They offered subprime mortgages, and home buyers borrowed well beyond their means. The process of responding to the crisis, the subsequent deep recession and the impacts on governance of the global financial system — and the eurozone in particular — took the better part of the decade to implement before there was a reliable return to growth across the US and Europe.
Riskier stocks suffered big losses, even if they had nothing to do with the mortgage market. The volume of layoffs at one time has caused some of the highest unemployment rates the world has seen since the United States went through the recessionary period during the s.
However, this is to ignore the profound and permanent ways in which the global economy has changed as a result of the crisis itself and the policy responses to it, and to underplay the importance of these changes for global economic policy going forward.
This combination of scepticism of both the motives and accuracy of the economics profession has had profound political effects, most notably the failures of economic analysis to be persuasive in the Brexit referendum or in response to protectionist platforms such as those of Bernie Sanders and Donald Trump.
The stock prices of the firms themselves began to fall. The situation was made worse by a purely human factor: Fear turned to panic. Meanwhile, new economic challenges have arisen over the last decade.
In a slightly more positive scenario, the bank stumbles through but its standards for loan approvals have become so constricted that the entire economy, at least in this drought-stricken region, suffers. As the losses climbed, investors began to worry that those firms had downplayed the extent of their losses.
And while the banking sector in the US and UK have written off non-performing loans, many eurozone banks even now retain pre non-performing loans on their books.