The Financial Crisis of 2007–2008

The 2007–2008 financial crisis was caused by excessive risk-taking in the housing market, where banks issued many high-risk mortgages. When homeowners began defaulting on their loans, mortgage-backed securities lost value, causing huge losses for financial institutions. This led to a credit crunch, where lending dried up, and many banks faced bankruptcy or severe financial distress. The crisis spread globally, resulting in a severe economic downturn characterized by rising unemployment, falling stock markets, and government bailouts to stabilize the financial system. It revealed vulnerabilities in financial regulation and the importance of managing risk carefully.