The 2008 financial crisis was a severe global financial and economic crisis triggered by the collapse of a credit boom built on residential mortgage lending in the United States, which spread through the international financial system after the failure of major financial institutions, including the investment bank Lehman Brothers in September 2008. The crisis produced a sharp global recession, extensive government intervention to stabilize banks, and a prolonged period of unusually low interest rates and unconventional monetary policy in many countries. As with the Great Depression, economists continue to disagree about how to weight its causes: accounts range from an Austrian style emphasis on credit expansion and malinvestment during the preceding boom, to behavioral economics accounts centered on systematic misjudgment of risk by borrowers, lenders and investors, to Keynesian analysis of the policy response needed to prevent the ensuing downturn from becoming as severe and prolonged as the Great Depression.
The sequence of events is well documented; the WEIGHTING of causes among credit expansion and malinvestment, misjudged risk, and the policy response needed is genuinely disputed; see the Dissent notes on this fact.
Facts
Chronology
End YearThe end year follows the National Bureau of Economic Research dating of the United States recession, which ended in June 2009; other countries and accounts date the recovery differently. LocationUnited States and worldwide 2 Connections
Associated With
Basel III, the committee's third and most significant capital and liquidity accord, was developed directly in response to the weaknesses the 2008 financial crisis exposed in bank capital and liquidity buffers.
Source Wikipedia
The FSB was established directly out of the G20's crisis response, the G20 leaders' first major international institutional innovation following the 2008 financial crisis.
Source Wikipedia
Source The New Palgrave Dictionary of Economics
Moral Hazard, Concepts Why this is disputed. The 2008 bank bailouts renewed the moral hazard debate: some economists argued the rescues were necessary to prevent a deeper collapse of the financial system, while others argued they rewarded excessive risk taking and set a costly precedent for future crises.
Source The New Palgrave Dictionary of Economics
NBER's Business Cycle Dating Committee dated the December 2007-June 2009 US recession associated with the 2008 financial crisis.
Source About NBER
QE was deployed at unprecedented scale by major central banks as a response to the 2008 crisis once policy rates hit zero.
Source The New Palgrave Dictionary of Economics
Associated With School
Why this is disputed. An Austrian reading blames the Federal Reserve's low interest rates after 2001 for the credit boom, contested by accounts centered on deregulation and behavioral misjudgment of risk.
Source Wikipedia
Why this is disputed. Behavioral economics accounts of the 2008 financial crisis emphasize systematic misjudgment of risk by borrowers, lenders and investors during the preceding credit boom, including underestimation of the chance that housing prices could fall broadly across many regions at the same time.
Source The New Palgrave Dictionary of Economics
Why this is disputed. Keynesian analysis of the 2008 financial crisis centers on the policy response required once the crisis hit, arguing that aggressive fiscal stimulus and monetary easing were needed to prevent the collapse in private demand from producing a downturn as severe and prolonged as the Great Depression.
Source The New Palgrave Dictionary of Economics
Why this is disputed. John B. Taylor, working in the Chicago-adjacent rules-based monetary policy tradition, argued the Federal Reserve under Alan Greenspan held interest rates too low for too long in the early-to-mid 2000s, fueling the housing boom that preceded the crisis; other monetarists dispute how much weight this factor deserves against underwriting standards and securitization.
Source Wikipedia
In the Other Atlases
Located In
Also in Geography Atlas: where this subject is located.
Sources
1. Wikipedia: Great Recession
Great Recession, OverviewQuote, Great Recession, Overview
According to the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions), the recession began in December 2007 and ended in June 2009, and thus extended over eighteen months.
2. Encyclopaedia Britannica
Encyclopaedia Britannica, Inc.financial crisis of 2007-2008Quote, financial crisis of 2007-2008
the financial crisis of 2007-2008 was a severe contraction of liquidity in global financial markets
3. Wikipedia
Wikimedia FoundationBankruptcy of Lehman Brothers
Lehman Brothers filed for Chapter 11 bankruptcy protection on Monday, September 15, 2008
Associated With School: Austrian School, Financial crisis of 2007-2008
Austrian school economists attributed the crisis primarily to the Federal Reserve's prolonged policy of artificially low interest rates, arguing this generated a credit bubble and widespread malinvestment.
Associated With School: Austrian School, 2008 financial crisis, Background, Austrian view
Austrian school economists attributed the crisis primarily to the Federal Reserve's prolonged policy of artificially low interest rates, arguing this generated a credit bubble and widespread malinvestment, compounded by the moral hazard created by government-backed entities such as Fannie Mae and Freddie Mac.
Associated With School: Monetarist Economics, John B. Taylor, Academic contributions
Particularly, he focuses on the Federal Reserve which, under Alan Greenspan, a personal friend of Taylor, created 'monetary excesses' in which interest rates were kept too low for too long, which then directly led to the housing boom in his opinion.
Associated With: Basel Committee on Banking Supervision, Basel Committee on Banking Supervision, Basel Accords
The committee has produced successive regulatory frameworks known as Basel I (1988), Basel II (2004), and Basel III (2010).
Associated With: Financial Stability Board, Financial Stability Board, G20 Relationship
established in the 2009 G20 Pittsburgh Summit, and represents the G20 leaders' first major international institutional innovation
View the Source The New Palgrave Dictionary of Economics
Palgrave Macmillan- Associated With School: Keynesian Economics
- Associated With School: Behavioral Economics
- Associated With: Moral Hazard
- Associated With: Liquidity Trap
- Associated With: Quantitative Easing
About NBER
National Bureau of Economic ResearchAssociated With: National Bureau of Economic ResearchView the Source Dissenting Readings (2 dissenting readings)
Description
Deregulation and misjudged risk describe the mechanism, not the cause; the credit bubble and the widespread malinvestment in housing were generated by the Federal Reserve's own prolonged policy of artificially low interest rates after 2001, compounded by the moral hazard of government backed entities such as Fannie Mae and Freddie Mac.
A dissenting reading, from Austrian SchoolWikipedia, Wikimedia Foundation
Description
The crisis is better read as a collapse in aggregate demand than as a story fully explained by credit expansion or mispriced risk alone: once the initial mortgage-market shock hit, the severity and duration of the downturn turned on the strength of the fiscal and monetary policy response, and the recession itself renewed interest in Keynesian tools for combating a demand shortfall, including large scale fiscal stimulus and unconventional monetary easing such as quantitative easing.
A dissenting reading, from Keynesian SchoolWikipedia, Wikimedia Foundation
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