World map showing real GDP growth rates for 2009; countries in brown were in a recession.
Securitization markets were impaired during the crisis
A bank run at a branch of the Northern Rock bank in Brighton, England, on September 14, 2007, amid speculation of problems, prior to its 2008 nationalisation.
U.S. residential and non-residential investment fell relative to GDP during the crisis
U.S. households and financial businesses significantly increased borrowing (leverage) in the years leading up to the crisis
US household debt relative to disposable income and GDP.
U.S. Changes in Household Debt as a percentage of GDP for 1989–2016. Homeowners paying down debt for 2009–2012 was a headwind to the recovery. Economist Carmen Reinhart explained that this behavior tends to slow recoveries from financial crises relative to typical recessions.
Housing price appreciation in selected countries, 2002–2008
Securitization markets were impaired during the crisis.
Several major U.S. economic variables had recovered from the 2007–2009 Subprime mortgage crisis and Great Recession by the 2013–2014 time period.
U.S. Real GDP – Contributions to Percent Change by Component 2007–2009
Public Debt to GDP Ratio for Selected European Countries – 2008 to 2011. Source Data: Eurostat
Relationship between fiscal tightening (austerity) in Eurozone countries with their GDP growth rate, 2008–2012
Slovenian anarchist anti-fascist protest due to the great recession.
Sydney's financial district at night. Throughout the Great Recession, the Australian economy remained resilient and stable.
The anti-austerity movement in Spain, May 2011
Federal Reserve Holdings of Treasury and Mortgage-Backed Securities
Bank bailouts in the United Kingdom and in the United States in proportion to their GDPs.

Shadow banking has grown in importance to rival traditional depository banking, and was a factor in the subprime mortgage crisis of 2007–2008 and the global recession that followed.

- Shadow banking system

Further, the U.S. shadow banking system (i.e., non-depository financial institutions such as investment banks) had grown to rival the depository system yet was not subject to the same regulatory oversight, making it vulnerable to a bank run.

- Great Recession
World map showing real GDP growth rates for 2009; countries in brown were in a recession.

2 related topics

Alpha

Repurchase agreement or "Repo" transaction components. In step one, the investor provides $80 cash and receives $100 in collateral, typically bonds. In step two, the borrower buys back the collateral, paying the investor their initial cash plus an interest amount. The "repo rate" is the interest rate received by the investor, in this case (88-80)/80 = 10%, while the "Haircut" is a ratio of the cash loan to collateral (100-80)/100 = 20%.

Repurchase agreement

Form of short-term borrowing, mainly in government securities.

Form of short-term borrowing, mainly in government securities.

Repurchase agreement or "Repo" transaction components. In step one, the investor provides $80 cash and receives $100 in collateral, typically bonds. In step two, the borrower buys back the collateral, paying the investor their initial cash plus an interest amount. The "repo rate" is the interest rate received by the investor, in this case (88-80)/80 = 10%, while the "Haircut" is a ratio of the cash loan to collateral (100-80)/100 = 20%.
Composition of SOFR Rate
Secured Overnight Financing Rate or SOFR, a proxy for the overnight repo interest rate. During September 2019, the SOFR significantly increased, resulting in intervention by the U.S Federal Reserve.

The repo market is an important source of funds for large financial institutions in the non-depository banking sector, which has grown to rival the traditional depository banking sector in size.

In 2007–2008, a run on the repo market, in which funding for investment banks was either unavailable or at very high interest rates, was a key aspect of the subprime mortgage crisis that led to the Great Recession.

President George W. Bush discusses Education, Entrepreneurship & Home Ownership at the Indiana Black Expo in 2005

Subprime mortgage crisis

Multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis.

Multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis.

President George W. Bush discusses Education, Entrepreneurship & Home Ownership at the Indiana Black Expo in 2005
Subprime mortgage lending jumped dramatically during the 2004–2006 period preceding the crisis (source: Financial Crisis Inquiry Commission Report, p. 70, Fig. 5.2)
Federal funds rate history and recessions
Factors contributing to housing bubble
Domino effect as housing prices declined
Housing price appreciation in selected countries, 2002–2008
U.S. households and financial businesses significantly increased borrowing (leverage) in the years leading up to the crisis.
U.S. residential and non-residential investment fell relative to GDP during the crisis
Household debt relative to disposable income and GDP
Existing homes sales, inventory, and months supply, by quarter
Vicious cycles in the housing and financial markets
A mortgage brokerage in the US advertising subprime mortgages in July 2008
Historically less than 2% of homebuyers lost their homes to foreclosure. But by 2009 over 40% of subprime adjustable rate mortgages were past due. (source: Financial Crisis Inquiry Report, p.217, figure 11.2)
Growth in mortgage loan fraud based upon US Department of the Treasury Suspicious Activity Report Analysis
Number of U.S. residential properties subject to foreclosure actions by quarter (2007–2012)
Comparison of the growth of traditional banking and shadow banking
Borrowing under a securitization structure
IMF diagram of CDO and RMBS
Leverage ratios of investment banks increased significantly between 2003 and 2007.
MBS credit rating downgrades, by quarter
U.S. Subprime lending expanded dramatically 2004–2006.
Franklin Raines earned $90 million in salary and bonuses while he was head of Fannie Mae.
Federal funds rate and various mortgage rates
U.S. current account or trade deficit through 2012
Securitization markets were impaired during the crisis.
The TED spread (the difference between the interest rates on interbank loans and on the safer short-term U.S. government debt) – an indicator of credit risk – increased dramatically during September 2008.
Impacts from the crisis on key wealth measures
U.S. Real GDP – Contributions to percent change by component 2007–2009
Public debt to GDP ratio for selected European countries – 2008 to 2012. Source Data: Eurostat
Relationship between fiscal tightening (austerity) in Eurozone countries with their GDP growth rate, 2008–2012
This chart compares U.S. potential GDP under two CBO forecasts (one from 2007 and one from 2016) versus the actual real GDP. It is based on a similar diagram from economist Larry Summers from 2014.
U.S. savings and investment; savings less investment is the private sector financial surplus
Sectoral financial balances in US economy 1990–2017. By definition, the three balances must net to zero. Since 2009, the US foreign surplus (trade deficit) and private sector surplus have driven a government budget deficit.
Federal Reserve holdings of treasury (blue) and mortgage-backed securities (red)
Common equity to total assets ratios for major US banks
People queuing outside a Northern Rock bank branch in Birmingham, United Kingdom, on September 15, 2007, to withdraw their savings because of the subprime crisis.
U.S. Changes in Household Debt as a percentage of GDP for 1989–2016. Homeowners paying down debt for 2009–2012 was a headwind to the recovery. Economist Carmen Reinhart explained that this behavior tends to slow recoveries from financial crises relative to typical recessions.
U.S. federal government spending was held relatively level around $3.5 trillion from 2009-2014, which created a headwind to recovery, reducing real GDP growth by approximately 0.5% per quarter (annualized) on average between Q3 2010 and Q2 2014.
Several major U.S. economic variables had recovered from the 2007–2009 Subprime mortgage crisis and Great Recession by the 2013–2014 time period.
U.S. median family net worth peaked in 2007, declined due to the Great Recession until 2013, and only partially recovered by 2016.

Declines in residential investment preceded the Great Recession and were followed by reductions in household spending and then business investment.

Policymakers did not recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system.