Introduction to the Financial Crisis
The near-collapse of the financial system in the United States was the most substantial economic crisis in the U.S. since the Great Depression of the 1920s and 1930s. Since the crisis began in late-2007, more than 6 million Americans have lost their jobs, large and important financial institutions have failed, and trillions of dollars in savings and retirement accounts have been lost. It is generally accepted that problems in the United States housing market are at the root of the current United States and global financial crisis. However, even in mid-2009, twelve months after the financial crisis fully erupted in the United States, it is still too early to determine all of the precise causes and consequences of the crisis. Many different entities share the responsibility for creating or enabling the crisis: mortgage lenders, borrowers, regulators, investors, rating agencies, and probably many others. At its broadest level, this crisis was caused by a failure of governance: of political governance by regulators and legislators, of corporate governance by firms and executives, and of personal governance by individuals.
After peaking in the United States in 2006, the global housing bubble collapsed. On the national level, home prices in the United States have dropped by almost 40% according to the Case-Schiller Home Price Index from 2006 peak to mid-2009. Securities with risk exposure to housing market plummeted, causing great damage to financial institutions across the globe. Stock markets all over the world suffered large drops in 2008 and early 2009 as questions arose regarding the solvency of major financial institutions and liquidity in the credit markets dried up. Worldwide growth slowed with the tightened credit markets and declines in international trade. Governments, central banks, and international organizations