The Financial Crisis of 2008 in the USA: An Overview

This paper examines the origins of sub-prime mortgage market crisis and developments that transformed it into the most severe financial crisis of the United Sates (US) in history since the Great Depression of1930s. The crisis began with the problems of the mortgage market in the summer of2007. In September 2008, after the collapse of the one of the big investment banks of the US, Lehman Brothers, it gained another dimension and affected the financial markets of the world and the global economy. The main reason of the crisis was the existence of a real estate bubble in the US. This, in turn, was caused by the over expansionary monetary policies of the Federal Re¬serve Board since 2001 and global imbalances. With the explosion the real estate bubble, disruptive effects of the crisis on both the real economy and the financial system became more apparent. Among the others, the general loss of confidence on the future course of the economy, weak regulatory structure, over indebtedness, and increased risk appetite of investors were the factors that contributed to this deterioration. Authorities resort to vari¬ous policy measures in order to reduce the adverse effects of the crisis both at the macro and micro levels, and put them into practice. Yet till now, there is no wide agreement on the explanation of the main causes of the crisis, and what should be done in order to prevent a similar crisis in the future.