2008 Recession

The subprime mortgage crisis was the initial cause of the 2008 financial crisis, which then led to the worst recession since the Great Depression. The subprime crisis unfolded, flattening the real estate market, creating the 2007 banking crisis and finally leading to the global recession. The Federal Reserve and Treasury Department aggressively tried to prevent the U.S. banking system from collapsing. As a result of the recession, housing prices fell 31.8%, more than during the depression. Two years after the recession ended, unemployment was still above 9% according to the National Bureau of Economic Research, -- and that's not counting those who had given up looking for work and were no longer counted among the unemployed. The first sign that the economy was in trouble was when housing prices started to drop in 2006. However, at that time realtors were relieved. It was felt that the overheated housing market would safely return to a more sustainable level. What realtors didn't realize was the number of homeowners with questionable credit who had loans for 100% (or more) of their home's value. Banks had resold these mortgages in packages as part of mortgage-backed securities. Initially, the Federal Reserve thought the damage from the subprime mortgage crisis would remain isolated to housing. However, hedge funds and other financial institutions around the world owned them. They were in mutual funds, corporate assets and pension funds. Since the original mortgages had been chopped up and resold in pieces, the actual derivatives were impossible to price. That's why their value on the secondary market plummeted as investors panicked.