A brief insight into the 2008 financial crisis

A brief insight into the 2008 financial crisis

The 2008 financial crisis in the United States of America (USA) was the biggest economic downturn since the Great Depression (1929-1933). Prices in the housing market started to fall initially and realtors thought it was a good sign. They thought the overheated housing market could return to a more sustainable level but they didn’t realise there were too many homeowners with questionable credit. Banks had allowed people to take out loans for 100% or more of the value of their new homes. This created an asset bubble in 2006. Banks bundled bad home loans with good ones and sold them as mortgage-backed securities. Banks panicked on realising that they would have to absorb these losses. They stopped lending to each other so that they didn’t get worthless mortgages as collateral from other banks.


Investors started selling off their shares of investment banks because they had too many of the toxic assets. The government had to step in and buy out land mortgage companies and provide huge loans in order to prevent a complete meltdown. To sum it up briefly, the government had to spend a lot of money to bail out businesses. This crisis proved that banks could not regulate themselves without government oversight. As a prevention measure for the future, Congress passed the Dodd-Frank Wall Street Reform Act to prevent banks from taking on too much risk.


Households in the USA lost an average of nearly $5,800 in income due to reduced economic growth during the financial crisis. Costs to the government due to its interventions amounted to $2,050, on average, for each household. Besides, the combined peak loss from declining stock and home values amounted to nearly $100,000, on average per household. Jeffrey Juris, an associate professor of Anthropology in College of Social Sciences and Humanities at the Northeastern University, has stated the impact of the Occupy Wall Street protests. He says that it has got everyone talking about regulation and how to prevent another crisis from happening.


Harman Singh

Harman Singh


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