Last Updated: 19th January, 2020
2008 Financial Crisis
The Causes, Costs and Implications of the Worst ever Crisis since the Great Depression which was caused by a number of serious weaknesses in the economy. America’s “Great Depression” began with the dramatic crash of the stock market on “Black Thursday”, October 24, 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.
Causes of the 2008 Financial Crisis
The first sign that the economy was in trouble occurred in 2006 when housing prices started to fall.
At first, realtors applauded; they thought the overheated housing market would return to a more sustainable level. They didn’t realize there were too many homeowners with questionable credit. Banks had allowed people to take out loans for 100% or more of the value of their new homes. Many blamed the Community Reinvestment Act, which pushed banks to make investments in subprime areas, but that wasn’t the underlying cause.
The Commodity Futures Modernization Act was arguably the real villain. It allowed banks to engage in trading profitable derivatives that they sold to investors. These mortgage-backed securities needed home loans as collateral. The derivatives created an insatiable demand for more and more mortgages.
2008 Financial Crisis Costs
According to the report, entitled “Cost of the Crisis“, the financial and economic crisis cost Americans $12.8 trillion, including: “Estimated actual gross domestic product (“GDP”) loss from 2008 to 2018, of $7.6 trillion.
Can It Happen Again in 2020?
The next financial crisis: Why it is looking like history may repeat itself
- Too-big-to-fail banks are bigger than ever. 10 banks — including J.P. Morgan, Goldman Sachs and Citigroup — own more than 50 percent of the assets of the top 100 commercial banks.
- Trump’s attacks on the Fed’s independence could bring back stagflation not seen since the Nixon administration.
- The revolving door between Wall Street and Washington is spinning faster than ever.
Ever wondered what caused the Banking Crisis in 2008?
Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System — and Themselves
In one of the most gripping financial narratives in decades, Andrew Ross Sorkin – a New York Times columnist and one of the country’s most respected financial reporters-delivers the first definitive blow-by-blow account of the economic crisis that brought the world to the brink.
Through unprecedented access to the players involved, he re-creates all the drama and turmoil of these turbulent days, revealing never-before-disclosed details and recounting how, motivated as often by ego and greed as by fear and self-preservation, the most powerful men and women in finance and politics decided the fate of the world’s economy.
- Named a Best Book of the Year by:The Economist, The Financial Times, Business Week
- Winner of the Gerald Loeb Award for Best Business Book
- “Too Big To Fail is too good to put down. . . . It is the story of the actors in the most extraordinary financial spectacle in 80 years, and it is told brilliantly.” —The Economist
- “Vigorously reported, superbly organized . . . For those of us who didn’t pursue MBAs—and have the penny-ante salaries to prove it—Sorkin’s book offers a clear, cogent explanation of what happened and why it matters.” —Julia Keller, Chicago Tribune
- “Sorkin’s prodigious reporting and lively writing put the reader in the room for some of the biggest-dollar conference calls in history. It’s an entertaining, brisk book.” —Paul M. Barrett, The New York Times Book Review
- “Sorkin’s densely detailed and astonishing narrative of the epic financial crisis of 2008 is an extraordinary achievement that will be hard to surpass as the definitive account.” —John Gapper, Financial Times
Top Customer Reviews:
“Too Big to Fail” is an altogether excellent book by financial journalist Andrew Ross Sorkin. It’s a compelling narrative that tells the story of how the nation’s largest and most prestigious financial institutions came to the brink of collapse – and almost took the entire economy with them – in the great economic crisis of 2008.
According to Sorkin, the financial downturn that occurred in the summer of 2008 was actually years in the making. Many of the nation’s greatest investment banks, along with their commercial bank counterparts, had been busily dealing in high-risk subprime mortgages for years. As long as demand for housing remained high, so did housing prices; however, when massive numbers of people began defaulting on mortgages they could no longer afford, the housing market suddenly crashed, credit froze up, and banks began to fail…
…Thus begins the story of America’s economic meltdown in the late summer and early autumn of 2008. With the collapse of the housing markets, many of America’s oldest and greatest investment banks – among them Bear Stearns, Lehman Brothers, and Morgan Stanley – also find themselves threatened by total failure. So do commercial banks like Citigroup, Wachovia, and Bank of America; insurance companies like AIG; and the two government sponsored mortgage guarantors (Fannie Mae and Freddie Mac). Now, U.S. Treasury Secretary Hank Paulson, New York Federal Reserve Bank President Timothy Geithner, Congress, and other government regulators must find a way to save these financial institutions from ruin. If they don’t, America faces the very real possibility that its entire economic system may collapse.