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The 2008 financial meltdown

Srini 19 December 2022

The 2008 financial meltdown, also known as the global financial crisis, was a period of economic turmoil that began in the United States and spread to the rest of the world. It was triggered by a housing market bubble and a subsequent collapse in the value of mortgage-backed securities, which were widely held by financial institutions.

The crisis began in the summer of 2007, when the housing market began to show signs of slowing down. As housing prices fell, many homeowners found themselves underwater on their mortgages, meaning they owed more on their homes than they were worth. This led to an increase in foreclosures, as homeowners were unable to make their mortgage payments.

The crisis worsened in September 2008, when the investment bank Lehman Brothers filed for bankruptcy. Lehman Brothers had heavily invested in mortgage-backed securities, and its collapse sent shockwaves through the financial system. Other financial institutions, including the insurance giant AIG and the investment bank Bear Stearns, also faced serious financial difficulties.

The crisis had a severe impact on the global economy, as financial institutions around the world were heavily invested in mortgage-backed securities and other risky assets. Stock markets plummeted, and many people lost their jobs and homes. Governments around the world intervened with various measures, including bailouts and stimulus packages, in an attempt to stabilize the financial system and prevent a full-blown economic depression.