by Financial crisis of 2007–08 broke nearly every financial institution in the United States. Some financial institutions were larger than others, of course, but it was not merely their size that made their collapse devastating.
Bank of America and Citigroup, each the largest financial institutions in the United States, have since been thrown into insolvency and faced bankruptcy for their financial wrongdoing.
In the years since investors and workers have worked hard to rebuild their institutions to make them financially solvent again.
But rebuilding financial institutions is only one part of the effort. You can rebuild your financial institutions as easily as you can rebuild your homes, but you cannot rebuild your economic institutions as easily as you can rebuild your financial institutions.
The financial crisis of 2007–08 is still with us and is in part why the government is hesitant to intervene. The crisis was never about the past, however. The financial crisis of 2007–08 was just the latest episode in a broader crisis that broke in 2007.
The financial crisis of 2007–08 was just the latest episode in a broader crisis that broke in 2007. That crisis, ultimately, could be called the collapse of the global financial system. There was a financial crisis of the 1990s, of course, which broke several financial institutions, but there was no systemic financial crisis of the 1930s or the 1970s. That’s the crisis we are talking about now.
How did the financial crisis of 2007–08 end up destroying financial institutions as well as the entire financial system? The crisis began in the early months of 2007. But unlike the crises in the 1930s or the 1970s, they did not destroy the financial institutions. Instead, the financial institutions got their act together and began making financial transactions in the form of loans and other financial instruments to stimulate the economy.
Before The financial crisis of 2007–08
In early 2008, the crises in the banking and financial systems broke out into the open. As the crisis broke, the banking system suffered from the collapse of the stock market, and as it did so, it faced billions of dollars in losses on its financial assets. At the same time, financial institutions holding risky financial assets began facing losses. In early 2008, financial institutions had to cover
1 January 2007: U.S. Treasury Secretary Henry Paulson urges President George W. Bush and Congress to pass an emergency spending bill to combat the financial crisis.
March 7, 2007: Bank of America’s President Robert E. Moynihan tells the U.S. Congress the bank’s proposed $50-billion acquisition of Countrywide Financial, the second-largest bank in the United States, will prove successful in managing its financial risks.
April 2007: The United States’ financial system reaches the critical threshold of over-leverage in relation to GDP.
May 2007: Some U.com calls George Soros, one of the world’s richest and most successful investors, to advise them on dealing with credit markets.
June 5, 2007: The U.S. Senate confirms Timothy Geithner as U.S. Treasury Secretary.
November 28, 2007: Lehman Brothers discloses an $8-billion exposure to U.S. subprime mortgages.
January 3, 2008: Merrill Lynch informs the New York Stock Exchange that it will no longer support certain equity securities on behalf of certain clients.
January 6, 2008: Goldman Sachs and Morgan Stanley suspend a new wave of short-selling due to the panic in financial markets.
January 10, 2008: Alan Greenspan, former chairman of the U.S. Federal Reserve, argues against the “narrative” that the crisis is linked to the U.S. housing bubble.
January 17, 2008: The Fed officially halts the money supply in the United States.
March 12, 2008: Alan Greenspan, former head of the U.S. Federal Reserve, admits to CNBC that the U.S. economy faces a potential financial crisis.
September 11, 2008: The United States and U.S. government begin emergency negotiations to unfreeze financial markets.
September 12, 2008: A financial crisis sparked by the U.S. subprime mortgage market worsens.
September 14, 2008: U.S. President George W. Bush announces a $700-billion emergency package to bail out financial institutions.
September 18, 2008: Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson pledge that the U.s. government will not allow the financial system to collapse.
September 21, 2008: U.S. Treasury Secretary Hank Paulson tells Congress that the financial crisis is worsening.
September 24, 2008: Hank Paulson resigns as U.S. Treasury Secretary.
September 29, 2008: The U.S. Treasury and U.S. Securities and Exchange Commission launch investigations into U.S. financial markets and some of their most prominent figures.
October 11, 2008: The U.S. government officially declares the collapse of the financial system.
October 18, 2008: Former Federal Reserve Chairman Alan Greenspan confirms in a Financial Times interview that subprime mortgages pose the most immediate threat to the U.S. financial system.
November 30, 2008: The United States’ Financial Crisis and Recovery Act, a $700-billion bailout package for the U.s. financial sector, is enacted into law.
The pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit.
Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
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