The 2008 Financial Crisis

The 2008 Financial Crisis, a period of economic despair considered second-only to the decade of melancholy and gloom endured amidst the Great Depression, functioned as a massive sword, puncturing the flesh of the global market and causing it to leak out the corpse of the old world. It was a golden sword, forged in the wicked imaginations and greedy appetites of America's richest citizens, that murdered the human realm existing prior to 2007 and 2008. The economic pain contributed to the election of Barack Obama, thus reviving the progressive nature of the Democratic Party, which had laid dormant since the presidency of Bill Clinton. Internationally, it threatened collapse in Portugal, Italy, Ireland, Greece, and Spain - countries with economies already burdened by enormous national debts - forcing the rest of the European Union to spend the 2010s investing money in these nations as a means of preventing dissolution. Frustrated with all these responsibilities, Britain, already angry that the EU had an open-border policy, left the organization in 2020 following a Brexit agreement. East and Southeast Asian economies were also devastated, forcing them to rely on Chinese aid and further increasing Beijing's international power. Ultimately, these are only a few of the many effects laid by the 2008 Financial Crisis. Much of the modern world was conceived in this storm, so it's important to understand how it came about.

In 1992, Democrat Bill Clinton defeated Republican George HW Bush in that year's presidential election, taking office and formally replacing Bush on January 20, 1993. While Clinton was officially a Democrat, he sided with the Republicans on most topics, particularly financial and economic ones. For this reason, throughout his presidency, Clinton pursued a number of deregulatory policies. To begin, he signed the North American Free Trade Agreement, a document written by Ronald Reagan and George HW Bush and which included a pledge by the US, Canada, and Mexico to ship products to one another without expecting any tariffs to be paid. Later on, Clinton signed a free trade deal with China. Domestically, Clinton signed the Gramm-Bliley-Leach Act, which repealed a previous law known as the Glass-Steagall Act. Under the Glass-Steagall Act, all banks had to register as either commercial banks (banks that store deposits and issue loans) or investment banks (banks that deal in stocks and related topics). From there, it prohibited banks of one type from colluding with banks of the other type. The Gramm-Bliley-Leach Act operated like a bundle of dynamite, knocking that wall of separation into that ancient realm of history.

Al Gore, Clinton's vice president, was the Democratic nominee in 2000. Although the circumstances of the election were somewhat dubious (Florida, where Gore won the popular vote but lost due to a judicial technicality), George W. Bush, the son of Clinton's predecessor, won. Just before ceding power to Bush, Clinton signed perhaps his most extreme bit of deregulation: The Commodity Futures Modernization Act. Under this law, corporations were exempt from routine regulatory check-ins if they conducted most of their stock sales through over-the-counter purchases rather than on large stock exchanges like the NYE or NASDAQ. These companies were not free from regulation or the enforcement thereof, but they could only be investigated if a unique incident arose where such an investigation was needed. Scheduled, routine check-ins were abolished, though. Clinton's deregulatory policies were disastrous in the long term. They forced small businesses to engage in increasingly-risky behavior in order to compete with large duopolies. As a result, many of these companies hemorrhaged money or even failed, damaging the economy and contributing to the 2008 Financial Crisis.

During Clinton's presidency, the average price of a home began to rise in 1994. Since a lot of investors were already paying close attention to the housing market - the concept of home ownership is considered crucial to the American dream because of how it expands financial independence - this news was met with great excitement and interest. On March 10, 2000, the Dot Com Bubble, which had been fostered by the large amounts of money being dumped into the world wide web and the belief that the Internet had changed the economy so fundamentally that bubbles were no longer a risk, burst following the Federal Reserve's decision to raise interest rates. This, alongside the economic fallout of the 9/11 terrorist attacks, left Bush's economic advisors worried that a recession may break out. To avert this, the Federal Reserve lowered interest rates to an astonishingly-tiny 1% at the end of 2001 and the beginning of 2002. The idea was to facilitate more economic activity by making loans affordable and available to the average person. It worked for a while, continuing the economic health of the 1980s and 1990s. However, this would only contribute to a massive financial catastrophe that would make 2008 the devastating year it wound up being.

With housing prices steadily rising and interest rates plummeting, people started buying homes, waiting for the value to further increase, and then selling them back for a profit. The low interest rates made the mortgages necessary for most people to secure these homes easily accessible. Even with the 1% interest rate in mind, banks were enjoying massive profits due to this influx of mortgage applications. Thus, throughout the early and mid-2000s, they eagerly encouraged the growth of the housing bubble. Before long, banks were selling mortgage-backed securities to one another. In essence, a mortgage-backed security is a collection of hundreds or even thousands all bundled into a single asset. The advent of mortgage-backed security piled yet more money onto the profits these banks were making. So, they started preparing more and more of these assets in order to further expand their income. Eventually, banks became so desperate to secure their fix that they would approve nearly every single mortgage application given to them, even those presented by people with abysmal credit histories. Such mortgages, ones given to financially-irresponsible and reckless people, were known as NINJA loans, which stand for no income, no job, no asset.

Of course, very few of the people obtaining NINJA loans were actually able to pay them back. Quickly, they would default on the loan and lose their home. Exceptions to this rule were incredibly rare. Because of this, in the mid-2000s, a massive homelessness crisis began, as people who had obtained NINJA loans began to drop like flies, unable to fulfill the financial needs of their bank. Around this time, the average home price began to decline for the first time in 12 years in 2006. The combination of these two events undermined - and eventually completely destroyed - faith in the housing industry. The housing industry completely collapsed as a result. This, combined with the negative impact of Clinton's deregulation efforts, caused the US economy to enter a recession in December of 2007. However, this was not the recession that would come to symbolize many of the struggles of the 21st century. This appeared at first to be an average dip in the GDP, but its full risks would reveal themselves soon.

Still, it was apparent to everyone that America existed in a fragile, precarious situation. For example, from January to August 2008, the New York Times used "since the Great Depression" twice as often as the paper would in the entirety of an average year. On September 15, 2008, Lehman Brothers, one of the biggest banks in the United States, collapsed. This was largely because of its participation in the housing bubble earlier in the 2000s decade. Because of how important Lehman Brothers was in the broader American banking industry, its collapse when mixed with the loss of money caused by Clinton's deregulatory policies and the bursting of the housing bubble, plunged the American economy, already existing in a state of recession, into the worst crisis since the Great Depression. Truly, the 2008 Financial Crisis had begun. Rational fears of a massive depression breaking out sprawled across the entire country and Bush, who was still president at the time, looked for ways to prevent that. On October 3, 2008, he set up the Troubled Asset Relief Program or TARP. Through TARP, the federal government provided dozens of banks with money to help them survive the recession. TARP did the same for many private citizens too, giving them currency to spend and thus helping revive the economy.

TARP did spare the economy a lot of sorrow, but it wasn't enough to save the Republican Party in November. Republic fiscal policies - even those implemented by a man like Bill Clinton, who happened to have a blue D rather than a red R next to his name - had largely gotten the US into this mess, and the GOP had to deal with the consequences of that fact. The Republicans had nominated Vietnam War veteran and Senator John McCain, while the Democrats nominated ex-law professor Barack Obama, who was also a Senator known for his anti-Iraq War and pro-political reconciliation speeches. Obama was an intelligent, charismatic, young politician whose populist promises were extremely attractive to the American people. McCain was also pretty respected, but the same cannot be said about Sarah Palin, his running mate. Because of how disliked Palin was and popular discontent during the 2008 Financial Crisis, Obama easily won the presidency on Super Tuesday. He was inaugurated, formally replacing Bush as president on January 20, 2009.

Early into his tenure, Obama continued and expanded upon Bush's bail-out policies. He gave money to more banks, as well as several large car manufacturers, in order to quell their losses throughout the crisis. Like TARP, these bail-outs kept the economy from floundering any further. Then, on February 17, 2009, Obama signed the American Recovery and Reinvestment Act, which gave additional funding to public works programs. The idea was to boost employment by commissioning new infrastructure, educational, and conservation projects, a repeat of the New Deal implemented by Franklin D. Roosevelt to end the Great Depression. Roosevelt's political spirit had survived into 2008 and 2009 when the same brilliance that mitigated the Great Depression could mitigate the Great Recession! Like TARP and the 2009 bail-out of the automobile industry, the American Recovery and Reinvestment Act helped keep the economy out of apocalyptic anguish and spurred on a financial revival. In June 2009, the economy finally began to recover.

Globally, the 2008 Financial Crisis was just as impactful as it was in the US. By 2008, 5 countries in Europe - Portugal, Italy, Ireland, Greece, and Spain - were dealing with some of the worst national debts in the world. It was especially severe in Greece. Under the terms of EU law, an EU member can only trade in its local currency for the Euro if their deficit and national debt are less than 3% and 60% of the GDP respectively. Greece, desperate to connect to the rest of Europe through the use of the Euro, lied about maintaining these accomplishments in order to be approved for the use of the pan-continental currency. When the 2008 Financial Crisis came along, it threatened to bring economic collapse to the already-fragile markets of Portugal, Italy, Ireland, Greece, and Spain, which were derogatorily abbreviated as the "PIIGS" nations. Wanting to spare Europe from a general collapse, the EU spent the 2010s giving money to these 5 countries in order to keep their economies afloat. Britain was extremely upset about this, and this proved to be a major reason Brexit took place. Meanwhile, in Asia, the 2008 Financial Crisis was also devastating. Nations like Vietnam, South Korea, Thailand, Japan, and Mongolia experienced tons of financial sorrow, forcing them to rely on China and thus feed its arrival to the status of superpower. In 2010, China surpassed Japan as the world's second-largest economy.

Returning to the United States, as the American economy started to recover in the summer of 2009, Obama looked for ways to prevent repeats of the 2008 Financial Crisis. These efforts culminated in the passage of the Dodd-Frank Act in July 2010. The Dodd-Frank Act prohibited commercial banks from using people's deposits to invest in hedge funds. Simply put, a hedge fund is a collection of businessmen or investors united around an extremely risky stock purchase that could either succeed spectacularly or fail miserably. The Dodd-Frank Act also essentially banned NINJA loans by requiring banks to review the credit history of loan applicants. Two new government agencies were also established by the Dodd-Frank Act. The first was the Consumer Financial Protection Bureau, which works to shield American citizens from predatory financial practices. The second was the Financial Stability Oversight Council, which works to regulate businesses and prevent them from becoming so large that their collapse would damage the whole economy. By 2017, the economy had reached employment and spending levels identical to the ones that existed prior to the recession. That same year, Donald Trump became president and, during his time in the White House, repealed most of the Dodd-Frank Act.