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester were all expected to follow—with a US federal bailout announced the following day beginning with $85 billion to AIG.
The firm has its origins in Merrill Lynch & Co., Inc. which, prior to 2009, was publicly owned and traded on the New York Stock Exchange under the ticker symbol MER. Merrill Lynch & Co. agreed to be acquired by Bank of America on September 14, 2008, at the height of the 2008 Financial Crisis.

Bank of America

BankAmericaBank of America Corp.Bank of America Corporation
September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years. The same day, Bank of America purchased Merrill Lynch.
The bank's large market share, business activities, and economic impact has led to numerous lawsuits and investigations regarding both mortgages and financial disclosures dating back to the 2008 financial crisis.

American International Group

AIGAmerican GeneralAmerican General Corporation
September 16, 2008: The Federal Reserve took over American International Group. The Reserve Primary Fund "broke the buck" as a result of massive withdrawals from money market accounts. Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester were all expected to follow—with a US federal bailout announced the following day beginning with $85 billion to AIG.
AIG was a central player in the financial crisis of 2008.

Bear Stearns

Bear Stearns subprime mortgage hedge fund crisisBear, Stearns & Co.Bear, Stearns & Co. Inc.
March 17, 2008: The Federal Reserve guaranteed Bear Stearns' bad loans to facilitate its acquisition by JPMorgan Chase.
The collapse of the company was a prelude to the risk management meltdown of the investment banking industry in the United States and elsewhere that culminated in September 2008, and the subsequent global financial crisis of 2008–2009.

Fortis (finance)

FortisFortis BankFortis case
Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester were all expected to follow—with a US federal bailout announced the following day beginning with $85 billion to AIG.
In 2007 it was the 20th largest financial services business in the world by revenue but after encountering severe problems in the financial crisis of 2008, most of the company was sold in parts, with only insurance activities remaining.

United States

American🇺🇸U.S.
It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008.
Government policy designed to promote affordable housing, widespread failures in corporate and regulatory governance, and historically low interest rates set by the Federal Reserve led to the mid-2000s housing bubble, which culminated with the 2008 financial crisis, the largest economic contraction in the nation's history since the Great Depression.

Financial Crisis Inquiry Commission

Financial Crisis Inquiry Report
The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused by "widespread failures in financial regulation and supervision", "dramatic failures of corporate governance and risk management at many systemically important financial institutions", "a combination of excessive borrowing, risky investments, and lack of transparency" by financial institutions, ill preparation and inconsistent action by government that "added to the uncertainty and panic", a "systemic breakdown in accountability and ethics", "collapsing mortgage-lending standards and the mortgage securitization pipeline", deregulation of over-the-counter derivatives, especially credit default swaps, and "the failures of credit rating agencies" to correctly price risk.
The Financial Crisis Inquiry Commission (FCIC) was a ten-member commission appointed by the leaders of the United States Congress with the goal of investigating the causes of the financial crisis of 2007–2010.

European debt crisis

eurozone crisis2010 European sovereign debt crisiseuro crisis
The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later.
The eurozone crisis resulted from the structural problem of the eurozone and a combination of complex factors, including the globalisation of finance; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the financial crisis of 2007–08; international trade imbalances; real estate bubbles that have since burst; the Great Recession of 2008–2012; fiscal policy choices related to government revenues and expenses; and approaches used by states to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse

Levin–Coburn Report
The US Senate's Levin–Coburn Report 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."
Wall Street and the Financial Crisis: Anatomy of a Financial Collapse is a report on the financial crisis of 2007–2008 issued on April 13, 2011 by the United States Senate Permanent Subcommittee on Investigations.

Corporate governance

governancecompliance and governanceCorporate Communications
The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused by "widespread failures in financial regulation and supervision", "dramatic failures of corporate governance and risk management at many systemically important financial institutions", "a combination of excessive borrowing, risky investments, and lack of transparency" by financial institutions, ill preparation and inconsistent action by government that "added to the uncertainty and panic", a "systemic breakdown in accountability and ethics", "collapsing mortgage-lending standards and the mortgage securitization pipeline", deregulation of over-the-counter derivatives, especially credit default swaps, and "the failures of credit rating agencies" to correctly price risk.
Interest in the corporate governance practices of modern corporations, particularly in relation to accountability, increased following the high-profile collapses of a number of large corporations in 2001–2002, many of which involved accounting fraud; and then again after the recent financial crisis in 2008.

Credit default swap

credit default swapsCDScredit default swap (CDS)
The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused by "widespread failures in financial regulation and supervision", "dramatic failures of corporate governance and risk management at many systemically important financial institutions", "a combination of excessive borrowing, risky investments, and lack of transparency" by financial institutions, ill preparation and inconsistent action by government that "added to the uncertainty and panic", a "systemic breakdown in accountability and ethics", "collapsing mortgage-lending standards and the mortgage securitization pipeline", deregulation of over-the-counter derivatives, especially credit default swaps, and "the failures of credit rating agencies" to correctly price risk. Securitization. Many mortgages were bundled together and formed into new financial instruments called mortgage-backed securities, in a process known as securitization. These bundles could be sold as (ostensibly) low-risk securities partly because they were often backed by credit default swaps insurance. Because mortgage lenders could pass these mortgages (and the associated risks) on in this way, they could and did adopt loose underwriting criteria (due in part to outdated and lax regulation).
During the 2007–2010 financial crisis the lack of transparency in this large market became a concern to regulators as it could pose a systemic risk.

Alliance & Leicester

Alliance Building SocietyAlliance & Leicester International
Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester were all expected to follow—with a US federal bailout announced the following day beginning with $85 billion to AIG.
After running into difficulty during the financial crisis, the bank was acquired by the Santander Group in October 2008, and transferred its business into Santander UK plc in May 2010.

Morgan Stanley

Morgan Stanley & Co.Morgan Stanley Dean WitterMorgan Stanley & Co
September 21, 2008: Goldman Sachs and Morgan Stanley converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve.
The bubble's subsequent collapse was considered to be a central feature of the financial crisis of 2007–2010.

Credit rating agency

credit rating agenciesrating agenciesrating agency
Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.
Hundreds of billions of securities that were given the agencies' highest ratings were downgraded to junk during the financial crisis of 2007–08.

Hedge fund

hedge fundshedge fund managerhedge-fund
August 9, 2007: BNP Paribas, a French investment bank, blocked withdrawals from two of its hedge funds – a clear sign that banks were refusing to do business with each other.
However, following the financial crisis of 2007–2008, regulations were passed in the United States and Europe with intentions to increase government oversight of hedge funds and eliminate certain regulatory gaps.

Subprime lending

subprimesubprime mortgagesub-prime
April 2007: New Century, an American REIT specializing in sub-prime mortgages, filed for Chapter 11 bankruptcy protection. This propagated the sub-prime crisis, through securitization, to banks around the world. It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008.
Many subprime loans were packaged into mortgage-backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007–2008.

Federal funds rate

fed funds rateinterest ratesbase rate
August 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.
Between December 2008 and December 2015 the target rate remained at 0.00–0.25%, the lowest rate in the Federal Reserve's history, as a reaction to the Financial crisis of 2007–2008 and its aftermath.