The 2008 economic crisis, also known as the Global Financial Crisis (GFC) or Great Recession, began with a housing bubble in the United States and spiraled into a worldwide economic collapse. This blog unpacks the timeline of events that led to one of the most severe financial crises in modern history.

Timeline of the 2008 Economic Crisis

1. The Build-Up (1990s–2006): The Housing Bubble Forms

• 1990s:

  The US government and financial institutions promoted homeownership, making credit more accessible. Mortgage lending standards began to loosen, and subprime loans (high-risk loans to low-credit borrowers) became increasingly common.

  
  

• 2001–2004:

  The Federal Reserve lowered interest rates to stimulate the economy after the dot-com bubble burst and 9/11 attacks. Cheap borrowing fueled a housing boom, and home prices soared. Speculative buying fueled by the belief that "housing prices always go up."

  
  

• 2004–2006:Financial innovation enabled banks to bundle risky subprime mortgages into Mortgage-Backed Securities (MBS) and sell them to investors worldrwide, spreading the risk. Confidence soared as investors believed these securities were safe, thanks to high credit ratings. These MBS were further repackaged into Collateralized Debt Obligations (CDOs), making the risks harder to understand.

2. The Peak (2006): The Housing Market Overheats

• Mid-2006:

  Housing prices peaked after years of rapid growth. Speculation, overbuilding, and unaffordable prices led to slowing demand. Borrowers with adjustable-rate mortgages began to struggle as interest rates increased.

3. The Bubble Bursts (2007): Defaults Surge

• Early 2007:

  Many borrowers, especially those with subprime loans, defaulted when their adjustable-rate mortgages reset to higher interest rates. Rising foreclosures flooded the market, increasing the supply of homes and driving prices down further. The assumption that "housing prices always go up" collapsed.

  
  

• Late 2007:

  When housing prices fell, the value of MBS and CDOs plummeted. Investors who held these securities, including banks and pension funds, suffered massive losses. Banks that relied on these assets for liquidity (short-term funding) suddenly faced solvency issues.

4. Financial Meltdown (2008): The Crisis Hits Full Force

• March 2008:

  Bear Stearns, a major investment bank, collapsed and was acquired by JPMorgan Chase with government assistance. This signaled the fragility of the financial system.

  
  

• September 2008:

  • Lehman Brothers Declares Bankruptcy:

    Lehman Brothers, heavily exposed to subprime mortgages, became the largest bankruptcy in US history. The failure sent shockwaves through global financial markets.

    
    

  • AIG Bailout:

    The US government bailed out AIG, an insurance giant, to prevent its collapse from worsening the crisis. AIG’s downfall was tied to credit default swaps, which insured MBS against default.

    
    

• October 2008:The financial system froze as banks stopped lending to each other and to businesses due to losses, causing a credit crunch. Governments worldwide stepped in with massive bailouts and economic stimulus packages.

  
  

5. Global Recession (2009): The Aftermath

• 2009:

  • With less access to credit, businesses couldn’t invest or operate effectively, leading to job losses, reduced consumer spending, and widespread economic contraction.

  • Unemployment rates surged as companies laid off millions of workers.

  • The interconnected global financial system meant that the crisis quickly spread beyond the US, affecting Europe, Asia, and other regions.

  • Governments and central banks enacted unprecedented stimulus measures to stabilize economies.