In the fall of 2008, a tsunami devastated global finances, dragging down with it some ancient banking institutions and causing panic on the main money markets. In less than a month, shares listed on Wall Street had lost a third of their value and, consequently, a few trillion dollars went up in smoke.
In September 2008, Ben Bernanke, then-president of the United States Federal Reserve (FED) and a learned expert of the Great Depression, asserted when presenting his Troubled Asset Relief Program (TARP) to U.S. Congress leaders: “Without these measures we may not have an economy next Monday.”
Was this prediction an exaggeration? It is undeniable that the world had just entered into the most profound recession since the end of the Second World War. In addition, the collapse in the economy was of such proportions it brought to mind the sad experiences of the Great Depression.
Just as in the 1930s, the origin of this economic crisis was in finance, commencing with the shock involving the real estate sector in the summer of 2007 in the United States. More precisely, it started off in the high-risk mortgage market (the so-called “subprime mortgages”). In 2006 this kind of mortgage loan, with little likelihood of ever being redeemed, constituted only 20 percent of all real estate loans.
Incredibly, problems in this specific sector, which was not even the biggest in the U.S. financial system, were able to shake financial markets throughout the world. Financial devastation overflowed into the real economy of the United States, and from there to the rest of the world.