The 2008 financial crisis, also known as the global financial crisis (GFC) or the Panic of 2008, was a major worldwide financial crisis centered in the United States. The causes included excessive speculation on property values by both homeowners and financial institutions, leading to the 2000s United States housing bubble. This was exacerbated by predatory lending for subprime mortgages and by deficiencies in regulation. Cash out refinancings had fueled an increase in consumption that could no longer be sustained when home prices declined. The first phase of the crisis was the subprime mortgage crisis, which began in early 2007, as mortgage-backed securities (MBS) tied to U.S. real estate, and a vast web of derivatives linked to those MBS, collapsed in value. A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, which triggered a stock market crash and bank runs in several countries. The crisis exacerbated the Great Recession, a global recession that began in mid-2007, as well as the United States bear market of 2007–2009. It was also a contributor to the 2008–2011 Icelandic financial crisis and the euro area crisis.
During the 1990s, the U.S. Congress had passed legislation that intended to expand affordable housing through looser financing rules, and in 1999, parts of the 1933 Banking Act (Glass–Steagall Act) were repealed, enabling institutions to mix low-risk operations, such as commercial banking and insurance, with higher-risk operations such as investment banking and proprietary trading. As the Federal Reserve ("Fed") lowered the federal funds rate from 2000 to 2003, institutions increasingly targeted low-income homebuyers, largely belonging to racial minorities, with high-risk loans; this development went unattended by regulators. As interest rates rose from 2004 to 2006, the cost of mortgages rose and the demand for housing fell; in early 2007, as more U.S. subprime mortgage holders began defaulting on their repayments, lenders went bankrupt, culminating in the bankruptcy of New Century Financial in April. As demand and prices continued to fall, the financial contagion spread to global credit markets by August 2007, and central banks began injecting liquidity. In March 2008, Bear Stearns, the fifth-largest U.S. investment bank, was sold to JPMorgan Chase in a "fire sale" backed by Fed financing.
