Discover how the Global Financial Crisis began, why it continued and spread, and where we are now, when you subscribe to World Politics Review (WPR).
For several years after the Global Financial Crisis, the global economy remained fragile and vulnerable to shocks. Looking back at how the crisis unfolded over time can help you understand the different causes and effects of its various episodes—in particular, how the 2008 Global Financial Crisis and subsequent 2011 European debt crisis occurred due to two different types of “toxic assets.”
World leaders at the G-20 Summit, Hangzhou, China, Sept. 4, 2016 (AP photo by Ng Han Guan).
In 2008, it was short-term lending between banks—in many ways the lifeblood of the global financial system—which seized on fears that foolish investments in valueless mortgage-backed securities might cause a loan partner to collapse. The U.S. Treasury recognized that in order to get credit flowing again, that bad debt had to be cut out of the system. Enter the Troubled Asset Relief Program (TARP), which essentially took a massive chunk of private debt and made it public. This crisis caused lending to become tight and more restricted. In 2008, the epicenter was in a single country, the U.S, but its impact spread rapidly.