The economic crash of 2008, also known as the financial crisis of 2008, was a major global economic downturn that began in the United States and quickly spread to other countries. The crisis was caused by a combination of factors, including:
- Housing market bubble: In the years leading up to the crisis, there was a housing market bubble in the United States, fueled by easy access to credit and low interest rates. As more and more people bought homes, prices continued to rise, eventually leading to a bubble that burst in 2007.
- Subprime mortgages: Many of the loans used to finance the housing market boom were subprime mortgages, which were given to people with poor credit histories and high risk of default. When these borrowers began defaulting on their loans, the value of mortgage-backed securities plummeted.
- Excessive risk-taking by financial institutions: Many banks and other financial institutions had taken on excessive risk in the years leading up to the crisis, often using complex financial instruments such as collateralized debt obligations (CDOs) and credit default swaps (CDSs). When the value of these assets began to decline, many institutions faced significant losses.
- Regulatory failures: There were also regulatory failures that contributed to the crisis, including inadequate oversight of the financial industry and lax enforcement of existing regulations.
The financial crisis of 2008 had severe consequences for the global economy, including widespread job losses, a significant decline in housing prices, and a contraction in credit markets. Governments around the world took measures to stabilize financial institutions and prevent further economic collapse, including bailouts and stimulus packages. Despite these efforts, the effects of the crisis were felt for many years, and the global economy took several years to recover.