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Subprime Mortgage Crisis
In early 2000s the housing market was booming, banks began giving subprime mortgages to people with low credit ratings (loaning money to people who were less likely to pay it back and charging higher interest rates). Then in 2007 the housing bubble burst and prices dropped rapidly. People stopped investing and people weren't able to pay their mortgages; houses went into foreclosure and banks collapsed. -
Recession Declared
Recession declared after two consecutive quarters of declining economic growth. At the beginning of the downturn, the U.S. unemployment rate is 5 percent. -
Bank Bailouts
The U.S. government bails out Citigroup. Struggling automakers General Motors and Chrysler receive a combined $80.7 billion TARP funds to remain afloat and keep workers employed. Then the U.S. government bails out Bank of America, $20 billion in federal funds and $100 billion in guarantees in subprime mortgages and other toxic assets. It’s the second largest bank bailout of the recession. -
Fed Drops Short-Term Interest Rates
The U.S. Federal Reserve drops short-term interest rates to 3 percent, marking the fourth time they have reduced interest rates since September 2007, when rates were 5.25 percent. -
Economic Stimulus Act of 2008
President George W. Bush signs the Economic Stimulus Act of 2008 into law. The legislation provides many Americans with income tax rebates and gives tax breaks for businesses. -
Bear Sterns Collapses
After losing billions in subprime mortgage investments, 85-year-old brokerage firm Bear Stearns collapses. Then IndyMac, a mortgage lender that includes Countrywide Financial, collapses, and its assets are seized by the U.S. government. Also the U.S. Treasury takes over management of Freddie Mac and the "Fannie Mae". The two companies had guaranteed 80 percent of U.S. home mortgages, 30 percent of which are valued at less than the total mortgage loan at the time of the takeover. -
Lehman Brothers Bankruptcy
Brokerage firm Lehman Brothers declares bankruptcy. It’s the largest bankruptcy case in U.S. history, involving $619 billion in debts.
The U.S. government announces plans to bail out insurance company AIG, paying $85 billion for 80 percent of the company’s assets. AIG had been considered one of the companies that was “too big to fail”—meaning its collapse would pose a threat to American financial stability. -
Troubled Asset Relief Program
The Troubled Asset Relief Program (TARP) is signed into law by President Bush. The legislation commits $700 billion in federal taxpayer funds toward the purchase of mortgage-backed securities and other assets from struggling financial institutions in an effort to restore confidence in the credit markets. All while the stock market is plunging. -
GM files for bankruptcy
GM files for bankruptcy, announcing plans to close 14 factories, despite having received TARP funds. -
End of Great Recession
The end is in sight as housing foreclosures in the United States reach record levels, with 2.9 million in 2009 alone and unemployment rates lower. -
Dodd-Frank Act
President Obama signs into law the Dodd–Frank Wall Street Reform and Consumer Protection Act. The legislation is designed to restore at least some of the U.S. government’s regulatory power over the financial industry by enabling the government to assume control of banks deemed to be on the brink of financial collapse, among other provisions.