Historically, less than 8% of home loans given out annually were subprime loans. The European Debt Crisis also followed soon after the 2008 crash, and many countries that use the Euro currency found difficulty in meeting various financial obligations. Some large banks who were also heavily invested in the financial instruments experienced a liquidity (cash) crisis due to the devaluation. Recently, we wrote about how general stock market crashes are infrequent. The effects will still be felt by the world economy for years to come. Furthermore, Hamilton argues that if oil had not gone up to such a high price the United States' economy would have never been in recession territory - the U.S economy would have continued to grow had oil prices been stable. Some of these banks were massive, and the scope of their bad lending and credit assets was astonishing. By 2009, housing prices had fallen 30% from their 2006 peak…if (location.search.indexOf("continueReading=1") >= 0) { jQuery(window).load(function() { jQuery(window).scrollTop(jQuery("#continueReading").offset().top - 35); });}, Join the conversation. The real estate 'bubble' would eventually burst and house prices dropped significantly due to a large number of people defaulting on their high-risk mortgages.

In total, 14 billion dollars of wealth were lost during the market crash. From 1996 to 2006, home prices nearly doubled. Banks were heavily invested in stocks, and individual investors borrowed on margin to invest in stocks. When the bubble burst, prices quickly plunged. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. This period was challenging for many of the larger financial institutions who had taken on risky mortgage bundles from others. The ratio of debt to disposable personal income almost doubled from 77% in 1990 to 127% by the end of 2007. The 2008 stock market crash destroyed $16.4 trillion of American households' net worth from 2007 through 2009. The effects will still be felt by the world economy for years to come. During that time, the Dow hit these gloomy milestones: Here's a look at the events that caused the stock market crash of 2008….
This act would end up costing every single United States citizen at the time around $2,200 each, which is staggering. Was it a political root cause? The United States and the United Kingdom stock exchanges were both stricken by the unstable economic conditions at this time. Robert Shiller's Home Price Index went from 87.0 to 160.6.
It wiped out more than $2 trillion of Americans' retirement savings. Required fields are marked *, Sign me up for the Money Morning newsletter.

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