The Economics and Financial Education Program

  A Perfect Storm The financial crisis of 2008, also known as the Global Financial Crisis (GFC), was a severe worldwide economic crisis that occurred in the late 2000s. It is considered by many economists to have been the most serious financial crisis since the Great Depression (1929). The crisis led to the collapse of large financial institutions, the bailout of banks by national governments, and had a devastating impact on the global economy. Let’s explore the causes and effects of this monumental event. Causes of the Crisis The financial crisis of 2008 was caused by a confluence of factors, but at the root lay the surge in subprime mortgages. Subprime mortgages are loans issued to borrowers with poor credit histories. These subprime mortgages were often bundled into mortgage-backed securities (MBS) and sold to investors.   In the lead-up to the crisis, lenders, fueled by the belief that housing prices would continue to rise indefinitely, loosened lending standards a...