Causes of the Crisis
What was the main cause of the global financial crisis of 2008?
The massive issuance of risky subprime mortgage loans in the U.S.
Which major investment bank declared bankruptcy in September 2008, becoming a symbol of the crisis?
Lehman Brothers.
How did the crisis affect global employment?
Unemployment rates surged worldwide, especially in the U.S. and Europe.
What does TARP stand for?
Troubled Asset Relief Program — a government plan to purchase troubled assets from banks.
What law was passed in 2010 to prevent a similar crisis in the future?
The Dodd–Frank Act
How did low interest rates set by the Federal Reserve contribute to the crisis?
They encouraged excessive borrowing and fueled the housing bubble.
Which U.S. bank was rescued through a government-backed merger with JPMorgan Chase?
Bear Stearns.
What impact did the crisis have on the U.S. housing market?
Housing prices collapsed, and millions of homeowners lost their homes.
Who was the Chairman of the Federal Reserve during the crisis?
Ben Bernanke
How did banking capital requirements change after the crisis?
Higher capital and liquidity standards were introduced under Basel III
What are mortgage-backed securities (MBS)?
Financial instruments backed by pools of mortgage loans, providing investors with income from mortgage payments.
What happened to AIG during the crisis?
It nearly collapsed due to massive CDS obligations and was bailed out by the government.
Which countries were hit hardest after the U.S.?
The U.K., Ireland, Spain, and Iceland.
What key monetary policy did the Fed use to stimulate the economy?
It lowered interest rates close to zero and launched quantitative easing (QE).
How did the crisis affect public trust in financial institutions?
Trust declined sharply, leading to more interest in alternative finance and cryptocurrencies
Why did banks continue issuing loans to borrowers with poor credit histories?
Because they sold these loans quickly to investors, transferring the risk through MBS.
What role did credit rating agencies (Moody’s, S&P, Fitch) play in the crisis?
They gave overly high ratings to risky securities, misleading investors.
How did the crisis affect global trade?
Trade volumes fell sharply due to lower demand and liquidity shortages.
How did the U.S. government help stabilize the banking system?
It provided trillions of dollars in bailouts to banks and major corporations.
Why is the 2008 crisis often called “the most severe since the Great Depression”?
Because of its global scale and the depth of the economic downturn.
What are credit default swaps (CDS), and what role did they play in the crisis?
They are financial instruments for insuring against loan defaults; they amplified the crisis due to underestimated risks.
Why did Goldman Sachs survive the crisis relatively unscathed?
It reduced exposure early and received government support through TARP.
How did the role of the U.S. dollar change after the crisis?
Despite the turmoil, the dollar strengthened as a global “safe haven.”
What lessons did regulators learn from the crisis?
They strengthened financial oversight, risk management, and transparency standards.
What new economic trends emerged after the crisis?
A stronger role of governments, digitalization of finance, the rise of fintech, and interest in sustainable investing.