Financial Crises: An Overview

Abstract

In 2008, problems that originated in the U.S. subprime mortgage market set off a world-wide financial crisis of a magnitude not witnessed in 75 years. In the United States, this calamity ended up throwing millions of people out of work, wiping out trillions of dollars of household wealth, causing countless families to lose their homes, and bankrupting thousands of business firms, including more than 250 banks. The financial crisis led directly to fiscal crises in nearly every state in the union and drove the federal budget deficit into territory previously experienced only in the exigent circumstances of all-out war. Financial crises can be devastating, and this one ranks among the most damaging in its ramifications because, unlike the Latin American and Russian crises of the 1980s and 1990s, it originated in the world’s most important financial center.