CRISIS BUT DIFFERENT WAY

The 2007–2008 financial crisis, or Global Financial Crisis (GFC), was the most severe worldwide economic crisis since the Great Depression of 1929. Predatory lending targeting low-income homebuyers,[1] excessive risk-taking by global financial institutions,[2] and the bursting of the United States housing bubble culminated in a "perfect storm".

Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage,[3] reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis.[4]

The preconditioning for the financial crisis was complex and multi-causal.[5][6][7] Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing.[8] However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations.[9] Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities.[10] This market development went unattended by regulators and thus caught the U.S. government by surprise.[11]

After the onset of the crisis, governments deployed massive bail-outs of financial institutions and other palliative monetary and fiscal policies to prevent a collapse of the global financial system.[12] In the U.S., the October 3, $800 billion Emergency Economic Stabilization Act of 2008 failed to slow the economic free-fall, but the similarly-sized American Recovery and Reinvestment Act of 2009, which included a substantial payroll tax credit, saw economic indicators reverse and stabilize less than a month after its February 17 enactment.[13] The crisis sparked the Great Recession which resulted in increases in unemployment[14] and suicide,[15] and decreases in institutional trust[16] and fertility,[17] among other metrics. The recession was a significant precondition for the European debt crisis.