The financial collapse of 2008 has been described as an “economic 9/11” for the United States. How ironic, then, that the origin of the collapse can be traced, in part, to the federal government’s response to the 9/11 terrorist attacks themselves.


(1.1)
> Back to Greenspan's Cheap Money


(1.2)
> Back to Greenspan's Cheap Money

As the cost of borrowing dropped, so did the cost of the American Dream. Falling mortgage rates fueled a new residential real estate boom across the country. Millions of buyers flooded the market, purchasing condos, townhouses, and single-family homes they previously might not have been able to afford.

(2.1)
> Back to the Great Housing Boom


(2.2)
> Back to the Great Housing Boom


(2.3)
> Back to the Great Housing Boom


(2.4)
> Back to the Great Housing Boom

As home values rose and home ownership increased,  some Americans were left out. But not for long. Before the boom, they didn’t make enough money or their credit score wasn’t high enough to get a mortgage. They didn’t qualify. Lenders wouldn’t loan these potential borrowers money because their risk of defaulting was too high, by most standards. When those standards started to change, an industry near extinction was reborn.

(3.1)
> Back to Subprime Explosion


(3.2)
> Back to Subprime Explosion


(3.3)
> Back to Subprime Explosion

The days when a bank issued a mortgage and held onto it for the life of that loan ended long ago. Mortgages had become huge profit-generators for investment banks, which bought the loans from other banks and non-bank lenders, packaged them together, sliced them up, and sold them as securities.  In theory, as long as homeowners paid their mortgages, these securitized loan investments, also known as structured products, were relatively safe.  But, theory and practice were two very different things.


(4.1) > Back to Inflating The Bubble


(4.2)
> Back to Inflating The Bubble


(4.3)
> Back to Inflating The Bubble


(4.4)
> Back to Inflating The Bubble

As the housing bubble inflated, few regulators took notice. If they did, many turned a blind eye. Even Federal Reserve Chairman Alan Greenspan acknowledged during a Fed meeting in November 2002 that “our extraordinary housing boom cannot continue indefinitely.” His words turned out to be drastic understatements and they would later come back to haunt him.


(5.1)
> Back to Warning Signs


(5.2)
> Back to Warning Signs

(5.3)
> Back to Warning Signs



(5.4)
> Back to Warning Signs

By early 2006, America’s unprecedented real estate explosion was hitting a wall. The boom hadn’t turned to a bust, yet. But the housing market was slowing significantly. The evidence was clear: back-to-back quarterly drops in the median price of a home showed cracks in the armor of a market many experts believed would keep growing indefinitely.


(6.1)
> Back to Housing Market Decline


(6.2)
> Back to Housing Market Decline


(6.3)
> Back to Housing Market Decline



(6.4)
> Back to Housing Market Decline


(6.5)
> Back to Housing Market Decline



(6.6)
> Back to Housing Market Decline

(6.7)
> Back to Housing Market Decline

The ripple effects of the housing slowdown on Main Street were now reaching Wall Street, especially firms that invested heavily in subprime mortgages. The sudden collapse of two Bear Stearns hedge funds in June 2007 triggered the beginning of the panic among institutional investors, including investment banks, hedge funds, and sovereign wealth funds. Their voracious appetites for securitized mortgage products would soon come to an end.


(7.1)
> Back to Banks Go Into Panic Mode


(7.2)
> Back to Banks Go Into Panic Mode

The uncertainly on Wall Street took a new, more ominous turn, and once again, Bear Stearns is at the center of the storm. It would overwhelm the firm, and during the course of just a few days, one of Wall Street’s most venerable names would be taken over by a rival, despite unprecedented government efforts to prevent the company from failing.

(8.1)
> Back to Financial Collapse


(8.2)
> Back to Financial Collapse

The ripple effects of the subprime securitization scandal continued  simmering through the summer. It would soon boil up to become the greatest financial crisis since the Great Depression, with incredible economic, political, and social ramifications. More well-known firms would go out of business, others would be bought by competitors, or get bailed out by the government. Millions of workers across all industries and sectors would lose their jobs. And the perception of prosperity that many Americans enjoyed for years would become a bitter reality:  we had spent, borrowed, and fooled ourselves into a false sense of security.

(9.1)
> Back to Global Recession

(9.2)
> Back to Global Recession

(9.3)
> Back to Global Recession


(9.4)
> Back to Global Recession

The initial $700 Billion economic stimulus plan authorized by Congress was only the tip of the bailout iceberg. Between October 2008 and June 2009, the U.S. government committed more than $10 Trillion dollars to economic recovery packages. In that nine-month period, the federal government took aggressive, unprecedented action, using new and existing powers to shore up the markets, thaw the credit freeze, and stop the economic free-fall. Recovery from this crisis was still a long way off, but signs of stability started to emerge.

(10.1)
> Back to Massive Government Action

(10.2)
> Back to Massive Government Action

(10.3)
> Back to Massive Government Action


(10.4)
> Back to Massive Government Action


(10.5)
> Back to Massive Government Action