Chapter 8: Late 2000s: the Great Recession of 2008
The Great Recession caused the most severe and globalized recession since the Great Depression. Markets across the world, connected to the US financially or through trade, went into decline as US mortgage assets and their derivatives tumbled beginning in 2007. We refer to this crisis as the Great Recession of 2008 because it was in this year that global stock markets tumbled and global banks experienced failure on a large scale. This was the year that panic set in. Eventually the crisis laid bare and greatly exacerbated structural problems in the euro regions. As I write, the crisis in the Eurozone is ongoing, after more than three years of turmoil! As is widely known at this point, the Great Recession began in the US with excessive overleveraging of subprime mortgage assets. Subprime mortgages were given out to individuals who lacked sufficient income or other financial resources to repay the loans. It was viewed at first as a problem among subprime mortgage owners—as these individuals lost their homes, the existence of new synthetic mortgage-backed assets based on these subprime loans came to light.
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