Global Financial Crisis (2007–2009)

the Global Financial Crisis (2007–2009):

📉 Overview

Origin: United States housing and credit markets, spreading globally.
Trigger: Collapse of the subprime mortgage market and failure of major financial institutions.
Duration: 2007–2009 (sometimes extended to early 2010s in some economies).
Nickname: Also called the Great Recession, the worst downturn since the Great Depression.

Housing Bubble: Easy credit and low interest rates fueled a massive housing boom.
Subprime Mortgages: Risky loans to borrowers with poor credit; lenders assumed housing prices would always rise.
Financial Engineering: Mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) spread bad loans globally.
Weak Regulation: Banks were overleveraged; regulators underestimated systemic risk.
Lehman Brothers Collapse (Sept 2008): Sparked a full-blown panic, freezing global credit markets.

United States:
- Housing prices fell ~30% nationwide.
- Unemployment peaked at 10% (2009).
- Millions of foreclosures and household wealth destruction.
Global:
- Major recessions in Europe, Japan, and many emerging markets.
- World trade contracted by ~12% in 2009.
- Stock markets lost trillions in value.
Banking System:
- Major institutions collapsed or were bailed out (Lehman Brothers, Bear Stearns, AIG, Citigroup).
Human Cost: Massive job losses, rising poverty, long-lasting income inequality.

US Government:
- TARP (Troubled Asset Relief Program): $700 billion to rescue banks.
- Stimulus Package (2009): ~$800 billion in government spending and tax relief.
Federal Reserve:
- Cut interest rates to near zero.
- Launched Quantitative Easing (QE) — large-scale asset purchases.
Global Coordination:
- G20 coordinated stimulus and banking reforms.
- European bailouts (e.g., UK nationalized banks; ECB supported liquidity).

Exposed the risks of financial globalization and deregulation.
Led to sweeping reforms:
- Dodd–Frank Act (2010) in the US to increase oversight.
- Higher capital requirements for banks globally (Basel III).
Deepened distrust in financial institutions and governments.
Fueled populist and anti-establishment movements in the 2010s.
Shifted global economic balance — China’s fast recovery increased its influence.

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