Business Encyclopedia Entry 1777167065
Summary: The Global Economic Crisis of 2008, also known as the Great Recession, was a worldwide financial downturn that lasted from 2007 to 2009, resulting in widespread job losses, home foreclosures, and a significant decline in global economic output.
Overview
The Global Economic Crisis of 2008 was a complex and multifaceted event that involved the collapse of the housing market, a global credit crisis, and a sharp decline in international trade. It was the worst economic downturn since the Great Depression of the 1930s, with many countries experiencing severe recessions and some even slipping into depression.
The crisis began in the United States, where a housing bubble had formed in the early 2000s. As housing prices began to fall, many homeowners found themselves "underwater" on their mortgages, meaning they owed more on their homes than they were worth. This led to a surge in foreclosures, which in turn caused a sharp decline in housing prices and a freeze in the mortgage market. The crisis then spread to other countries, including those in Europe and Asia, as banks and other financial institutions became increasingly exposed to toxic assets such as subprime mortgages.
History/Background
The roots of the crisis date back to the early 2000s, when the US government and the Federal Reserve, led by Chairman Alan Greenspan, kept interest rates low to stimulate economic growth. This led to a surge in borrowing and spending, particularly in the housing market. Many banks and other financial institutions began to offer subprime mortgages to borrowers who could not afford them, often with low introductory interest rates that would later reset to much higher levels.
As housing prices continued to rise, many homeowners refinanced their mortgages to extract equity from their homes, which they then used to finance consumer spending and other investments. However, when the housing market began to decline, many of these homeowners found themselves unable to afford their mortgages, leading to a surge in foreclosures.
The crisis then spread to other countries, including those in Europe and Asia, as banks and other financial institutions became increasingly exposed to toxic assets such as subprime mortgages. The crisis reached its peak in 2008, when the US investment bank Lehman Brothers filed for bankruptcy in September, causing a global credit crisis and a sharp decline in international trade.
Key Information
* Causes: Housing bubble, subprime mortgages, global credit crisis
* Key Dates:
+ 2007: Housing market begins to decline
+ September 2008: Lehman Brothers files for bankruptcy
+ 2009: Global economic output declines by 2.2%
* Key Players:
+ Alan Greenspan, Chairman of the Federal Reserve
+ Ben Bernanke, Chairman of the Federal Reserve
+ Henry Paulson, US Secretary of the Treasury
* Economic Impact:
+ Global economic output declines by 2.2%
+ Unemployment rises to 10%
+ Home foreclosures surge to 9.4 million
Significance
The Global Economic Crisis of 2008 was a major turning point in the global economy, leading to widespread job losses, home foreclosures, and a significant decline in global economic output. It also led to a major overhaul of financial regulations, including the passage of the Dodd-Frank Act in the US, which aimed to prevent similar crises in the future.
The crisis also highlighted the interconnectedness of the global economy and the need for coordinated policy responses to address global economic challenges. It also led to a major shift in the global economic landscape, with emerging markets such as China and India playing a increasingly important role in the global economy.
INFOBOX:
- Name: Global Economic Crisis of 2008
- Type: Economic crisis
- Date: 2007-2009
- Location: Global
- Known For: Worst economic downturn since the Great Depression
TAGS: Global Economic Crisis, Great Recession, Housing Bubble, Subprime Mortgages, Credit Crisis, Financial Crisis, Economic Downturn, Global Economy
