WikipediaExtracts:Financial crisis of 2007–2008

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A major worldwide financial crisis centered in the United States took place in 2008. The immediate cause of the crisis was the collapse of the 2000s U.S. housing bubble, which involved excessive speculation in property values by both homeowners and financial institutions, exacerbated by predatory lending and by deficiencies in regulation. The first phase was the subprime mortgage crisis, which began in early 2007 as mortgage-backed securities (MBS) tied to U.S. real estate, and a vast web of derivatives linked to those MBS, collapsed in value. A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, which triggered a stock market crash and bank runs in several countries. The crisis exacerbated the Great Recession, a global recession that began in late 2007, and contributed to major crises in Iceland and the eurozone.

During the 1990s, the U.S. Congress passed legislation intended to expand affordable housing through looser financing rules, and in 1999 parts of the 1933 Banking Act (Glass–Steagall Act) were repealed, enabling institutions to mix low-risk operations, such as commercial banking and insurance, with higher-risk operations such as investment banking and proprietary trading. As the Federal Reserve (Fed) lowered the federal funds rate from 2000 to 2003, institutions increasingly targeted low-income homebuyers, largely belonging to racial minorities, with high-risk subprime loans; this development went unattended by regulators. As interest rates rose from 2004 to 2006, monthly payments on these largely adjustable-rate mortgages spiked, leading to a wave of defaults, foreclosures, and bankruptcies among subprime lenders in early 2007. As housing demand and prices continued to fall, the financial contagion spread to global credit markets by August 2007. In March 2008, Bear Stearns, one of the largest U.S. investment banks, was sold to JPMorgan Chase in a "fire sale" backed by Fed financing.

In response to the crisis, governments around the world deployed massive bailouts of financial institutions and used monetary and fiscal policy to prevent a collapse of the global financial system. On September 7, 2008, Fannie Mae and Freddie Mac, two government-sponsored enterprises which owned or guaranteed half of the U.S. housing market, were seized by the federal government. On September 15, Lehman Brothers filed for the largest bankruptcy in the country's history, which was followed that month by a Fed bailout of American International Group and the seizure of Washington Mutual in the largest bank failure in U.S. history. On October 3, Congress passed the Emergency Economic Stabilization Act, authorizing the Treasury Department to purchase toxic assets and bank stocks through the $700 billion Troubled Asset Relief Program (TARP). The Fed began a program of quantitative easing by buying treasury bonds and other assets, and the American Recovery and Reinvestment Act, signed in February 2009 by President Barack Obama, included various measures which, combined with actions taken in other countries, ended the worst of the Great Recession by mid-2009.

Assessments of the crisis's impact in the U.S. vary, but suggest that some 8.7 million jobs were lost, causing unemployment to rise from 5% in 2007 to a high of 10% in October 2009. The percentage of citizens living in poverty rose from 12.5% in 2007 to 15.1% in 2010. The Dow Jones Industrial Average fell by 53% between October 2007 and March 2009, and some estimates suggest that one in four households lost 75% or more of their net worth. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was passed, overhauling financial regulations. It was opposed by many Republicans, and it was weakened by the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. The Basel III capital and liquidity standards were also adopted by countries around the world.