The 2008 crisis, more precisely from September, was preceded by a period of stable economic growth and low inflation in the USA, providing a voracious appetite in the global environment for risky investments.
Causes of the 2008 crisis
An important aspect to consider when it comes to the economic crisis of 2008, the biggest in the history of capitalism since the Crisis of 1929 , was its origin as a result of two wars – the Afghan War in 2001 and the Iraq War in 2003, which broke out after the September 11, 2001 terrorist attacks in the United States. These wars continued until the early 2010s, forcing the government to spend a lot of money.
According to Relationshipsplus, in addition to the high military spending, which caused major imbalances in public accounts, the United States still suffered from terrible deficits in the trade balance. Instead of the government reducing high spending, it raised large sums of capital in the international financial market, mainly from China and England.
Banks also received large investments from abroad. With money injected from abroad and low inflation that forced the Central Bank (called the FED – Federal Reserve System, better known as the Federal Reserve and, informally, as The FED) to adopt low interest rates to encourage consumption, banks they started offering more credits , including to customers considered to be high risk (known as subprime – translated as “second line”) who had bad credit histories. As the economy was growing strongly, banks saw the possibility of greater gains in these customers.
With the large supply of low interest loans, the population started to buy a lot, mainly real estate , quickly valuing the real estate sector with rising prices and financing the housing bubble that would trigger the crisis.
The mortgage contracts were ingeniously transformed by banks in securities (stocks) low risk of default ( default ) and sold to other financial institutions. All of this without a more coordinated regulation of financial markets by the government.
Even in an environment with higher risk operations, investors were not reluctant to purchase securities linked to the real estate market, especially since the risk rating agencies offered an AAA rating , the highest quality for this type of investment.
The detail is that the risky agencies are remunerated by banks with operations with bonds linked to the real estate sector and supposedly can please the financial institutions that request the analyzes.
Another problem is that subprime mortgages have floating interest rates that rise according to the oscillations of the economy, that is, they rise when the economy gets bad.
Consequences of the 2008 crisis
The time came when the interest rate started to rise, reducing the demand for real estate and causing the consequent drop in prices, as the housing bubble had burst. Default was inevitable.
For example, there was no logic in paying a high mortgage on a property that was worth $ 1 million and that suddenly was worth $ 750,000. At that time, the banks lacked money to honor their commitments to mortgage lenders, in view of the high default rate of the population.
At first, mortgage, financial and insurance institutions received financial assistance from the government of George W. Bush (of the Republican Party). But as a result of political pressure, the government has refused to grant guarantees for an operation to buy Lehman Brothers by British bank Barclays. On September 15, 2008, the Lehman Brothers bank (founded in 1850) went bankrupt.
There was widespread panic and declining credit with the closing of the fourth largest credit bank in the United States, in addition to sinking stock exchanges around the world, raising the alarm about the size of the global crisis.
The crisis came, drying up corporate and individual credit. Many companies, unable to borrow to pay employees and suppliers, canceled investments and, consequently, reduced the number of employees.
Unemployment has hit the working class drastically. The banks moved on to liquidity – the sale of properties that were being taken over by defaulters, which caused even more the fall in the price of properties.
The domino effect was inevitable. As the United States is the largest economy in the world, the crisis has affected economies on a global scale. Stock exchanges were affected due to the fall in the market, of the value of the shares; in addition, the prices of industrialized products and commodities fell in the face of the economic recession.
The neoliberalism (state presence reduction policy on the market), which spread around the world after the Washington Consensus (US and UK in the 1980s), and especially with globalization from the 1990s, came into check in the face of the crisis that started in the housing market and contaminated the rest of the economic sectors.
State intervention in the market was the way out of the crisis: a policy of public stimulus was applied to the economy by President Barack H. Obama (of the Democratic Party), elected in 2008 and re-elected in 2012.