How the global financial crisis - which first touched the UK when Northern Rock collapsed in 2007 - led to a long downturn from which the country has still not recovered. The global money markets froze, and banks and insurance companies in most of the developed world also suddenly found they could not borrow either.The chair of the Federal Reserve (the US’ central bank), Ben Bernanke, subsequently called it “the worst financial crisis in global history”.Central banks were forced to lend to banks on a colossal scale in order to prevent a cascade of financial sector bankruptcies of institutions even bigger than Lehman.
Please enter your number below.The official website for BBC History Magazine, BBC History Revealed and BBC World Histories MagazineThe 2008 crash was the greatest jolt to the global financial system in almost a century – it pushed the world's banking system towards the edge of collapse. Figures for more recent years are due in September. The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929.

Image caption 2008: The US's largest investment bank, Lehman Brothers, collapsed, sparking an unprecedented crisis in the global financial system. Securitization. “The new measures had the effect of smoothing the business cycle,” he said.

“Here, another crisis – one of sovereign debt – arose from the flawed design of the eurozone; this allowed countries such as Greece to borrow on similar terms to Germany in the confidence that the eurozone would bail out the debtors.“When the crisis hit, the European Central Bank refused to reschedule or mutualise debt and instead offered a rescue package – on the condition that the stricken nations pursued policies of austerity.”But, Newton explains, “the crash caught economists and commentators cold because most of them have been brought up to view the free market order as the only workable economic model available. We explore the causes and consequences of the crash, consider its historical parallels, and ask – how will history remember the crisis? Our best wishes for a productive day.


Banks started charging high rates of interest to lend to other banks and institutions who, they suspected, might be sitting on massive unrecognised losses. The Corus steelworks at Redcar, Teesside, northern England is seen in this January 26, 2009 file photograph. This was not some random shock which upset a well-functioning system.The financial system had been under severe stress for more than a year previously. However, the risks were apparent to those who considered that an economy is inherently prone to shocks.”Newton adds that the 2008 crisis “was more sudden than the two previous crashes of the post-1979 era: the property crash of the late 1980s and the currency crises of the late 1990s. Another large US investment bank, Bear Stearns, had been rescued in March. Both involved reckless speculation, loose credit, and too much debt in asset markets, namely, the housing market in 2008 and the stock market in 1929. By contrast, in 2009 - when the economy was thought to have shrunk by 5.2 percent - output in fact declined by only 4.1 percent. There seems to be a problem, please try again.

And this was true not just in the US and the UK but across Europe too. Thank you for subscribing to HistoryExtra, you now have unlimited access.

Austerity led to national and international slowdowns, notably in the UK and the eurozone. It did not, however, provoke a slump – largely thanks to massive spending on the part of China, which, for example, consumed 45 per cent more cement between 2011 and 2013 than the US had used in the whole of the 20th century.”Daunton adds: “Quantitative easing worked in stopping the crisis becoming as intense as in the Great Depression. It is the first major bank to acknowledge the risk of exposure to sub-prime mortgage markets. “Following the ideas of [influential interwar economist] John Maynard Keynes, governments didn’t use public spending cuts as a means of reducing debt. The biggest changes were for 2007 and 2009. Please continue to respect all commenters and create constructive debates.Are you sure you want to mark this comment as inappropriate?Please be respectful when making a comment and adhere to our There are no Independent Premium comments yet - be the first to add your thoughtsPlease be respectful when making a comment and adhere to our There are no comments yet - be the first to add your thoughtsA man carries a box from Lehman Brothers' offices in London after the bank failed in 2008How Lehman Brothers caused 'the worst financial crisis in history' “All this is a useful reminder that policymakers and investors have to take account of possible future revisions -which may take years to come through - when assessing UK GDP data,” he added. And could something similar happen again?The US government refused to bail out Lehman Brothers, which was finding it impossible to roll over its borrowings in the markets.The Wall Street bank was, instead, allowed to go bust.That failure of a systemically-important financial institution with some $700bn (£538bn) of liabilities created a seismic shock to the entire global financial system. In the long term, the impact of the crash has been enormous: depressed wages, austerity and deep political instability.

Ten years on, we’re still living with the consequences.This article was compiled from a feature in the October 2018 issue of If you subscribe to BBC History Magazine Print or Digital Editions then you can unlock 10 years’ worth of archived history material fully searchable by Topic, Location, Period and Person. Property prices now started to fall, leading to a collapse in the values of the assets held by many financial institutions. The financial crisis.


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