One of the most important historical events of the first decade of the 21st century was the financial crisis broke out in 2008. You may have heard of the 1929 crisis, which is most famous for having reached immense proportions, leading to a collapse of the US economy (an episode that became known as the Great American Depression) and an aggravation of the world financial system at the time. Despite the similarities, the 2008 crisis had a smaller impact and could still trigger new deadlocks in the financial sector in the coming years.
Well, the financial crisis of 2008 started with a succession of bankruptcies of financial institutions, in the United States and Europe. Institutions that participated in the entire complex world financial system. This wave of bankruptcy was related to what economists called the “burst of a housing bubble”. Therefore, it is necessary to understand what happened in the US real estate industry for such a bubble to burst.
Throughout the 1990s, especially under Bill Clinton, there was a significant intensification of measures financial institutions aimed at the real estate sector, which aimed to increase the number of owners, that is, buyers of properties. Banks that provided loans to homebuyers had (and still have) to comply with certain lending limits. In order for this limit to be expanded, some companies, such as fannie mother and Freddie Mac, began to buy the mortgage portfolios of American banks. This implied a financial maneuver that freed banks to issue more credit to buyers.
As the economist Leandro Roque explains, in his comment “How the American financial crisis occurred”, regarding the role of the companies mentioned above in the context of the 2008 crisis:
“Traditionally, when a person takes a loan to buy a property, a debt is created between him and the bank. Whether the person will honor his debt or not is the bank's problem. On the American scene, Freddie and Fannie made the banks no longer care about any of this, because they knew that, so as soon as they made a real estate loan, Fannie and Freddie were there to buy this loan at an amount above the amount. granted.”
This agreement between credit-buying companies and banks increased the system's deregulation financial world, since the US economy is closely intertwined with stock exchanges and banks of the whole world. This was because people who were encouraged to buy real estate through bank credit practically unlimited ended up defaulting - refraining from paying their debts - with the banks, which went bankrupt in 2008. Defaults in 2005 totaled 20 billion dollars. In 2008, the numbers reached 170 billion.
The crisis began to get worse when the US Congress approved the release of 700 billion dollars to bail out the financial system. The Fed, the American central bank, started to lend even more money to companies that dealt with real estate mortgages and the buy the mortgage bonds of the banks that were failing, configuring a strong state intervention in the economy American.
These intervening measures momentarily saved the banks and the financial system as a whole from a crisis of a more catastrophic, but in the long run, some economists believe, such measures could worsen the situation and lead to a collapse in the futureO.
The 2008 financial crisis triggered a series of protests against financial speculation **
In the years after the crisis, some protests against American real estate and financial speculation became known internationally. This is the case, for example, with the movement Occupy Wall Street(Occupy “All Street”). This movement became notorious in 2011 and was named after the camps that many young people set up on All Street, New York, where the most important stock exchange in the world is located, symbol of the American financial system.
* Image credits 1: Shutterstock, spirit of america
** Image 2 Credits: Shutterstock, Daryl Lang
By Me. Cláudio Fernandes
