Erin Manion
Extra Credit 5 – 703-01
The causes and consequences of the 2008 Global Financial Crisis.
In 2008, countries around the globe were facing an economic contraction. This contraction deepened to the
extent that it was, and is now, referred to as the Great Recession. What caused this great recession? And what
were the consequences and outcomes?
Beginning in the 1990s and accelerating in the 2000s, the United States experienced expansion in the housing
market; including construction, prices, and credit. This expansion in housing resulted in an expansion in the
borrowing of mortgage loans. The mortgage debt rose from 61% (1998) to 97% (2006) of GDP. This expansion
may have been the result of the Federal Open Market Committee maintaining low federal fund rates for an
extended period of time. Others believe it was the globally low interest rates. Some analysts pinpoint the
growth of the market for mortgage-backed securities which increased borrowing. In the 2000s, high-risk, or
subprime, mortgages were offered by lenders which resulted in the expansion of the accessibility of housing
credit. The demand increased which resulted in the price increase of houses.
After the prices of homes peaked in 2007, a nationwide decline in prices began the financial crisis of 2008.
Financial market participants were faced with the possibility of mortgage defaults and higher losses on
mortgage-related assets.
Financial markets began to feel the pressure of the subprime mortgages in 2007. By Spring 2008, Bear Stearns
was attained by JP Morgan Chase through the assistance of the Federal Reserve. That following September,
