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Raw Queries and Responses

1. Shard Calculation

Query:

Response:

Calculated Shard: 148 (from laksa110)

2. Crawled Status Check

Query:

curl -X POST \
  'http://laksa148.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp\'))) FORMAT JSONEachRow'

Response:

{"found_url":"https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp","crawl_time":1776586130,"first_indexed_time":1510702060,"http_code":200,"src_unparsed":"com,investopedia!www,\/articles\/economics\/09\/financial-crisis-review.asp s443","src_root_hash":"7273739457760125548","history_drop_reason":null,"meta_title":"The 2008 Financial Crisis Explained","meta_descriptions":["Learn more about the causes, the events, and the aftermath of the 2007–2008 financial crisis and the Great Recession that followed."],"attrs_boilerpipe_text":"The 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act.\nKey Takeaways\nThe 2008 financial crisis developed gradually. Home prices began to fall in early 2006.\nSubprime lenders began to file for bankruptcy in early 2007.\nTwo big hedge funds failed in June 2007, weighed down by investments in subprime loans.\nLosses from subprime loan investments caused a panic that froze the global lending system in August 2007.\nIn September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\nThe Roots of the 2008 Financial Crisis\nThe seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions.\nFaced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the\nSeptember 11 terrorist attacks\n, the Federal Reserve lowered the\nfederal funds rate\nfrom 6.5% in May 2000 to 1% in June 2003.\n1\n2\nThe aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes.\n3\nEven\nsubprime borrowers\nwith poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay.\nFast Fact\nThe 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages.\nThe Rise of Subprime Lending\nEven in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments.\nDuring the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and\ncollateralized debt obligations\n(CDOs). A big secondary market for originating and distributing\nsubprime loans\nsoon developed.\n4\nThe Securities and Exchange Commission (SEC) in October 2004 relaxed the net\ncapital requirements\nfor five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS).\nThis fueled greater risk-taking among banks and freed them to\nleverage\ntheir initial investments by 30 times or even 40 times.\nEarly Warnings of Financial Turbulence\nInterest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007.\n2\nThere were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004.\n5\nThen home prices started to fall in early 2006.\n6\nThis caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down.\nThe most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place.\nImportant\nSubprime mortgage company New Century Financial made nearly $60 billion in loans in 2006. It filed for bankruptcy protection in 2007.\n7\nOne subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April.\n8\nBear Stearns stopped redemptions\nin two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase.\nBut even these were small matters compared to what was to happen in the months ahead.\nAugust 2007: The Onset of Global Financial Unrest\nIt became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders.\nThe\ninterbank market\nthat keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling $3.4 billion.\nThe Federal Reserve and other\ncentral banks\nwould take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months.\nThe markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books.\nMarch 2008: Bear Stearns Collapses\nThe U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks.\nThe Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.\n2\nThe bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February.\n9\nGlobal investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008.\n10\nSeptember 2008: Lehman Brothers Declares Bankruptcy\nThe carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S.\n11\nThe country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.\n12\nThe collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis.\n13\nFinancial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy.\nThe Aftermath: Recovery and Reforms\nThe Wall Street bailout package was approved in the first week of October 2008.\n14\nThe package\nincluded many measures\n, such as a huge government purchase of \"toxic assets,\" an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac.\nPublic indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy.\nBut it got the economy moving again. The investments in the banks were fully recouped by the government, with interest.\nThe passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history.\nFast Fact\nThe government spent $440 billion through the Troubled Asset Relief Program (TARP). It got $442.6 billion back after assets bought in the crisis were resold at a profit.\n15\nThe economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.\n16\nDodd-Frank: Legislative Response to Crisis\nThe most ambitious and controversial attempt to prevent such an event from happening again was the\nDodd-Frank\nWall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending.\n17\nSome portions of the act were\nrolled back\nby the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.\n18\nThose regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the\nDutch Tulip Bubble\nin the 1630s.\nFast Fact\nThe 2007–2008 financial crisis was a global event.\nIreland\n's vibrant economy fell off a cliff and\nGreece\ndefaulted on its international debts.\nPortugal and Spain\nsuffered from extreme levels of unemployment. Every nation's experience was different and complex.\nWhat Is a Mortgage-Backed Security?\nA\nmortgage-backed security\nis similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders.\nLoan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities.\nThe homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth.\nWho Is to Blame for the Great Recession?\nThere's plenty of blame to go around including:\nThe predatory mortgage lenders who marketed loans to people who couldn't possibly repay them\nThe investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors\nThe agencies who gave those mortgage bundles top investment ratings that made them appear to be safe\nThe investors who knowingly bought bad loans to sell them on before they blew up\nWhich Banks Failed in 2008?\nMore than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.\n19\nIt's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked.\nMost of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts.\nThe biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap.\nAs for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously \"\ntoo big to fail\n.\" They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession.\nWho Made Money in the 2008 Financial Crisis?\nSeveral\nsmart investors made money\nfrom the crisis, mostly by picking up choice pieces from the wreckage.\nWarren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit.\nHedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom.\nInvestor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis.\nThe Bottom Line\nFinancial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history.","attrs_markdown":"\n\n[Skip to content](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#main)\n\n[Investopedia](https:\/\/www.investopedia.com\/)\n\n[Trade](https:\/\/www.investopedia.com\/simulator\/?inv_to_sim=global_nav)\n\n- Please fill out this field.\n- [Newsletters](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp)\n\nPlease fill out this field.\n\n- [News](https:\/\/www.investopedia.com\/news-4427706)\n  News\n  \n  - [Markets](https:\/\/www.investopedia.com\/markets-news-4427704)\n  - [Companies](https:\/\/www.investopedia.com\/company-news-4427705)\n  - [Earnings](https:\/\/www.investopedia.com\/earnings-reports-5218419)\n  - [CD Rates](https:\/\/www.investopedia.com\/certificates-deposit-news-7111770)\n  - [Mortgage Rates](https:\/\/www.investopedia.com\/mortgage-rates-5184598)\n  - [Economy](https:\/\/www.investopedia.com\/economic-news-5218422)\n  - 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[Best Life Insurance](https:\/\/www.investopedia.com\/the-best-life-insurance-companies-8763666)\n  - [Best Mortgage Rates](https:\/\/www.investopedia.com\/mortgage-rates-5094943)\n  - [Best Robo-Advisors](https:\/\/www.investopedia.com\/the-best-robo-advisors-8764849)\n  - [Best Personal Loans](https:\/\/www.investopedia.com\/the-best-personal-loans-8761582)\n  - [Best Debt Relief Companies](https:\/\/www.investopedia.com\/the-best-debt-relief-companies-8763179)\n  - [View All](https:\/\/www.investopedia.com\/financial-product-reviews-7110783)\n\n- Top Stories\n- [62% of Workers Have Resume Gaps](https:\/\/www.investopedia.com\/resume-gaps-affect-62-of-workers-here-s-how-to-re-enter-the-workforce-confidentl-1775758396040-11946772)\n- [Bad Credit Can Cost You a Job, But Not Here](https:\/\/www.investopedia.com\/bad-credit-can-still-cost-you-a-job-but-not-if-you-live-in-one-of-these-states-11949561)\n- [Why Inheriting a Home May Not Guarantee Security](https:\/\/www.investopedia.com\/great-wealth-transfer-why-inheriting-a-home-may-not-make-you-rich-1775758393915-11946766)\n- [50% of Americans in Peak Earning Years Fear They Can't Retire](https:\/\/www.investopedia.com\/nearly-50-percent-of-americans-in-peak-earning-years-worry-they-wont-be-able-to-retire-11946768)\n\nTable of Contents\n\nExpand\n\nTable of Contents\n\n- [Roots of the 2008 Financial Crisis](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-the-roots-of-the-2008-financial-crisis)\n- [Early Warnings](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-early-warnings-of-financial-turbulence)\n- [August 2007: The Onset](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-august-2007-the-onset-of-global-financial-unrest)\n- [March 2008: Bear Stearns](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-march-2008-bear-stearns-collapses)\n- [September 2008: Lehman Brothers](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-september-2008-lehman-brothers-declares-bankruptcy)\n- [Aftermath: Recovery and Reforms](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-the-aftermath-recovery-and-reforms)\n- [Dodd-Frank](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-dodd-frank-legislative-response-to-crisis)\n- [FAQs](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-what-is-a-mortgage-backed-security)\n- [The Bottom Line](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp#toc-the-bottom-line)\n\n# The 2008 Financial Crisis Explained\nBy\n\n[Manoj Singh](https:\/\/www.investopedia.com\/contributors\/334\/)\n\n[Full Bio](https:\/\/www.investopedia.com\/contributors\/334\/)\n\nManoj Singh has 29+ years of experience working for the Central Bank of India. He is the author of Bulls, Bears, and the Tortoise.\n\nLearn about our  [editorial policies](https:\/\/www.investopedia.com\/legal-4768893#editorial-policy)\n\nUpdated November 25, 2025\n\nReviewed by\n\n[Thomas J. Catalano](https:\/\/www.investopedia.com\/thomas-j-catalano-4800330)\n\n![Thomas Catalano]()\n\n![Thomas Catalano](https:\/\/www.investopedia.com\/thmb\/jBp_byofU4c-R4PHlFWHNF8lkqA=\/200x200\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/P2-ThomasCatalano-d5607267f385443798ae950ece178afd.jpg)\n\nReviewed by Thomas J. Catalano\n\n[Full Bio](https:\/\/www.investopedia.com\/thomas-j-catalano-4800330)\n\nThomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.\n\nLearn about our  [Financial Review Board](https:\/\/www.investopedia.com\/investopedia-financial-review-board-5076269)\n\nFact checked by\n\n[Pete Rathburn](https:\/\/www.investopedia.com\/pete-rathburn-5197827)\n\n![Pete Rathburn]()\n\n![Pete Rathburn](https:\/\/www.investopedia.com\/thmb\/1H8HTnN47BpO4qXCGzvCSSajfU8=\/200x200\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/E7F37E3D-4C78-4BDA-9393-6F3C581602EB-2c2c94499d514e079e915307db536454.jpeg)\n\nFact checked by Pete Rathburn\n\n[Full Bio](https:\/\/www.investopedia.com\/pete-rathburn-5197827)\n\nPete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.\n\nLearn about our  [editorial policies](https:\/\/www.investopedia.com\/legal-4768893#editorial-policy)\n\n![]()\n\nThe 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act.\n\n### Key Takeaways\n- The 2008 financial crisis developed gradually. Home prices began to fall in early 2006.\n- Subprime lenders began to file for bankruptcy in early 2007.\n- Two big hedge funds failed in June 2007, weighed down by investments in subprime loans.\n- Losses from subprime loan investments caused a panic that froze the global lending system in August 2007.\n- In September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n\nASK\n## The Roots of the 2008 Financial Crisis\nThe seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions.\n\nFaced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the [September 11 terrorist attacks](https:\/\/www.investopedia.com\/financial-edge\/0911\/how-september-11-affected-the-u.s.-stock-market.aspx), the Federal Reserve lowered the [federal funds rate](https:\/\/www.investopedia.com\/terms\/f\/federalfundsrate.asp) from 6.5% in May 2000 to 1% in June 2003.12\n\nThe aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes.3 Even [subprime borrowers](https:\/\/www.investopedia.com\/terms\/s\/subprime-borrower.asp) with poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay.\n\n### Fast Fact\nThe 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages.\n### The Rise of Subprime Lending\nEven in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments.\n\nTake the Next Step to Invest\n\nAdvertiser Disclosure\n\n×\n\nThe offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.\n\nDuring the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and [collateralized debt obligations](https:\/\/www.investopedia.com\/terms\/c\/cdo.asp) (CDOs). A big secondary market for originating and distributing [subprime loans](https:\/\/www.investopedia.com\/terms\/s\/subprimeloan.asp) soon developed.4\n\nThe Securities and Exchange Commission (SEC) in October 2004 relaxed the net [capital requirements](https:\/\/www.investopedia.com\/terms\/c\/capitalrequirement.asp) for five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS).\n\nThis fueled greater risk-taking among banks and freed them to [leverage](https:\/\/www.investopedia.com\/terms\/l\/leverage.asp) their initial investments by 30 times or even 40 times.\n\n## Early Warnings of Financial Turbulence\nInterest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007.2\n\nThere were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004.5 Then home prices started to fall in early 2006.6\n\nThis caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down.\n\nThe most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place.\n\n### Important\nSubprime mortgage company New Century Financial made nearly \\$60 billion in loans in 2006. It filed for bankruptcy protection in 2007.7\n\nOne subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April.8\n\n[Bear Stearns stopped redemptions](https:\/\/www.investopedia.com\/articles\/07\/bear-stearns-collapse.asp) in two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase.\n\nBut even these were small matters compared to what was to happen in the months ahead.\n\n## August 2007: The Onset of Global Financial Unrest\nIt became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders.\n\nThe [interbank market](https:\/\/www.investopedia.com\/terms\/i\/interbankmarket.asp) that keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling \\$3.4 billion.\n\nThe Federal Reserve and other [central banks](https:\/\/www.investopedia.com\/terms\/c\/centralbank.asp) would take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months.\n\nThe markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books.\n\n## March 2008: Bear Stearns Collapses\nThe U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks.\n\nThe Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.2\n\nThe bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February.9 Global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008.10\n\n## September 2008: Lehman Brothers Declares Bankruptcy\nThe carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S.11 The country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.12\n\nThe collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis.13\n\nFinancial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy.\n\n## The Aftermath: Recovery and Reforms\nThe Wall Street bailout package was approved in the first week of October 2008.14\n\nThe package [included many measures](https:\/\/www.investopedia.com\/articles\/economics\/08\/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession), such as a huge government purchase of \"toxic assets,\" an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac.\n\nPublic indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy.\n\nBut it got the economy moving again. The investments in the banks were fully recouped by the government, with interest.\n\nThe passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history.\n\n### Fast Fact\nThe government spent \\$440 billion through the Troubled Asset Relief Program (TARP). It got \\$442.6 billion back after assets bought in the crisis were resold at a profit.15\n\nThe economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.16\n\n## Dodd-Frank: Legislative Response to Crisis\nThe most ambitious and controversial attempt to prevent such an event from happening again was the [Dodd-Frank](https:\/\/www.investopedia.com\/terms\/d\/dodd-frank-financial-regulatory-reform-bill.asp) Wall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending.17\n\nSome portions of the act were [rolled back](https:\/\/www.investopedia.com\/terms\/f\/financial-choice-act.asp) by the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.18\n\nThose regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the [Dutch Tulip Bubble](https:\/\/www.investopedia.com\/terms\/d\/dutch_tulip_bulb_market_bubble.asp) in the 1630s.\n\n### Fast Fact\nThe 2007–2008 financial crisis was a global event. [Ireland](https:\/\/www.investopedia.com\/terms\/c\/celtictiger.asp)'s vibrant economy fell off a cliff and [Greece](https:\/\/www.investopedia.com\/articles\/investing\/070115\/understanding-downfall-greeces-economy.asp) defaulted on its international debts. [Portugal and Spain](https:\/\/www.investopedia.com\/terms\/p\/piigs.asp) suffered from extreme levels of unemployment. Every nation's experience was different and complex.\n\n## What Is a Mortgage-Backed Security?\nA [mortgage-backed security](https:\/\/www.investopedia.com\/terms\/m\/mbs.asp) is similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders.\n\nLoan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities.\n\nThe homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth.\n\n## Who Is to Blame for the Great Recession?\nThere's plenty of blame to go around including:\n\n- The predatory mortgage lenders who marketed loans to people who couldn't possibly repay them\n- The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors\n- The agencies who gave those mortgage bundles top investment ratings that made them appear to be safe\n- The investors who knowingly bought bad loans to sell them on before they blew up\n\n## Which Banks Failed in 2008?\nMore than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.19\n\nIt's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked.\n\nMost of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts.\n\nThe biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap.\n\nAs for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously \"[too big to fail](https:\/\/www.investopedia.com\/terms\/t\/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.).\" They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession.\n\n## Who Made Money in the 2008 Financial Crisis?\nSeveral [smart investors made money](https:\/\/www.investopedia.com\/financial-edge\/0411\/5-investors-that-are-both-rich-and-smart.aspx) from the crisis, mostly by picking up choice pieces from the wreckage.\n\n- Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit.\n- Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom.\n- Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis.\n## The Bottom Line\nFinancial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n\n- [What are the key characteristics of credit cycles?](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp)\n- [What role did moral hazard play in the 2008 financial crisis?](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp)\n- [What are common types of financial crises?](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp)\n\nASK\n\nArticle Sources\n\nInvestopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https:\/\/www.investopedia.com\/legal-4768893#EditorialPolicy)\n\n1. Federal Reserve. \"[Open Market Operations Archive](https:\/\/www.federalreserve.gov\/monetarypolicy\/openmarket_archive.htm).\"\n2. Federal Reserve. \"[Open Market Operations](https:\/\/www.federalreserve.gov\/monetarypolicy\/openmarket.htm).\"\n3. Federal Reserve Bank of St. Louis. \"[All-Transactions House Price Index for the United States](https:\/\/fred.stlouisfed.org\/series\/USSTHPI).\"\n4. Brookings. \"[The Origins of the Financial Crisis](https:\/\/www.brookings.edu\/wp-content\/uploads\/2016\/06\/11_origins_crisis_baily_litan.pdf).\" Pages 7–8.\n5. Federal Reserve Bank of St. Louis. \"[Homeownership Rate for the United States](https:\/\/fred.stlouisfed.org\/series\/RHORUSQ156N).\"\n6. Huduser.gov. \"[U.S. Housing Market Conditions - 4th Quarter 2006](https:\/\/www.huduser.gov\/periodicals\/ushmc\/winter06\/q406_summary.pdf).\" Page 1 of PDF.\n7. Reuters. \"[New Century Files for Chapter 11 Bankruptcy](https:\/\/www.reuters.com\/article\/us-newcentury-bankruptcy\/new-century-files-for-chapter-11-bankruptcy-idUSN0242080520070403).\"\n8. U.S. Securities and Exchange Commission. \"[New Century Financial Corporation Files for Chapter 11; Announces Agreement to Sell Servicing Operations](https:\/\/www.sec.gov\/Archives\/edgar\/data\/1287286\/000129993307002129\/exhibit1.htm).\"\n9. UK Parliament. \"[The Nationalisation of Northern Rock](https:\/\/publications.parliament.uk\/pa\/cm200809\/cmselect\/cmpubacc\/394\/394.pdf).\" Page 3.\n10. U.S. Securities and Exchange Commission. \"[Bear Stearns: Merger Proposed—Your Vote Is Very Important](https:\/\/www.sec.gov\/Archives\/edgar\/data\/19617\/000119312508092874\/d424b3.htm).\"\n11. FDIC. \"[Failed Bank Information: Information for IndyMac Bank, F.S.B., and IndyMac Federal Bank, F.S.B., Pasadena, CA](https:\/\/www.fdic.gov\/Bank\/individual\/failed\/indymac.html).\"\n12. Federal Housing Finance Agency. \"[History of Fannie Mae and Freddie Mac Conservatorships](https:\/\/www.fhfa.gov\/Conservatorship\/Pages\/History-of-Fannie-Mae--Freddie-Conservatorships.aspx).\"\n13. U.S. Securities and Exchange Commission. \"[The Causes and Effects of the Lehman Brothers Bankruptcy](https:\/\/www.govinfo.gov\/content\/pkg\/CHRG-110hhrg55766\/html\/CHRG-110hhrg55766.htm).\"\n14. GovTrack. \"[Emergency Economic Stabilization Act of 2008](https:\/\/www.govtrack.us\/congress\/bills\/110\/hr1424\/text).\"\n15. U.S. Department of the Treasury. \"[Monthly Report to Congress - August 2018](https:\/\/home.treasury.gov\/sites\/default\/files\/initiatives\/financial-stability\/reports\/Documents\/2018.08%20August%20Monthly%20Report%20to%20Congress.pdf).\" Page 5.\n16. Federal Reserve Bank of Chicago. \"[Have Borrowers Recovered from Foreclosures During the Great Recession?](https:\/\/www.chicagofed.org\/publications\/chicago-fed-letter\/2016\/370)\"\n17. Govinfo.gov. \"[Dodd-Frank Wall Street Reform and Consumer Protection Act](https:\/\/www.govinfo.gov\/app\/details\/COMPS-9515).\"\n18. Govinfo.gov. \"[Executive Order 14036 of July 9, 2021](https:\/\/www.govinfo.gov\/content\/pkg\/FR-2021-07-14\/pdf\/2021-15069.pdf).\" Pages 3, 12.\n19. Federal Reserve Bank of Cleveland. \"[Cleveland Fed Marks 10 Years Since the Start of the Great Recession By Outlining Some Lessons Learned](https:\/\/www.clevelandfed.org\/collections\/press-releases\/2017\/pr-20171218-recession-retrospective).\"\n\nCompare Accounts\n\nAdvertiser Disclosure\n\n×\n\nThe offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.\n\nRead more\n\n- [Investing](https:\/\/www.investopedia.com\/investing-4427685)\n- [Markets](https:\/\/www.investopedia.com\/markets-4689752)\n\nPartner Links\n\n## Related Articles\n[![Business Couple Discussing Business Profit on a Modern Interface](https:\/\/www.investopedia.com\/thmb\/Dr6VrPde7GwoNL5vvSS2ScvGzbc=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-985884916-625a2b5fb8dc44eca0b8492d516c1d02.jpg) ![Business Couple Discussing Business Profit on a Modern Interface](https:\/\/www.investopedia.com\/thmb\/Dr6VrPde7GwoNL5vvSS2ScvGzbc=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-985884916-625a2b5fb8dc44eca0b8492d516c1d02.jpg) Tech Bubble Insights: Definition, Dynamics, and Notable Instances](https:\/\/www.investopedia.com\/terms\/t\/tech_bubble.asp)\n\n[![A bear and bull statue outside the Frankfurt Stock Exchange](https:\/\/www.investopedia.com\/thmb\/TjcOPaC1Wa42NoGo731w49qmlN4=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-515555194-6e815f6a6d6e49b492acfd3d5e5c28aa.jpg) ![A bear and bull statue outside the Frankfurt Stock Exchange](https:\/\/www.investopedia.com\/thmb\/TjcOPaC1Wa42NoGo731w49qmlN4=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-515555194-6e815f6a6d6e49b492acfd3d5e5c28aa.jpg) Bull vs. Bear Markets: What's the Difference?](https:\/\/www.investopedia.com\/insights\/digging-deeper-bull-and-bear-markets\/)\n\n[![Stock market board showing all red, indicating a market crash where stock prices are dropping abruptly. ](https:\/\/www.investopedia.com\/thmb\/rJYJpPCjFExojqo0snO7bQ7MHJo=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GuidetoStockMarketCrashes-30fda0d298b14eefaaf3752281e0cdaf.jpg) ![Stock market board showing all red, indicating a market crash where stock prices are dropping abruptly. ](https:\/\/www.investopedia.com\/thmb\/rJYJpPCjFExojqo0snO7bQ7MHJo=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GuidetoStockMarketCrashes-30fda0d298b14eefaaf3752281e0cdaf.jpg) 6 Essential Strategies to Protect Your Investments from a Market Crash](https:\/\/www.investopedia.com\/articles\/financial-advisors\/100615\/how-protect-your-portfolio-market-crash.asp)\n\n[![Traders work in front of computers on the floor of the New York Stock Exchange, one with his head in his hands.](https:\/\/www.investopedia.com\/thmb\/WCZwpu-gG-0oX8Qsi_7xRLuULM8=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-2207682220-dcab8382cc2143eb9854102c0bf0b180.jpg) ![Traders work in front of computers on the floor of the New York Stock Exchange, one with his head in his hands.](https:\/\/www.investopedia.com\/thmb\/WCZwpu-gG-0oX8Qsi_7xRLuULM8=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-2207682220-dcab8382cc2143eb9854102c0bf0b180.jpg) Should You Buy the Dip? 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Exposure](https:\/\/www.investopedia.com\/articles\/investing\/021715\/france-etfs-explained-cac-40.asp)\n\n[Investopedia](https:\/\/www.investopedia.com\/)\n\n[Newsletter Sign Up](https:\/\/www.investopedia.com\/articles\/economics\/09\/financial-crisis-review.asp)\n\nFollow Us\n\n- [News](https:\/\/www.investopedia.com\/news-4427706)\n- [Investing](https:\/\/www.investopedia.com\/investing-4427685)\n- [Simulator](https:\/\/www.investopedia.com\/simulator\/?inv_to_sim=global_nav)\n- [Banking](https:\/\/www.investopedia.com\/banking-4427754)\n- [Personal Finance](https:\/\/www.investopedia.com\/personal-finance-4427760)\n- [Economy](https:\/\/www.investopedia.com\/economy-4689801)\n- [Reviews](https:\/\/www.investopedia.com\/financial-product-reviews-7110783)\n- [Dictionary](https:\/\/www.investopedia.com\/financial-term-dictionary-4769738)\n\n- [About Us](https:\/\/www.investopedia.com\/about-us-5093223)\n- [Editorial 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[V](https:\/\/www.investopedia.com\/terms-beginning-with-v-4769372)\n- [W](https:\/\/www.investopedia.com\/terms-beginning-with-w-4769373)\n- [X](https:\/\/www.investopedia.com\/terms-beginning-with-x-4769374)\n- [Y](https:\/\/www.investopedia.com\/terms-beginning-with-y-4769375)\n- [Z](https:\/\/www.investopedia.com\/terms-beginning-with-z-4769376)\n\nInvestopedia is part of the [People Inc.](https:\/\/www.people.inc\/) publishing family.\n\nNewsletter Sign Up\n\nNewsletter Sign Up","attrs_readable_markdown":"The 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act.\n\n### Key Takeaways\n- The 2008 financial crisis developed gradually. Home prices began to fall in early 2006.\n- Subprime lenders began to file for bankruptcy in early 2007.\n- Two big hedge funds failed in June 2007, weighed down by investments in subprime loans.\n- Losses from subprime loan investments caused a panic that froze the global lending system in August 2007.\n- In September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n## The Roots of the 2008 Financial Crisis\nThe seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions.\n\nFaced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the [September 11 terrorist attacks](https:\/\/www.investopedia.com\/financial-edge\/0911\/how-september-11-affected-the-u.s.-stock-market.aspx), the Federal Reserve lowered the [federal funds rate](https:\/\/www.investopedia.com\/terms\/f\/federalfundsrate.asp) from 6.5% in May 2000 to 1% in June 2003.12\n\nThe aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes.3 Even [subprime borrowers](https:\/\/www.investopedia.com\/terms\/s\/subprime-borrower.asp) with poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay.\n\n### Fast Fact\nThe 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages.\n### The Rise of Subprime Lending\nEven in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments.\n\nDuring the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and [collateralized debt obligations](https:\/\/www.investopedia.com\/terms\/c\/cdo.asp) (CDOs). A big secondary market for originating and distributing [subprime loans](https:\/\/www.investopedia.com\/terms\/s\/subprimeloan.asp) soon developed.4\n\nThe Securities and Exchange Commission (SEC) in October 2004 relaxed the net [capital requirements](https:\/\/www.investopedia.com\/terms\/c\/capitalrequirement.asp) for five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS).\n\nThis fueled greater risk-taking among banks and freed them to [leverage](https:\/\/www.investopedia.com\/terms\/l\/leverage.asp) their initial investments by 30 times or even 40 times.\n\n## Early Warnings of Financial Turbulence\nInterest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007.2\n\nThere were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004.5 Then home prices started to fall in early 2006.6\n\nThis caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down.\n\nThe most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place.\n\n### Important\nSubprime mortgage company New Century Financial made nearly \\$60 billion in loans in 2006. It filed for bankruptcy protection in 2007.7\n\nOne subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April.8\n\n[Bear Stearns stopped redemptions](https:\/\/www.investopedia.com\/articles\/07\/bear-stearns-collapse.asp) in two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase.\n\nBut even these were small matters compared to what was to happen in the months ahead.\n\n## August 2007: The Onset of Global Financial Unrest\nIt became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders.\n\nThe [interbank market](https:\/\/www.investopedia.com\/terms\/i\/interbankmarket.asp) that keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling \\$3.4 billion.\n\nThe Federal Reserve and other [central banks](https:\/\/www.investopedia.com\/terms\/c\/centralbank.asp) would take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months.\n\nThe markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books.\n\n## March 2008: Bear Stearns Collapses\nThe U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks.\n\nThe Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.2\n\nThe bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February.9 Global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008.10\n\n## September 2008: Lehman Brothers Declares Bankruptcy\nThe carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S.11 The country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.12\n\nThe collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis.13\n\nFinancial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy.\n\n## The Aftermath: Recovery and Reforms\nThe Wall Street bailout package was approved in the first week of October 2008.14\n\nThe package [included many measures](https:\/\/www.investopedia.com\/articles\/economics\/08\/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession), such as a huge government purchase of \"toxic assets,\" an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac.\n\nPublic indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy.\n\nBut it got the economy moving again. The investments in the banks were fully recouped by the government, with interest.\n\nThe passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history.\n\n### Fast Fact\nThe government spent \\$440 billion through the Troubled Asset Relief Program (TARP). It got \\$442.6 billion back after assets bought in the crisis were resold at a profit.15\n\nThe economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.16\n\n## Dodd-Frank: Legislative Response to Crisis\nThe most ambitious and controversial attempt to prevent such an event from happening again was the [Dodd-Frank](https:\/\/www.investopedia.com\/terms\/d\/dodd-frank-financial-regulatory-reform-bill.asp) Wall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending.17\n\nSome portions of the act were [rolled back](https:\/\/www.investopedia.com\/terms\/f\/financial-choice-act.asp) by the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.18\n\nThose regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the [Dutch Tulip Bubble](https:\/\/www.investopedia.com\/terms\/d\/dutch_tulip_bulb_market_bubble.asp) in the 1630s.\n\n### Fast Fact\nThe 2007–2008 financial crisis was a global event. [Ireland](https:\/\/www.investopedia.com\/terms\/c\/celtictiger.asp)'s vibrant economy fell off a cliff and [Greece](https:\/\/www.investopedia.com\/articles\/investing\/070115\/understanding-downfall-greeces-economy.asp) defaulted on its international debts. [Portugal and Spain](https:\/\/www.investopedia.com\/terms\/p\/piigs.asp) suffered from extreme levels of unemployment. Every nation's experience was different and complex.\n\n## What Is a Mortgage-Backed Security?\nA [mortgage-backed security](https:\/\/www.investopedia.com\/terms\/m\/mbs.asp) is similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders.\n\nLoan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities.\n\nThe homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth.\n\n## Who Is to Blame for the Great Recession?\nThere's plenty of blame to go around including:\n\n- The predatory mortgage lenders who marketed loans to people who couldn't possibly repay them\n- The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors\n- The agencies who gave those mortgage bundles top investment ratings that made them appear to be safe\n- The investors who knowingly bought bad loans to sell them on before they blew up\n\n## Which Banks Failed in 2008?\nMore than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.19\n\nIt's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked.\n\nMost of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts.\n\nThe biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap.\n\nAs for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously \"[too big to fail](https:\/\/www.investopedia.com\/terms\/t\/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.).\" They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession.\n\n## Who Made Money in the 2008 Financial Crisis?\nSeveral [smart investors made money](https:\/\/www.investopedia.com\/financial-edge\/0411\/5-investors-that-are-both-rich-and-smart.aspx) from the crisis, mostly by picking up choice pieces from the wreckage.\n\n- Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit.\n- Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom.\n- Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis.\n## The Bottom Line\nFinancial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history.","meta_canonical":null}

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URL	https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp
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Meta Title	The 2008 Financial Crisis Explained
Meta Description	Learn more about the causes, the events, and the aftermath of the 2007–2008 financial crisis and the Great Recession that followed.
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Boilerpipe Text	The 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act. Key Takeaways The 2008 financial crisis developed gradually. Home prices began to fall in early 2006. Subprime lenders began to file for bankruptcy in early 2007. Two big hedge funds failed in June 2007, weighed down by investments in subprime loans. Losses from subprime loan investments caused a panic that froze the global lending system in August 2007. In September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever. Get personalized, AI-powered answers built on 27+ years of trusted expertise. The Roots of the 2008 Financial Crisis The seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the September 11 terrorist attacks , the Federal Reserve lowered the federal funds rate from 6.5% in May 2000 to 1% in June 2003. 1 2 The aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes. 3 Even subprime borrowers with poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay. Fast Fact The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages. The Rise of Subprime Lending Even in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments. During the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and collateralized debt obligations (CDOs). A big secondary market for originating and distributing subprime loans soon developed. 4 The Securities and Exchange Commission (SEC) in October 2004 relaxed the net capital requirements for five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). This fueled greater risk-taking among banks and freed them to leverage their initial investments by 30 times or even 40 times. Early Warnings of Financial Turbulence Interest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007. 2 There were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004. 5 Then home prices started to fall in early 2006. 6 This caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. Important Subprime mortgage company New Century Financial made nearly $60 billion in loans in 2006. It filed for bankruptcy protection in 2007. 7 One subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April. 8 Bear Stearns stopped redemptions in two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase. But even these were small matters compared to what was to happen in the months ahead. August 2007: The Onset of Global Financial Unrest It became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders. The interbank market that keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling $3.4 billion. The Federal Reserve and other central banks would take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months. The markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. March 2008: Bear Stearns Collapses The U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks. The Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide. 2 The bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February. 9 Global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008. 10 September 2008: Lehman Brothers Declares Bankruptcy The carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S. 11 The country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government. 12 The collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis. 13 Financial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. The Aftermath: Recovery and Reforms The Wall Street bailout package was approved in the first week of October 2008. 14 The package included many measures , such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac. Public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. The investments in the banks were fully recouped by the government, with interest. The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. Fast Fact The government spent $440 billion through the Troubled Asset Relief Program (TARP). It got $442.6 billion back after assets bought in the crisis were resold at a profit. 15 The economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures. 16 Dodd-Frank: Legislative Response to Crisis The most ambitious and controversial attempt to prevent such an event from happening again was the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending. 17 Some portions of the act were rolled back by the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate. 18 Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the Dutch Tulip Bubble in the 1630s. Fast Fact The 2007–2008 financial crisis was a global event. Ireland 's vibrant economy fell off a cliff and Greece defaulted on its international debts. Portugal and Spain suffered from extreme levels of unemployment. Every nation's experience was different and complex. What Is a Mortgage-Backed Security? A mortgage-backed security is similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders. Loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities. The homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth. Who Is to Blame for the Great Recession? There's plenty of blame to go around including: The predatory mortgage lenders who marketed loans to people who couldn't possibly repay them The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors The agencies who gave those mortgage bundles top investment ratings that made them appear to be safe The investors who knowingly bought bad loans to sell them on before they blew up Which Banks Failed in 2008? More than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland. 19 It's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked. Most of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts. The biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap. As for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously " too big to fail ." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession. Who Made Money in the 2008 Financial Crisis? Several smart investors made money from the crisis, mostly by picking up choice pieces from the wreckage. Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit. Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom. Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis. The Bottom Line Financial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history.
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[50% of Americans in Peak Earning Years Fear They Can't Retire](https://www.investopedia.com/nearly-50-percent-of-americans-in-peak-earning-years-worry-they-wont-be-able-to-retire-11946768) Table of Contents Expand Table of Contents - [Roots of the 2008 Financial Crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-the-roots-of-the-2008-financial-crisis) - [Early Warnings](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-early-warnings-of-financial-turbulence) - [August 2007: The Onset](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-august-2007-the-onset-of-global-financial-unrest) - [March 2008: Bear Stearns](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-march-2008-bear-stearns-collapses) - [September 2008: Lehman Brothers](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-september-2008-lehman-brothers-declares-bankruptcy) - [Aftermath: Recovery and Reforms](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-the-aftermath-recovery-and-reforms) - [Dodd-Frank](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-dodd-frank-legislative-response-to-crisis) - [FAQs](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-what-is-a-mortgage-backed-security) - [The Bottom Line](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#toc-the-bottom-line) # The 2008 Financial Crisis Explained By [Manoj Singh](https://www.investopedia.com/contributors/334/) [Full Bio](https://www.investopedia.com/contributors/334/) Manoj Singh has 29+ years of experience working for the Central Bank of India. He is the author of Bulls, Bears, and the Tortoise. Learn about our [editorial policies](https://www.investopedia.com/legal-4768893#editorial-policy) Updated November 25, 2025 Reviewed by [Thomas J. Catalano](https://www.investopedia.com/thomas-j-catalano-4800330) ![Thomas Catalano]() ![Thomas Catalano](https://www.investopedia.com/thmb/jBp_byofU4c-R4PHlFWHNF8lkqA=/200x200/filters:no_upscale:max_bytes$150000$:strip_icc/P2-ThomasCatalano-d5607267f385443798ae950ece178afd.jpg) Reviewed by Thomas J. Catalano [Full Bio](https://www.investopedia.com/thomas-j-catalano-4800330) Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Learn about our [Financial Review Board](https://www.investopedia.com/investopedia-financial-review-board-5076269) Fact checked by [Pete Rathburn](https://www.investopedia.com/pete-rathburn-5197827) ![Pete Rathburn]() ![Pete Rathburn](https://www.investopedia.com/thmb/1H8HTnN47BpO4qXCGzvCSSajfU8=/200x200/filters:no_upscale:max_bytes$150000$:strip_icc/E7F37E3D-4C78-4BDA-9393-6F3C581602EB-2c2c94499d514e079e915307db536454.jpeg) Fact checked by Pete Rathburn [Full Bio](https://www.investopedia.com/pete-rathburn-5197827) Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom. Learn about our [editorial policies](https://www.investopedia.com/legal-4768893#editorial-policy) ![]() The 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act. ### Key Takeaways - The 2008 financial crisis developed gradually. Home prices began to fall in early 2006. - Subprime lenders began to file for bankruptcy in early 2007. - Two big hedge funds failed in June 2007, weighed down by investments in subprime loans. - Losses from subprime loan investments caused a panic that froze the global lending system in August 2007. - In September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever. Get personalized, AI-powered answers built on 27+ years of trusted expertise. ASK ## The Roots of the 2008 Financial Crisis The seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the [September 11 terrorist attacks](https://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx), the Federal Reserve lowered the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) from 6.5% in May 2000 to 1% in June 2003.12 The aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes.3 Even [subprime borrowers](https://www.investopedia.com/terms/s/subprime-borrower.asp) with poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay. ### Fast Fact The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages. ### The Rise of Subprime Lending Even in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments. Take the Next Step to Invest Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. During the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs). A big secondary market for originating and distributing [subprime loans](https://www.investopedia.com/terms/s/subprimeloan.asp) soon developed.4 The Securities and Exchange Commission (SEC) in October 2004 relaxed the net [capital requirements](https://www.investopedia.com/terms/c/capitalrequirement.asp) for five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). This fueled greater risk-taking among banks and freed them to [leverage](https://www.investopedia.com/terms/l/leverage.asp) their initial investments by 30 times or even 40 times. ## Early Warnings of Financial Turbulence Interest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007.2 There were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004.5 Then home prices started to fall in early 2006.6 This caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. ### Important Subprime mortgage company New Century Financial made nearly \$60 billion in loans in 2006. It filed for bankruptcy protection in 2007.7 One subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April.8 [Bear Stearns stopped redemptions](https://www.investopedia.com/articles/07/bear-stearns-collapse.asp) in two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase. But even these were small matters compared to what was to happen in the months ahead. ## August 2007: The Onset of Global Financial Unrest It became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders. The [interbank market](https://www.investopedia.com/terms/i/interbankmarket.asp) that keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling \$3.4 billion. The Federal Reserve and other [central banks](https://www.investopedia.com/terms/c/centralbank.asp) would take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months. The markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. ## March 2008: Bear Stearns Collapses The U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks. The Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.2 The bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February.9 Global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008.10 ## September 2008: Lehman Brothers Declares Bankruptcy The carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S.11 The country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.12 The collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis.13 Financial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. ## The Aftermath: Recovery and Reforms The Wall Street bailout package was approved in the first week of October 2008.14 The package [included many measures](https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession), such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac. Public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. The investments in the banks were fully recouped by the government, with interest. The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. ### Fast Fact The government spent \$440 billion through the Troubled Asset Relief Program (TARP). It got \$442.6 billion back after assets bought in the crisis were resold at a profit.15 The economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.16 ## Dodd-Frank: Legislative Response to Crisis The most ambitious and controversial attempt to prevent such an event from happening again was the [Dodd-Frank](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) Wall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending.17 Some portions of the act were [rolled back](https://www.investopedia.com/terms/f/financial-choice-act.asp) by the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.18 Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the [Dutch Tulip Bubble](https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp) in the 1630s. ### Fast Fact The 2007–2008 financial crisis was a global event. [Ireland](https://www.investopedia.com/terms/c/celtictiger.asp)'s vibrant economy fell off a cliff and [Greece](https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp) defaulted on its international debts. [Portugal and Spain](https://www.investopedia.com/terms/p/piigs.asp) suffered from extreme levels of unemployment. Every nation's experience was different and complex. ## What Is a Mortgage-Backed Security? A [mortgage-backed security](https://www.investopedia.com/terms/m/mbs.asp) is similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders. Loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities. The homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth. ## Who Is to Blame for the Great Recession? There's plenty of blame to go around including: - The predatory mortgage lenders who marketed loans to people who couldn't possibly repay them - The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors - The agencies who gave those mortgage bundles top investment ratings that made them appear to be safe - The investors who knowingly bought bad loans to sell them on before they blew up ## Which Banks Failed in 2008? More than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.19 It's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked. Most of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts. The biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap. As for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously "[too big to fail](https://www.investopedia.com/terms/t/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.)." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession. ## Who Made Money in the 2008 Financial Crisis? Several [smart investors made money](https://www.investopedia.com/financial-edge/0411/5-investors-that-are-both-rich-and-smart.aspx) from the crisis, mostly by picking up choice pieces from the wreckage. - Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit. - Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom. - Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis. ## The Bottom Line Financial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history. Get personalized, AI-powered answers built on 27+ years of trusted expertise. - [What are the key characteristics of credit cycles?](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp) - [What role did moral hazard play in the 2008 financial crisis?](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp) - [What are common types of financial crises?](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp) ASK Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. Federal Reserve. "[Open Market Operations Archive](https://www.federalreserve.gov/monetarypolicy/openmarket_archive.htm)." 2. Federal Reserve. "[Open Market Operations](https://www.federalreserve.gov/monetarypolicy/openmarket.htm)." 3. Federal Reserve Bank of St. Louis. "[All-Transactions House Price Index for the United States](https://fred.stlouisfed.org/series/USSTHPI)." 4. Brookings. "[The Origins of the Financial Crisis](https://www.brookings.edu/wp-content/uploads/2016/06/11_origins_crisis_baily_litan.pdf)." Pages 7–8. 5. Federal Reserve Bank of St. Louis. "[Homeownership Rate for the United States](https://fred.stlouisfed.org/series/RHORUSQ156N)." 6. Huduser.gov. "[U.S. Housing Market Conditions - 4th Quarter 2006](https://www.huduser.gov/periodicals/ushmc/winter06/q406_summary.pdf)." Page 1 of PDF. 7. Reuters. "[New Century Files for Chapter 11 Bankruptcy](https://www.reuters.com/article/us-newcentury-bankruptcy/new-century-files-for-chapter-11-bankruptcy-idUSN0242080520070403)." 8. U.S. Securities and Exchange Commission. "[New Century Financial Corporation Files for Chapter 11; Announces Agreement to Sell Servicing Operations](https://www.sec.gov/Archives/edgar/data/1287286/000129993307002129/exhibit1.htm)." 9. UK Parliament. "[The Nationalisation of Northern Rock](https://publications.parliament.uk/pa/cm200809/cmselect/cmpubacc/394/394.pdf)." Page 3. 10. U.S. Securities and Exchange Commission. "[Bear Stearns: Merger Proposed—Your Vote Is Very Important](https://www.sec.gov/Archives/edgar/data/19617/000119312508092874/d424b3.htm)." 11. FDIC. "[Failed Bank Information: Information for IndyMac Bank, F.S.B., and IndyMac Federal Bank, F.S.B., Pasadena, CA](https://www.fdic.gov/Bank/individual/failed/indymac.html)." 12. Federal Housing Finance Agency. "[History of Fannie Mae and Freddie Mac Conservatorships](https://www.fhfa.gov/Conservatorship/Pages/History-of-Fannie-Mae--Freddie-Conservatorships.aspx)." 13. U.S. Securities and Exchange Commission. "[The Causes and Effects of the Lehman Brothers Bankruptcy](https://www.govinfo.gov/content/pkg/CHRG-110hhrg55766/html/CHRG-110hhrg55766.htm)." 14. GovTrack. "[Emergency Economic Stabilization Act of 2008](https://www.govtrack.us/congress/bills/110/hr1424/text)." 15. U.S. Department of the Treasury. "[Monthly Report to Congress - August 2018](https://home.treasury.gov/sites/default/files/initiatives/financial-stability/reports/Documents/2018.08%20August%20Monthly%20Report%20to%20Congress.pdf)." Page 5. 16. Federal Reserve Bank of Chicago. "[Have Borrowers Recovered from Foreclosures During the Great Recession?](https://www.chicagofed.org/publications/chicago-fed-letter/2016/370)" 17. Govinfo.gov. "[Dodd-Frank Wall Street Reform and Consumer Protection Act](https://www.govinfo.gov/app/details/COMPS-9515)." 18. Govinfo.gov. "[Executive Order 14036 of July 9, 2021](https://www.govinfo.gov/content/pkg/FR-2021-07-14/pdf/2021-15069.pdf)." Pages 3, 12. 19. Federal Reserve Bank of Cleveland. "[Cleveland Fed Marks 10 Years Since the Start of the Great Recession By Outlining Some Lessons Learned](https://www.clevelandfed.org/collections/press-releases/2017/pr-20171218-recession-retrospective)." Compare Accounts Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. 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Readable Markdown	The 2008 financial crisis, the worst since the Great Depression, stemmed from cheap credit and loose lending that inflated a housing bubble. When mortgage defaults rose, major institutions unraveled, culminating in Lehman Brothers' collapse and a global recession. The fallout brought widespread job losses and foreclosures and led to government bailouts and reforms like the Dodd-Frank Act. ### Key Takeaways - The 2008 financial crisis developed gradually. Home prices began to fall in early 2006. - Subprime lenders began to file for bankruptcy in early 2007. - Two big hedge funds failed in June 2007, weighed down by investments in subprime loans. - Losses from subprime loan investments caused a panic that froze the global lending system in August 2007. - In September 2008, Lehman Brothers collapsed in the biggest U.S. bankruptcy ever. Get personalized, AI-powered answers built on 27+ years of trusted expertise. ## The Roots of the 2008 Financial Crisis The seeds of the financial crisis were planted during years of historically low interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the [September 11 terrorist attacks](https://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx), the Federal Reserve lowered the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) from 6.5% in May 2000 to 1% in June 2003.12 The aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of low mortgage rates to buy homes.3 Even [subprime borrowers](https://www.investopedia.com/terms/s/subprime-borrower.asp) with poor or no credit history were able to buy homes, often at prices that were well beyond their ability to repay. ### Fast Fact The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing price bubble. The low-quality loans were packaged and resold to financial institutions as investments. When the bubble burst, the institutions were left holding trillions of dollars of worthless mortgages. ### The Rise of Subprime Lending Even in normal times, banks do not often hold onto the mortgages they issue. They are resold to financial institutions, which market them as investments in interest payments. During the housing bubble, the banks sold these loans to the big Wall Street banks, which re-packaged and marketed them as low-risk financial instruments such as mortgage-backed securities and [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs). A big secondary market for originating and distributing [subprime loans](https://www.investopedia.com/terms/s/subprimeloan.asp) soon developed.4 The Securities and Exchange Commission (SEC) in October 2004 relaxed the net [capital requirements](https://www.investopedia.com/terms/c/capitalrequirement.asp) for five investment banks in 2004: Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). This fueled greater risk-taking among banks and freed them to [leverage](https://www.investopedia.com/terms/l/leverage.asp) their initial investments by 30 times or even 40 times. ## Early Warnings of Financial Turbulence Interest rates eventually started to rise and the housing market reached a saturation point. The Fed started raising rates in June 2004 and the federal funds rate reached 5.25% two years later, where it remained until August 2007.2 There were early signs of distress. U.S. homeownership had peaked at 69.2% by 2004.5 Then home prices started to fall in early 2006.6 This caused real hardship to many Americans. Their homes were worth less than what they had paid for them. They couldn't sell without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. ### Important Subprime mortgage company New Century Financial made nearly \$60 billion in loans in 2006. It filed for bankruptcy protection in 2007.7 One subprime lender after another filed for bankruptcy as 2007 got underway. More than 25 subprime lenders went under during February and March alone. New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce in April.8 [Bear Stearns stopped redemptions](https://www.investopedia.com/articles/07/bear-stearns-collapse.asp) in two of its hedge funds in June 2007. Early in March 2008, the Bear Stearns name disappeared after the company was acquired by JPMorgan Chase. But even these were small matters compared to what was to happen in the months ahead. ## August 2007: The Onset of Global Financial Unrest It became apparent by August 2007 that the financial markets couldn't solve its subprime crisis and that the problems it caused were reverberating well beyond the U.S. borders. The [interbank market](https://www.investopedia.com/terms/i/interbankmarket.asp) that keeps money flowing around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding to keep operating. In October 2007, Swiss bank UBS became the first major bank to announce losses from subprime-related investments totaling \$3.4 billion. The Federal Reserve and other [central banks](https://www.investopedia.com/terms/c/centralbank.asp) would take coordinated action to provide billions of dollars in loans to the global credit markets in the coming months. The markets were grinding to a halt as asset prices fell. Financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. ## March 2008: Bear Stearns Collapses The U.S. economy was in a full-blown recession by the winter of 2008. Stock markets around the world were tumbling more than they had since the September 11, 2001, terrorist attacks. The Fed cut its benchmark rate by three-quarters of a percentage point in January 2008. This was its biggest cut in a quarter-century as it sought to slow the economic slide.2 The bad news continued to pour in from all sides. The British government was forced to nationalize Northern Rock in February.9 Global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar in March 2008.10 ## September 2008: Lehman Brothers Declares Bankruptcy The carnage was spreading across the financial sector by the summer of 2008. IndyMac Bank became one of the largest banks ever to fail in the U.S.11 The country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.12 The collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and it became for many a symbol of the devastation caused by the global financial crisis.13 Financial markets were in free fall in September, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. ## The Aftermath: Recovery and Reforms The Wall Street bailout package was approved in the first week of October 2008.14 The package [included many measures](https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession), such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines for Fannie Mae and Freddie Mac. Public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. The investments in the banks were fully recouped by the government, with interest. The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. ### Fast Fact The government spent \$440 billion through the Troubled Asset Relief Program (TARP). It got \$442.6 billion back after assets bought in the crisis were resold at a profit.15 The economic damage and human suffering were nonetheless immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.16 ## Dodd-Frank: Legislative Response to Crisis The most ambitious and controversial attempt to prevent such an event from happening again was the [Dodd-Frank](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) Wall Street Reform and Consumer Protection Act in 2010. The act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. It attempted to reduce predatory lending.17 Some portions of the act were [rolled back](https://www.investopedia.com/terms/f/financial-choice-act.asp) by the Trump Administration by 2018, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.18 Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. But this doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically since the [Dutch Tulip Bubble](https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp) in the 1630s. ### Fast Fact The 2007–2008 financial crisis was a global event. [Ireland](https://www.investopedia.com/terms/c/celtictiger.asp)'s vibrant economy fell off a cliff and [Greece](https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp) defaulted on its international debts. [Portugal and Spain](https://www.investopedia.com/terms/p/piigs.asp) suffered from extreme levels of unemployment. Every nation's experience was different and complex. ## What Is a Mortgage-Backed Security? A [mortgage-backed security](https://www.investopedia.com/terms/m/mbs.asp) is similar to a bond. It consists of home loans that are bundled by the banks that issued them and then sold to financial institutions. Investors buy them to profit from the loan interest paid by the mortgage holders. Loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford in the early 2000s. These loans were then passed on to investors in the form of mortgage-backed securities. The homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than their houses were worth. ## Who Is to Blame for the Great Recession? There's plenty of blame to go around including: - The predatory mortgage lenders who marketed loans to people who couldn't possibly repay them - The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors - The agencies who gave those mortgage bundles top investment ratings that made them appear to be safe - The investors who knowingly bought bad loans to sell them on before they blew up ## Which Banks Failed in 2008? More than 500 banks in the U.S. failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.19 It's important to note that no depositor in an American bank lost a penny to a bank failure. In that respect, the system worked. Most of the failed institutions were small regional banks, and all were acquired by other banks, along with their depositors' accounts. The biggest failures weren't banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap. As for JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, they were all famously "[too big to fail](https://www.investopedia.com/terms/t/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.)." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession. ## Who Made Money in the 2008 Financial Crisis? Several [smart investors made money](https://www.investopedia.com/financial-edge/0411/5-investors-that-are-both-rich-and-smart.aspx) from the crisis, mostly by picking up choice pieces from the wreckage. - Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of patriotism and profit. - Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed and then made a lot more money betting on its recovery after it hit bottom. - Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis. ## The Bottom Line Financial bubbles are common, but the 2007-2008 crisis was different because it spread far beyond speculative investors and became a systemic shock. Its collapse damaged entire economies and harmed millions of people who had no direct involvement in mortgage-backed securities. The scale of its impact makes it one of the most consequential bubbles in history.
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