2007-01-01 to 2007-12-31
U.S., WorldThe financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. The crisis was nonetheless followed by a global economic downturn, the Great Recession. The Asian markets (China, Hong Kong, Japan, India, etc.) immediately impacted and volatilized after the U.S. sub-prime crisis. The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US following the crisis to "promote the financial stability of the United States". The Basel III capital and liquidity standards were adopted by countries around the world.
In November 1999, US President Bill Clinton signed into law the Gramm–Leach–Bliley Act, which repealed provisions of the Glass-Steagall Act that prohibit a bank holding company from owning other financial companies. The repeal effectively removed the separation that previously existed between Wall Street investment banks and depository banks, providing a government stamp of approval for a universal risk-taking banking model. Investment banks such as Lehman would now be thrust into direct competition with commercial banks.
In December 2000, President Clinton signed the Commodities Futures Modernization Act of 2000 into law. Written by Congress with lobbying assistance from the financial industry, it banned the further regulation of the derivatives market.
In 2004, the US Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.
On June 26, 2008, Senator Charles Schumer , a member of the Senate Banking Committee, chairman of Congress' Joint Economic Committee and the third-ranking Democrat in the Senate, released several letters he had sent to regulators, which warned that, "The possible collapse of big mortgage lender IndyMac Bancorp Inc. poses significant financial risks to its borrowers and depositors, and regulators may not be ready to intervene to protect them." Some worried depositors began to withdraw money.
On July 7, 2008, IndyMac announced on the company blog that it: Had failed to raise capital since its May 12, 2008 quarterly earnings report; Had been notified by bank and thrift regulators that IndyMac Bank was no longer deemed "well-capitalized". IndyMac: The first visible institution to run into trouble in the United States was the Southern California–based IndyMac, a spin-off of Countrywide Financial. Before its failure, IndyMac Bank was the largest savings and loan association in the Los Angeles market and the seventh largest mortgage originator in the United States.
A bridge bank, IndyMac Federal Bank, FSB, was established to assume control of IndyMac Bank's assets, its secured liabilities, and its insured deposit accounts. The FDIC (Federal Deposit Insurance Corporation) announced plans to open IndyMac Federal Bank, FSB on July 14, 2008.
September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years. The same day, Bank of America purchased Merrill Lynch.
September 21, 2008: Goldman Sachs and Morgan Stanley converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve.
September 29, 2008: The House of Representatives rejected the Emergency Economic Stabilization Act of 2008 instituting the $700 billion Troubled Asset Relief Program. In response the Dow Jones dropped 770 points, its largest single-day decline.
In Iceland in April 2012, the special Landsdómur court convicted former Prime Minister Geir Haarde of mishandling the 2008–2012 Icelandic financial crisis.