Crisis

Financial crisis of 2007–2008 - Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Late-2000s_financial_crisis#Deregulation

Financial crisis of 2007–2008
From Wikipedia, the free encyclopedia

(Redirected from Late-2000s financial crisis) 107.936 113.564 124.655 127.588 130.012 133.939 154.837 172.325 176.425 214.741 272.107 346.017 462.684 596.361 653.852 794.189 1,058.8321,624.691 1,628.043 4,756.006 many economists to be the worst financial crisis since the Great Depression of the 1930s.[1][2] It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolongedunemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis.[3][4] The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 7, 2007 whenBNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity".[5] The bursting of the U.S. housing bubble, which peaked in 2006,[6] caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[7][8] The financial crisis was triggered by a complex interplay of government policies that encouraged homeownership, providing easier access to loans for subprime borrowers, overvaluation of bundled sub-prime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks andinsurance companies to back the financial commitments they were making.[9][10][11][12] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[13]Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. Although there have been aftershocks, the financial crisis itself ended sometime between late-2008 and mid-2009. [14][15][16] In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009. In the EU, the UK responded with austerity measures of spending cutsand tax increases without export growth and it has since slid into a double-dip recession.[17][18]
The TED spread (in red) increased significantly during the financial crisis, reflecting an increase in perceived credit risk.

World map showing real GDP growth rates for 2009. (Countries in brown were in recession.)

Many causes for the financial crisis have been suggested, with varying weightassigned by experts.[19] The U.S. Senate's Levin–Coburn Report asserted 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."[20] The 1999 repeal of the Glass–Steagall Act effectively removed the separation between investmentbanks and depository banks in the United States.[21] 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.[22] Research into the causes of the financial crisis has also focused on the role of interest rate...