By: Reed Morris
Preface
As someone who is interested in the inner workings of business and economics, I recently, finally, watched the film ‘The Big Short’. I always have heard references to the market crash of 2008, and the following recession. I even lived through it. But as a little naive 4-year-old I didn’t fully understand what was going on at the time.
In the years since, I never really learned anything more about it until very recently, when I started reading old news articles and I finally watched the aforementioned movie. So, here we are, almost 15 years later, looking back on the worst financial crisis in history.
(I Know the Great Depression was technically worse for more people, but based on pure dollars lost, the Great Depression doesn’t come close.)
The 2008 global financial crisis
The 2008 housing crash, also referred to as the Great Recession, was a defining moment in American, and global history. The crash was caused by the bursting of the housing bubble and the resulting collapse of the subprime mortgage market. After years of rapid growth and exuberant optimism, the housing market suddenly crashed, sending shockwaves through the global economy and leading to one of the worst economic downturns since the Great Depression.
The housing bubble was a period of rapid growth in the housing market that lasted from 1997 to 2006. During this period, housing prices soared, fueled by low interest rates, easy access to credit and relaxed lending standards. As prices grew, more and more people took advantage of the opportunity to buy homes, often using subprime mortgages. Subprime mortgages were designed for people with poor credit histories, who were thus unable to qualify for traditional mortgages.
Unfortunately, the housing bubble was unsustainable and eventually burst. When it did, the subprime mortgage market collapsed and the economy went into a tailspin. As housing prices plummeted and foreclosures skyrocketed, banks suffered massive losses and the entire financial system nearly collapsed. The government responded by bailing out Wall Street banks, but this did little to help the millions of people who had invested in the now worthless subprime mortgages.
The Great Recession that followed was a period of severe economic hardship. Unemployment soared, and millions of people lost their homes, jobs and savings. The stock market crashed, wiping out trillions of dollars in wealth. GDP, a measure of economic health, plunged into negative territory and remained there for months. The economic turmoil had a devastating impact on the American public. Consumer spending, a key driver of economic growth, plummeted and businesses cut back on hiring and investment.
Meanwhile, the housing market continued to decline, dragging down home values and creating a vicious cycle of foreclosures and economic decline. The recession eventually ended in 2009, but the damage was done. It took years for the economy to fully recover, and millions of people still feel the impact of the 2008 housing crash today. The crash not only caused economic pain in the short-term, but it also had lasting consequences.
The crash exposed the vulnerabilities in the banking system, leading to stricter regulations and increased oversight. It also increased public distrust of the financial system and sparked a widespread debate about economic inequality.
In the end, the 2008 housing crash was a defining moment in American history. It exposed the fragility of the financial system and highlighted the importance of economic regulation. It also highlighted the need for stronger consumer protections and greater economic fairness. As we move forward, it is important to remember the lessons of the Great Recession and ensure that future generations are able to benefit from a strong and stable economy.
Final thoughts
Looking back on what was going on in my younger years, it’s insane that I had little to no idea this was going on. I am very lucky that it didn’t impact my family hugely, but it seems as though its lasting effects have worn off for the most part. While we are most likely going to see something similar happen not too far into the future, it’s good to remember that, if the world could survive the last one, it will most likely survive the next one.
Here is one final note before I wrap this up. I’ve always known that in the not too distant future, clean freshwater is going to become more and more scarce. While it’s been something I have been able to push to the back of my mind for a while, ‘The Big Short’ really brought it back into my field of view. At the end of the film, it goes over what each of the groups, and some of the main characters from the film, are doing today. It talks about how some people still own investment firms, some of the people have left Wall Street completely, but the final slide before the movie concluded really struck me.
The movie ends with a slide talking about Michael Burry, the man who first discovered and shorted the housing market. The slide reads, “Michael Burry contacted the government several times to see if anyone wanted to interview him to find out how he knew the system would collapse years before anyone else. No one ever returned his calls. But he was audited four times and questioned by the FBI. He closed Scion Capital (Burry’s hedge fund) in 2008.” Finally ending with, “the small investing he still does is all focused on one commodity: Water.”
So, maybe he’s right. If he was so far ahead of the curve on the housing bubble, then he might be rightfully ahead on a future water crisis. It might be coming sooner than we think. That topic however, will have to be saved for another day.
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