The TED spread (in red), an indicator of perceived risk in the general economy, increased significantly during the financial crisis, reflecting an increase in perceived credit risk. The Basel III capital and liquidity standards were also adopted by countries around the world. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US as a response to the crisis to "promote the financial stability of the United States". The recession was a significant precondition for the European debt crisis. The crisis sparked the Great Recession which resulted in increases in unemployment and suicide, and decreases in institutional trust and fertility, among other metrics. In the U.S., the October 3, $800 billion Emergency Economic Stabilization Act of 2008 failed to slow the economic free-fall, but the similarly-sized American Recovery and Reinvestment Act of 2009, which included a substantial payroll tax credit, saw economic indicators reverse and stabilize less than a month after its February 17 enactment. Īfter the onset of the crisis, governments deployed massive bail-outs of financial institutions and other palliative monetary and fiscal policies to prevent a collapse of the global financial system. This market development went unattended by regulators and thus caught the U.S. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Congress had passed legislation encouraging financing for affordable housing. The preconditioning for the financial crisis was complex and multi-causal. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis. Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Predatory lending targeting low-income homebuyers, excessive risk-taking by global financial institutions, and the bursting of the United States housing bubble culminated in a " perfect storm". It was the most serious financial crisis since the Great Depression (1929). The 2007–2008 financial crisis, or Global Financial Crisis ( GFC), was a severe worldwide economic crisis that occurred in the early 21st century.
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