The 2008 economic crisis also more commonly known as

the Great Recession marked one of the most impactful

economic downturns since the 1930s great depression. It
threatened to destroy the international financial system,
caused the failure of several major investment or
commercial banks, mortgage lenders, insurance
companies and savings and loans associations Its origins
stemmed from a multitude of factors, notably the bursting
of the housing market bubble, widespread adoption of
high risk mortgage lending practices, extensive
leveraging, the proliferation of complex financial
instruments and lapses in regulatory oversight which in
turn led to US GDP to go be declined by 0.3% to 2.8%,
while unemployment briefly reached 10%.
There are a lot of causes which led to the Great Recession
some of them being like, the government’s inability to
properly regulate the financial industry which included
the Federal Reserve’s inability to stop banks from giving
mortgages to people who subsequently proved to be a bad
credit risk. Financial firms also took on too much risk, the
shadow banking system which refers to a system of
financial intermediation outside the traditional banking
sector grew to rival depository banking system but was
not under the same scrutiny of regulation which led to it
failing and the collapse impacted the flow of credit to
consumers and businesses. The subprime mortgage crisis
which was the result of subprime mortgage loans
extended to borrowers with poor credit histories or limited
income verification. These mortgages often had
adjustable interest rates initially offering low teaser rates
that later reset of much higher levels. Lenders engaged in
more aggressive marketing schemes to push these high
risk loans which lead to an increase in subprime lending.
As housing prices began to decline and interest rates reset,
many borrowers found themselves unable to afford their
mortgage payments, leading to a wave of defaults and
foreclosures. The housing market bubble was another
fundamental driver if the crisis, in the early mid-2000s,
there was a rapid increase in housing prices in the United
States, this was fueled by a number of factors which
included low interest rates by the Federal Reserve,
relaxed lending standards, and a belief that housing prices
would continue to rise indefinitely. Many individuals and
investors speculated on real estate which then led to
demand and prices to drive up to unsustainable prices.
The long period of global economic stability that
immediately preceded the crisis which began in the mid to
late 1980s and since known as the great moderation had
convinced many us banking executives, government
officials and economists that extreme volatility was a
thing of the past, the confident attitude together with an
ideological climate emphasizing the deregulation and the
ability of financial firms to police themselves led to them
ignoring or discount clear signs of an impending crisis.
Banks and financial institutions also operated in excessive
leveraging to increase their profits, this in turn increased
risk and made them more vulnerable to losses if the value
of their assets declined. Additionally they also took on
increasingly complex and non-transparent financial
decisions such as credit default swaps which further
increased system risk. The search for short term benefits
and rewards encouraged extreme behavior. Furthermore
increased national and international interaction between
financial markets contributed to the spread of the crisis.
Banks and financial institutions around world were
exposed to toxic assets linked to non-performing loans
aka subprime mortgages leading to a global credit crisis.
The bankruptcy of a major investment bank Lehman
brothers sent a shocking impact on world financial
markets which underlined the interconnectedness of
global financial markets.
Some key things that took place during the Great
Recession was that it left a global impact and a
synchronized downturn that left many economies affected
worldwide, even though it originated from the United
States many countries were left impacted. Financial
markets experienced great turmoil as stock markets
plummeted with major indices like the Dow jones
industrial average, the Nasdaq composite and the S&P
500 loosing over half of their value at their lowest points
erasing trillions of dollars in market value , credit markets
also froze which made it difficult for business and
consumers to access financing, interbank lending which is
crucial for maintaining liquidity seized up as the banks
grew increasingly wary of counter party risk, this
exacerbated the crisis and contributed to the spread of
financial contagion. The crisis also exposed
vulnerabilities of the credit default swap market, also led
to a liquidity crunch where financial institutions struggled
to access short term funding to meet their obligations. The
collapse of the housing market led to prices plummeting
and leading to foreclosures and many unsold homes. This
resulting decline in housing wealth had widespread
implications for consumer spending and financial
stability. The crisis also led to a banking sector meltdown
with a multitude of financial agencies facing insolvency
or outright collapsed during the crisis. The Lehman
brothers filed for bankruptcy which sent shockwaves
through the financial market and other institutions like
Bear Stearns were forced into mergers to avoid
bankruptcy, it became so bad that governments had to
intervene with massive bailouts and liquidity injections to
stabilize troubled banks. Banks also suffered massive
losses as the value of their assets which were more
associated with mortgage based securities plummeted,
this caused banks capital reserves to erode and weakened
their financial health. There were also a significant
number of job losses which led to a sharp increase in
unemployment rate as millions lost their jobs as business
had to cut their costs and reduced their workforces in
response to the tightening credit conditions