The subprime mortgage crisis of 2007-2008 was a major financial crisis that had a significant impact on the global economy. It was caused by the widespread use of subprime mortgages, which are home loans made to borrowers with poor credit histories. These loans often had high interest rates and unfavorable terms, and were issued to borrowers who could not afford to repay them.
The subprime mortgage crisis began in 2007, when many borrowers started defaulting on their loans. This caused a significant increase in foreclosures and a decline in the value of mortgage-backed securities. Many large financial institutions, including banks and investment firms, held these securities, and as a result, suffered huge losses.
The subprime mortgage crisis quickly spread to the broader financial system and became a global economic crisis. The crisis was characterized by a significant decline in the value of stocks, a drop in consumer confidence, and a sharp decrease in economic activity. In September 2008, the investment bank Lehman Brothers filed for bankruptcy, which created a panic in the financial markets and a credit freeze. This was a major turning point in the crisis, as it led to a loss of confidence in the financial system and a widespread contraction of credit.
The response to the subprime mortgage crisis was widespread and coordinated. The U.S. government and central banks around the world took measures to inject liquidity into the financial system and stabilize the markets. The U.S. government also passed the Troubled Asset Relief Program (TARP), which provided financial support to banks and other financial institutions.
The subprime mortgage crisis had far-reaching impacts on the global economy. It led to a sharp decrease in economic activity and employment, a significant decline in the value of stocks, and a loss of confidence in the financial system. It also exposed weaknesses in the regulatory system and led to calls for greater oversight of the financial sector.
In conclusion, the subprime mortgage crisis of 2007-2008 was a major financial crisis that had significant impacts on the global economy. It was caused by the widespread use of subprime mortgages and the collapse of the mortgage-backed securities market. The crisis led to a contraction of credit, a decrease in economic activity, and a loss of confidence in the financial system. However, the response of governments and central banks was swift and coordinated, and helped to prevent a deeper and more prolonged recession.