Impact

Main articles: Financial crisis of 2007–2008 and Global financial crisis of 2008
[edit] Financial sector downturn
Main article: List of writedowns due to subprime crisis

FDIC Graph - U.S. Bank & Thrift Profitability By Quarter

As of August 2008, financial firms around the globe have written down their holdings of
subprime related securities by US$501 billion.[142] Mortgage defaults and provisions for future
defaults caused profits at the 8533 USA depository institutions insured by the FDIC to decline
from $35.2 billion in 2006 Q4 billion to $646 million in the same quarter a year later, a decline
of 98%. 2007 Q4 saw the worst bank and thrift quarterly performance since 1990. In all of 2007,
insured depository institutions earned approximately $100 billion, down 31% from a record
profit of $145 billion in 2006. Profits declined from $35.6 billion in 2007 Q1 to $19.3 billion in
2008 Q1, a decline of 46%.[143][144]
The crisis began to affect the financial sector in February 2007, when HSBC, the world's largest
(2008) bank, wrote down its holdings of subprime-related MBS by $10.5 billion, the first major
subprime related loss to be reported.[145] During 2007, at least 100 mortgage companies either
shut down, suspended operations or were sold.[146] Top management has not escaped unscathed,
as the CEOs of Merrill Lynch and Citigroup resigned within a week of each other.[147] As the
crisis deepened, more and more financial firms either merged, or announced that they were
negotiating seeking merger partners.[148]
[edit] Market weaknesses, 2007

A MetaView diagram shows the key subprime mortgage stocks as they undergo a chain reaction.
On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for
the first time.[149]
On August 15, 2007, the Dow dropped below 13,000 and the S&P 500 crossed into negative
territory for that year. Similar drops occurred in virtually every market in the world, with Brazil
and Korea being hard-hit. Through 2008, large daily drops became common, with, for example,
the KOSPI dropping about 7% in one day,[150][dead link] although 2007's largest daily drop by the
S&P 500 in the U.S. was in February, a result of the subprime crisis.
Mortgage lenders[151][dead link][152] and home builders[153][154][dead link] fared terribly, but losses cut across
sectors, with some of the worst-hit industries, such as metals & mining companies, having only
the vaguest connection with lending or mortgages.[155]
Stock indices worldwide trended downward for several months since the first panic in July–
August 2007.
[edit] Market downturns and impacts, 2008

The TED spread – an indicator of credit risk – increased dramatically during September 2008.
The crisis caused panic in financial markets and encouraged investors to take their money out of
risky mortgage bonds and shaky equities and put it into commodities as "stores of value".[156]
Financial speculation in commodity futures following the collapse of the financial derivatives
markets has contributed to the world food price crisis and oil price increases due to a
"commodities super-cycle."[157][158] Financial speculators seeking quick returns have removed
trillions of dollars from equities and mortgage bonds, some of which has been invested into food
and raw materials.[159]
Beginning in mid-2008, all three major stock indices in the United States (the Dow Jones
Industrial Average, NASDAQ, and the S&P 500) entered a bear market. On 15 September 2008,
a slew of financial concerns caused the indices to drop by their sharpest amounts since the 2001
terrorist attacks. That day, the most noteworthy trigger was the declared bankruptcy of
investment bank Lehman Brothers. Additionally, Merrill Lynch was joined with Bank of America
in a forced merger worth $50 billion. Finally, concerns over insurer American International
Group's ability to stay capitalized caused that stock to drop over 60% that day. Poor economic
data on manufacturing contributed to the day's panic, but were eclipsed by the severe
developments of the financial crisis. All of these events culminated into a stock selloff that was
experienced worldwide. Overall, the Dow Jones Industrial plunged 504 points (4.4%) while the
S&P 500 fell 59 points (4.7%). Asian and European markets rendered similarly sharp drops.
The much anticipated passage of the $700 billion bailout plan was struck down by the House of
Representatives in a 228–205 vote on September 29. In the context of recent history, the result
was catastrophic for stocks. The Dow Jones Industrial Average suffered a severe 777 point loss
(7.0%), its worst point loss on record up to that date. The NASDAQ tumbled 9.1% and the S&P
500 fell 8.8%, both of which were the worst losses those indices experienced since the 1987
stock market crash.
Despite congressional passage of historic bailout legislation, which was signed by President
Bush on Saturday, Oct. 4, Dow Jones Index tumbled further when markets resumed trading on
Oct. 6. The Dow fell below 10,000 points for the first time in almost four years, losing 800
points before recovering to settle at -369.88 for the day.[160] Stocks also continued to tumble to
record lows ending one of the worst weeks in the Stock Market since September 11, 2001."[161]
[edit] Indirect economic effects
Main article: Indirect economic effects of the subprime mortgage crisis
The subprime crisis has had a number of actual and likely economic effects. Declining house
prices have reduced household wealth and the collateral for home equity loans, which is placing
downward pressure on consumption.[162] Members of USA minority groups received a
disproportionate number of subprime mortgages, and so have experienced a disproportionate
level of the resulting foreclosures. Minorities have also born the brunt of the dramatic reduction
in subprime lending.[163][164] House-related crimes such as arson have increased.[165] There have
been significant job losses in the financial sector, with over 65,400 jobs lost in the USA as of
September 2008.[166] The unemployment rate rose to its highest level since 1994 in October 2008,
reaching 6.5%.[167]
Many renters became innocent victims, by being evicted from their residences without notice,
because their landlords' property has been foreclosed.[168] In October 2008, Tom Dart, the elected
Sheriff of Cook County, Illinois, criticized mortgage lenders for their actions vis-a-vis tenants,
and announced that he was suspending all foreclosure evictions.[169]
The tightening of credit has caused a major decline in the sale of motor vehicles. Between
October 2007 and October 2008, Ford sales were down 33.8%, General Motors sales were down
15.6%, and Toyota sales had declined 32.3%.[170]This contributed to a global automobile industry
crisis and possible government intervention.