The 2008 financial crisis, resulting in the Great Recession, is regarded to be the worst economic disaster since the stock market crashed in 1929. How did it happen, and where are we with the financial crisis 10 years later? We take a look back at how things were then, and where we stand today.
Causes of the financial crisis
When we think about the tipping point for the financial crisis, we must first look at the housing market around that time. The housing market had been struggling since 2006, and the Fed stepped in to try and stop the damage. Ultimately, their goal was to lower LIBOR and keep mortgages from spiraling out of control. Instead of helping the situation, however, matters were only made worse.
Fannie Mae and Freddie Mac were two companies that played a central role in the crisis as well. Considered “too big to fail” they took on increasing amounts of debt with a sort of implicit guarantee that if they ever ran into trouble, the government would bail them out before it got to be problematic.
We know how the rest of this story goes. By September 2008, Fannie and Freddie and other major banks were bailed out by the federal government. By July 2009, the financial crisis was technically ended thanks to the American Recovery and Reinvestment Act. However, the ramifications of these events are still felt today.
Are we headed toward another financial crisis?
Though the unemployment rate is at an 18-year low as of this year, home ownership still hasn’t fully recovered. Many of those people affected by the housing market crisis 10 years ago still have damaged credit.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Consumer Financial Protection Bureau were both created as government oversight to try and prevent such a crisis from happening again. Earlier this year, significant rollbacks to Dodd-Frank were passed allowing for more bank deregulation. Now that we are looking at the financial crisis 10 years later, it’s important to keep in mind what led to these events and avoid the same mistakes.
Be prepared with Chatterton and Associates
If you have concerns about the economy, talk with your financial advisor about the best route for you – it never hurts to be prepared! Our team will gladly help you consider your options.
The Team at Chatterton & Associates