![]() Wall Street's "shadow banking system" went into a steep reversal. recession was inevitable, and it indeed began in December 2007, according to the National Bureau of Economic Research. The boom was turning into a bust.īy 2007 a U.S. A glut of unsold houses soon developed, leading to the peak and then initial decline of soaring housing prices by mid-to-late 2006. Defaults on sub-prime and adjustable-rate mortgages began to rise as the Fed raised interest rates. ![]() The over-lending had started to dry up in mid 2006. The Greenspan housing bubble was set for that course by early 2007. In a normal financial crisis, over-lending is followed by a retrenchment of credit, a spate of defaults on outstanding loans, the failures of some financial intermediaries, and a recession. Deregulation abetted the massive over-extension of credit by enabling Wall Street to expand trillions of dollars of lending and tens of trillions of dollars of derivatives trading on a base of households with shaky creditworthiness. Easy credit conditions, stoked by the Fed's low-interest rate policies after the dot.com meltdown and 9/11, led to a bulge of subprime mortgage lending and other kinds of consumer financing. The roots lay in the combination of financial deregulation of the 1990s and the mistakes of the Federal Reserve under Alan Greenspan. The background to the Monday Meltdown is now well understood. policy makers during the fast-moving financial crisis already underway by Sept. It reflected a series of accidents as well as lack of preparation by U.S. ![]() The global system was highly vulnerable at that moment, so the meltdown did not come out of the blue. The Monday Meltdown turned a boom-and-bust cycle centered mainly in the U.S. Understanding the financial shock that occurred that day is vital to finding a way out of our current mess. 29, but the Monday Meltdown made one more likely, and has claimed trillions of dollars of wealth worldwide and triggered a global recession. We are still odds-on to avoid a depression like the one that followed Oct. 15, 2008, the Monday Meltdown, a day that will live in the annals of finance alongside Black Tuesday, Oct. (Fortune) - The world changed forever on Sept.
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