The stock market crash of 2008 was the biggest single-day drop in history up to that point. The aftermath of this catastrophic financial event wiped out big chunks of Americans’ retirement savings and affected the economy long after the stock market recovered.
What was the biggest stock market crash ever?
- Stock market crashes can leave positive legacies in their wake — even though they cause plenty of immediate pain.
- In the US, stock market crashes led to the creation of the Federal Reserve System, the SEC, and the FDIC.
- While the triggers for stock market crashes vary, the ultimate outcome is always the same: the market recovers.
What was the worst market crash?
The Wall Street Crash, or better known as the Great Crash, was the American stock market crash that occurred in 1929. The crash started in September and ended in October when share prices on NYSE collapsed. It was one of the worst stock market crashes in history. The crash followed the London Stock Exchange’s crash of September.
When was the last stock market crash?
Accumulating your wealth can take years. And if the stock market crashes, you can lose a large sum of money in a short period of time. But those losses are temporary and if you can stay invested, you should earn everything back. The last three stock market crashes happened in 2000 through 2002, 2008, and in March 2020.
When will the stock market collapse?
“Stocks are on their last legs,” he declares, predicting that the market will plummet 80%. Indeed, in the first two to three months of 2022, it will drop more than 50%, Dent, a Harvard Business School MBA, foresees. The essential problem, he says, is that “the market bubble is expanding; the economy is slowing rapidly.”
How bad was the market crash of 2008?
The stock market crash of 2008 occurred on September 29, 2008. The Dow Jones Industrial Average fell by 777.68 points in intraday trading. Until the stock market crash of March 2020 at the start of the COVID-19 pandemic, it was the largest point drop in history.
How long did it take for stock market to recover after 2008?
The S&P 500 dropped nearly 50% and took seven years to recover. 2008: In response to the housing bubble and subprime mortgage crisis, the S&P 500 lost nearly half its value and took two years to recover. 2020: As COVID-19 spread globally in February 2020, the market fell by over 30% in a little over a month.
Why was the 2008 crash so bad?
The cause of the meltdown was the deregulation of derivatives that was so complicated that even their originators didn't understand them. Banks became so quick to resell mortgages on the secondary market that they felt immune to the dangers of taking riskier and riskier mortgages.
Did any stocks do well in 2008?
Top 10 Stocks in the S&P 500 by Total Return During 2008Company Name (Ticker)1-Year Total ReturnIndustryDollar Tree Inc. (DLTR)60.8%Discount StoresVertex Phamaceuticals Inc. (VRTX)30.8%BiotechnologyH&R Block Inc. (HRB)25.8%Personal Services7 more rows
Do you lose all your money if the stock market crashes?
Do you lose all the money if the stock market crashes? No, a stock market crash only indicates a fall in prices where a majority of investors face losses but do not completely lose all the money. The money is lost only when the positions are sold during or after the crash.
Will the stock market crash again in 2022?
Nope! They're more concerned about what will happen five, 10 or even 20 years from now. And that helps them stay cool when everyone else is panicking like it's Y2K all over again. Savvy investors see that over the past 12 months (from May 2021 to May 2022), the S&P 500 is only down about 5%.
Who got rich during the 2008 financial crisis?
Hedge fund manager John Paulson reached fame during the credit crisis for a spectacular bet against the U.S. housing market. This timely bet made his firm, Paulson & Co., an estimated $2.5 billion during the crisis.
Which was worse the Great Depression or the recession of 2008?
Key Takeaways. In terms of length and depth, the Great Depression was far worse and had a long-lasting impact than the Great Recession. The Great Recession span was around 19 months, and the US economy contracted by ~4%.
Who is to blame for the Great Recession of 2008?
The Biggest Culprit: The Lenders Most of the blame is on the mortgage originators or the lenders. That's because they were responsible for creating these problems. After all, the lenders were the ones who advanced loans to people with poor credit and a high risk of default. 7 Here's why that happened.
How do you get rich in a recession?
5 Things to Invest in When a Recession HitsSeek Out Core Sector Stocks. During a recession, you might be inclined to give up on stocks, but experts say it's best not to flee equities completely. ... Focus on Reliable Dividend Stocks. ... Consider Buying Real Estate. ... Purchase Precious Metal Investments. ... “Invest” in Yourself.
Who suffers the most during a recession?
Using population survey and national time-series data, Hoynes, Miller, and Schaller find that in terms of job losses, the Great Recession has affected men more than women. But their analysis also shows that in previous recessions and recoveries, men experienced more cyclical labor market outcomes.
What should you buy in a recession?
During a recession, some sectors of the economy tend to outperform others as consumer needs shift....Sectors that tend to perform well during recessionsCommunication services.Consumer discretionary.Consumer staples.Energy.Financials.Health care.Industrials.Information technology.More items...
Why did the housing market crash in 2007?
Starting in 2007, the United States housing market began to show signs of toxicity with many lenders having given out too many mortgages to clients who were unable to meet their financial obligations to the lender and were consequently defaulting on their mortgages. Lenders in the private sector had been somewhat predatory with their lending, knowing their clients were not financially capable of paying their loans, but still lent the money anyway. These bad loans started to pile up, and many began to default on their payments, sometimes even losing their home. Many of these mortgages were bundled together and sold to bigger financial institutions (such as Fannie Mae and Freddie Mac) and were backed by insurance which is known as credit default swap insurance. Because lenders could pass on the risks of lending to another person, criteria to take out a large mortgage loan became increasingly lax, and many who were financially unable to meet their obligations for a loan were still granted one if not multiple.
What was the economic downturn in 2008?
The Great Recession. Following the 2008 crash, there was a period of global economic downturn called The Great Recession in which global economic activity was slowed substantially. The European Debt Crisis also followed soon after the 2008 crash, and many countries that use the Euro currency found difficulty in meeting various financial obligations.
What was the worst economic crisis since the 1930s?
The 2008 Global Recession has been described as the worst economic crisis since the 1930s. The 2008 stock market crash is considered by many economists to be the worst global financial crisis since the Great Depression in the 1930's.
How much did the stock market lose in October?
One week in October (the 6th until the 10th) saw the United States stock exchange lose about 18% of its value and the London stock exchange losing 21% of its value. The International Monetary Fund warned that the world financial system was on the brink of meltdown.
When did Lehman Brothers go bankrupt?
On September 15, 2008, the large American bank Lehman Brothers filed for bankruptcy, and the global stock market began to unravel. This situation began evolving into a full-blown economic crisis, causing banks in Europe to collapse as well as 15 banks or private lenders in the United States to go bankrupt during September of 2008 alone.
Who was the economist who predicted the 2008 global economic crisis?
James D. Hamilton, an economist from the United States, claims that oil prices skyrocketing through 2007 and 2008 were a significant factor in the global economic crisis of 2008.
Why did the US government bail out banks?
Various fiscal policies were adopted by governments around the world to prevent a collapse of the world's financial system and some governments even bailed out banks with taxpayer money to prevent irreversible damage. These bailouts were laughable because many bankers had proclaimed that free-market capitalism was the way forward for the world economy. In the United States, the Emergency Economic Stabilization Act was swiftly passed through government, and this act allowed the government to purchase up to $700 billion of assets from banks that had been deemed unstable or toxic to stabilize the economy. This act would end up costing every single United States citizen at the time around $2,200 each, which is staggering.
What was the financial crisis of 2008?
The 2008 financial crisis had its origins in the housing market, for generations the symbolic cornerstone of American prosperity. Federal policy conspicuously supported the American dream of homeownership since at least the 1930s, when the U.S. government began to back the mortgage market. It went further after WWII, offering veterans cheap home loans through the G.I. Bill. Policymakers reasoned they could avoid a return to prewar slump conditions so long as the undeveloped lands around cities could fill up with new houses, and the new houses with new appliances, and the new driveways with new cars. All this new buying meant new jobs, and security for generations to come.
What was the Commodity Futures Modernization Act of 2000?
Congress gave them one way to do so in 2000, with the Commodity Futures Modernization Act, deregulating over-the-counter derivatives—securities that were essentially bets that two parties could privately make on the future price of an asset. Like, for example, bundled mortgages.
Why did the mortgage salesmen make these deals without investigating a borrower's fitness or a property's
The salesmen could make these deals without investigating a borrower's fitness or a property's value because the lenders they represented had no intention of keeping the loans. Lenders would sell these mortgages onward; bankers would bundle them into securities and peddle them to institutional investors eager for the returns the American housing market had yielded so consistently since the 1930s. The ultimate mortgage owners would often be thousands of miles away and unaware of what they had bought. They knew only that the rating agencies said it was as safe as houses always had been, at least since the Depression.
What did Jim Bunning call the bailouts?
Senator Jim Bunning of Kentucky called the bailouts "a calamity for our free-market system" and, essentially, "socialism"—albeit the sort of socialism that favored Wall Street, rather than workers. Earlier in the year, Paulson had identified Lehman as a potential problem and spoke privately to its chief executive, Richard Fuld.
What was the financial environment like in the early 21st century?
The financial environment of the early 21st century looked more like the United States before the Depression than after: a country on the brink of a crash. pinterest-pin-it. An employee of Lehman Brothers Holdings Inc. carrying a box out of the company's headquarters after it filed for bankruptcy.
When did Paulson say the government would not rescue Lehman?
By the weekend of September 13-14, 2008, Lehman was clearly finished, with perhaps tens of billions of dollars in overvalued assets on its balance sheets.
What was the only institution the bankers trusted?
After decades of trying to push the U.S. government out of banking, it turned out that in the end, the U.S. government was the only institution the bankers trusted.
What happened in 2008?
By the fall of 2008, borrowers were defaulting on subprime mortgages in high numbers, causing turmoil in the financial markets, the collapse of the stock market, and the ensuing global Great Recession.
How much did the Dow drop in 2008?
The Dow would plummet 3,600 points from its Sept. 19, 2008 intraday high of 11,483 to the Oct. 10, 2008 intraday low of 7,882. The following is a recap of the major U.S. events that unfolded during this historic three-week period.
What mortgages are lethal?
Among the most potentially lethal of the mortgages offered to subprime borrowers were the interest-only ARM and the payment option ARM, both adjustable-rate mortgages (ARMs). Both of these mortgage types have the borrower making much lower initial payments than would be due under a fixed-rate mortgage. After a period of time, often only two or three years, these ARMs reset. The payments then fluctuate as frequently as monthly, often becoming much larger than the initial payments.
How much credit did Fannie Mae and Freddie Mac extend in 2002?
As of 2002, government-sponsored mortgage lenders Fannie Mae and Freddie Mac had extended more than $3 trillion worth of mortgage credit. In his 2002 book Conquer the Crash, Prechter stated, "confidence is the only thing holding up this giant house of cards.". 2 .
What bank did the FDIC take over?
After a 10-day bank run, the Federal Deposit Insurance Corporation (FDIC) seizes Washington Mutual, then the nation's largest savings and loan, which had been heavily exposed to subprime mortgage debt. Its assets are transferred to JPMorgan Chase (JPM). 8
When did the subprime mortgage market start?
Read on to learn how the explosive growth of the subprime mortgage market, which began in 1999, played a significant role in setting the stage for the turmoil that would unfold just nine years later in 2008 when both the stock market and housing market crashed.
What bank bought Merrill Lynch?
Panic ensued in the money market fund industry, resulting in massive redemption requests. On the same day, Bank of America (BAC) announced it was buying Merrill Lynch, the nation's largest brokerage company.
Why did the stock market crash in 2008?
In all, the stock market crash 2008 as a result of a series of events that eventually led to the failure of some of the largest companies in the US.
What was the impact of the 2008 stock market crash?
There is no doubt behind the saying, that the crash pushed the banking system towards the edge of collapse.
What was the Dow value in September 2008?
The day was ended at the Dow value of 11,388.44. On September 20, 2008, the bank bailout bill was sent to Congress by Secretary Paulson and Federal Reserve Chair. The Dow fell to 777.68 points during the intraday trading that increased panic in the Global Market.
How many points did the Dow drop in 2008?
By September 17, 2008, the Dow fell by 446.92 points. By the end of the week on September 19, 2008, the Fed established the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility that committed to offer loans to banks to buy Commerical paper from the money market funds.
How much did the Fed lose from Lehman Brothers?
By making $85 billion loans for 79.9% equity the Fed took ownership of the AIG. With the collapse of Lehman Brothers, there was a loss of $196 billion that increased the panic among many businesses. Bank has driven up the rates as they were afraid to lend money. By September 17, 2008, the Dow fell by 446.92 points.
What was the fourth cause of the 2008 financial crisis?
The fourth cause of the crash of 2008 was found to be the depression era Glass Steagall Act (1933) that allowed banks, securities firms and other insurance companies to enter into each other’s markets resulting in the formation of the bank that was too big to fail.
What were the causes of the Federal Reserve's crash?
Some of the top reasons for the crash are: Mild Recession in the Federal Reserve. Federal Reserve the Central Bank was facing a mild recession since 2001. The recession period resulted in the reduction of the federal funds rate from 6.5 to 1.75 from May 2000 to December 2001.
The Beginning
In the late 90s, the Federal National Mortgage Association, commonly known as Fannie Mae, began its crusade to fulfilling the American dream. A dream of homeownership that would allow thousands of Americans with low credit scores to have easy access to loans.
Introducing the Mortgage Backed Security
When you invest in gold bonds, you are investing in a security backed by gold and receive a periodic payment known as a coupon payment. With the housing market seeing a huge upswing, banks decided to package all the subprime mortgages into a security known as a Mortgage Backed Security (MBS).
The Beginning of the End
In 2007, the housing market had started to witness a slowdown, which seemingly did not impact the views of leading economists to trigger an alarm for an incoming recession. On October 9th, 2007, the Dow hit its peak closing at 14,164.53.
September 2008
While the stock market was seemingly afloat with the government announcing bailouts, on September 15th, 2008, major investment bank Lehman Brothers announced its bankruptcy due to overexposure to subprime mortgages, making it the largest bankruptcy filing in U.S. history and shocking the stock market with a 499 point decline the following day.
The Aftermath
U.S. economy had lost hundreds of thousands of jobs, peaking the unemployment rate to 10%
The Bottom Line
The stock market crash of 2008 was a series of events that led to one of the biggest failures in U.S. history. A housing market bubble, created by relaxed borrowing guidelines and complex investment instruments, resulted in many job losses, homes and retirement savings.
What Can We Learn From the Stock Market Crash of 2008?
If there is one thing we all could learn from the 2008 crash, it is the fact that a market goes through cycles, and there will never be a constant bull market or a constant bear market.
How much did the Dow Jones Industrial Average drop in 2008?
The Dow Jones Industrial Average plunged 54% in 17 months. In 2008 alone, the DJIA suffered five out of its top 10 largest daily point losses in history - it sank 429 points in just five minutes on Sept. 29, after the U.S. House of Representatives failed to bail out $700 billion in bank debt. Shortly thereafter, the Dow plummeted 18% (1,874 points) ...
How much did Fuld make in 2007?
Fuld, who'd earned a salary of $34 million in 2007, and $40.5 million in 2006, managed to save much of his wealth despite his bad behavior. For example, on Nov. 10, 2008, he "sold" his $13.75 million Florida mansion to his wife for $100 to protect his assets.
What was the settlement for Mozilo?
On Oct. 15, 2010, he settled with the SEC for securities fraud and insider trading. He paid $67.5 million in fines - the largest settlement by an executive connected to the stock market crash. Mozilo never admitted to any wrongdoing and was never pursued criminally.
When did Lehman Brothers file for bankruptcy?
In 2008, three of the largest American investment banks fell, and Lehman Brothers was the first to go. It filed for Chapter 11 bankruptcy protection on Sept. 15, 2008 – the largest in U.S. history at $613 billion in debts outstanding.
Who was the CEO of Countrywide Financial Corp?
Mozilo served as cofounder and CEO of Countrywide Financial Corp. He's now widely regarded as the poster child of corporate misbehavior that led to the 2008 U.S. stock market crash.
Did Mozilo escape the SEC?
While execs like Mozilo cashed out, the company's shareholders hemorrhaged - Countrywide investors suffered a more than $25 billion decline in market capitalization. Mozilo didn't escape the crisis totally unscathed. On Oct. 15, 2010, he settled with the SEC for securities fraud and insider trading.
2007
2008
- At the end of January, the BEA revised its fourth-quarter 2007 GDP growth estimate down.9 It said growth was only 0.6%. The economy lost 17,000 jobs, the first time since 2004.10 The Dow shrugged off the news and hovered between 12,000 and 13,000 until March.2 On March 17, the Federal Reserve intervened to save the failing investment bank, Bear Stearns. The Dow dropped …
September 2008
- The month started with chilling news. On Monday, September 15, 2008, Lehman Brothers declared bankruptcy. The Dow dropped more than 200 points.2 On Tuesday, September 16, 2008, the Fed announced it was bailing out insurance giant American International Group Inc. It made an $85 billion loan in return for 79.9% equity, effectively taking ownership. AIG had run out of cash. It wa…
October 2008
- Congress finally passed the bailout bill in early October, but the damage had already been done.24 The Labor Department reported that the economy had lost a whopping 159,000 jobs in the prior month.25 On Monday, October 6, 2008, the Dow dropped by 800 points, closing below 10,000 for the first time since 2004.26 The Fed tried to prop up banks by lending $540 billion to money mar…
November 2008
- The month began with more bad news. The Labor Department reported that the economy had lost a staggering 240,000 jobs in October.34 The AIG bailout grew to $150 billion.35 The Bush administration announced it was using part of the $700 billion bailouts to buy preferred stocks in the nations' banks.36 The Big Three automakers asked for a federal bailout. By November 20, 20…
December 2008
- The Fed dropped the fed funds rate to 0%, its lowest level in history.29 The Dow ended the year at a sickening 8,776.39, down almost 34% for the year.2
2009
- On January 2, 2009, the Dow climbed to 9,034.69.2 Investors believed the new Obama administration could tackle the recession with its team of economic advisers. But the bad economic news continued. On March 5, 2009, the Dow plummeted to its bottom of 6,594.44.37 Soon afterward, President Barack Obama's economic stimulus plan instilled the confidence nee…
Aftermath
- Investors bore the emotional scars from the crash for the next four years. On June 1, 2012, they panicked over a poor May jobs report and the eurozone debt crisis. The Dow dropped 275 points.39 The 10-year benchmark Treasury yield dropped to 1.47.40 This yield was the lowest rate in more than 200 years.41It signaled that the confidence that evaporated during 2008 had not q…
The Beginnings
The Collapse of Commodities
- The prices of commodities such as oil, which had tripled in price-per-barrel over one year from 2007-2008, also collapsed, leaving many Middle Eastern and other oil producers scrambling to recover from a massive dent in their revenue streams. Investment firms and financial management agencies who had invested heavily in the seemingly never-ending commodity boo…
Bank Failure
- The combination of the housing and mortgage crisis as well as the bad lending that had been going on for years caused some banks to begin to fail. Some of these banks were massive, and the scope of their bad lending and credit assets was astonishing. On September 15, 2008, the large American bank Lehman Brothers filed for bankruptcy, and the global stock market began t…
Bank Bail Out
- Various fiscal policies were adopted by governments around the world to prevent a collapse of the world's financial system and some governments even bailed out banks with taxpayer money to prevent irreversible damage. These bailouts were laughable because many bankers had proclaimed that free-market capitalism was the way forward for the world economy. In the Unite…
The Great Recession
- Following the 2008 crash, there was a period of global economic downturn called The Great Recession in which global economic activity was slowed substantially. The European Debt Crisis also followed soon after the 2008 crash, and many countries that use the Euro currency found difficulty in meeting various financial obligations. The Euro crisis was...