Photo courtesy of chascar (via flickr)

Photo courtesy of chascar (via flickr)

In 2008, the United States experienced a major financial crisis which led to the most serious recession since the Second World War.  Both the financial crisis and the downturn in the U.S. economy spread to many foreign nations, resulting in a global economic crisis.

On September 15, 2008, Lehman Brothers, one of the largest investment banks in the world, failed.  Over the next few months, the US stock market plummeted, liquidity dried up, successful companies laid off employees by the thousands, and for the first time there was no longer any doubt a recession was upon the American people.

Eleven months after the fall of Lehman Brothers, the U.S. remains in a state of limbo. Proposals for stimulus packages and other bailout plans have provided some relief, but it seems the most effective remedy thus far has been time.

This study explores the crisis. It is not a summary of events, but rather an attempt to explain the main features of the financial and economic disturbance we are currently experiencing.

This study consists of several inter-related parts:

1. An executive summary of our analysis.  This can be reached by clicking on the tab above.

2. A timeline for the US financial crisis, the US recession, and the international impacts of both.  The timeline can be viewed filtering for any of four categories: US financial crisis, US recession, Global events, and Policy responses.  The timeline is available via the tab above.

3. A detailed analysis of the causes of the financial crisis, the recession and the global impacts of both, and a description of how each is playing out.  The analysis is divided into sections which can be reached either from the home page or via the links in the sidebar to the right.

4. A set of references for more detailed information.

Let’s start with some basics. What do we mean by the term financial crisis in this context? How was this crisis different from financial market declines in the past? What made this event a crisis was not the substantial decline in the housing or stock markets. Nor was it the failure of major financial institutions, like Bear Sterns or Lehman Brothers. What made this a crisis was the freezing of credit markets,in September 2008, during which for a brief period no private lending was available at any price in several of the major credit markets.

Some have questioned why the US Government has been less generous with bailout funds for the housing and automobile industries than it was with Wall Street. The answer is the crux of what made this a crisis. In a critical sense, financial business *is* more important than other industries, because finance is necessary for every business to operate successfully. Lack of access to credit would cause even profitable businesses to close down. Thus, without a successful financial bailout, all industries would have suffered catastrophically.