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The '''Financial Crisis of 2008''' is an ongoing worldwide financial crisis that is the worst the world has seen since 1932. It originated in the [[United States of America|United States]] and Western Europe, and has impacted every country in the world. Banks and financial companies have reported losses of over one trillion [[dollar]]s; investors have suffered [[paper loss|"paper losses"]] of many trillions.<ref> For most people the loss is a "paper" loss because they still own the stock and it might go up, or down. If they bought stock in 2003 for $1000, watched it go to $1500 in 2008, then drop to $1000 again in 2008, their "paper loss" is $500 but their real loss is zero since they are back where they started. People who bought at $800 still have made a $200 paper profit. People who bought at $1200, say, have a paper loss of $200. The paper loss or gain becomes real when they finally sell the stock. See [[Paper loss]] for more details</ref> Paper losses for owners of stock in major financial institution have been over 50%, and owners of some have lost 99% as major [[bank]]s closed down. The [[stock market]] has declined 30%-50% in major countries and [[pension]] funds have large paper losses.  Paper losses in real estate have been in the trillions; the average price of American houses fell 20%, with 30% and higher declines in [[California]] and [[Florida]].  However, thus far ordinary depositors with cash in the bank have suffered no losses. Owners of stocks in the 5000 largest U.S. corporations have paper losses of $8.4 trillion dollars in 2008, dropping to $12 trillion in October from $20 trillion in January 2008.

The '''Financial Crisis of 2008''' is an ongoing worldwide financial crisis that is the worst the world has seen since 1932.  

 

 

The crisis originated in the [[United States of America|United States]] and Western Europe, and has impacted every country in the world. Banks and financial companies have reported losses of over one trillion [[dollar]]s; investors have suffered [[paper loss|"paper losses"]] of many trillions.<ref> For most people the loss is a "paper" loss because they still own the stock and it might go up, or down. If they bought stock in 2003 for $1000, watched it go to $1500 in 2008, then drop to $1000 again in 2008, their "paper loss" is $500 but their real loss is zero since they are back where they started. People who bought at $800 still have made a $200 paper profit. People who bought at $1200, say, have a paper loss of $200. The paper loss or gain becomes real when they finally sell the stock. See [[Paper loss]] for more details</ref> Paper losses for owners of stock in major financial institution have been over 50%, and owners of some have lost 99% as major [[bank]]s closed down. The [[stock market]] has declined 30%-50% in major countries and [[pension]] funds have large paper losses.  Paper losses in real estate have been in the trillions; the average price of American houses fell 20%, with 30% and higher declines in [[California]] and [[Florida]].  However, thus far ordinary depositors with cash in the bank have suffered no losses. Owners of stocks in the 5000 largest U.S. corporations have paper losses of $8.4 trillion dollars in 2008, dropping to $12 trillion in October from $20 trillion in January 2008.

 

 

In late September the crisis focused on liquidity--financial companies owned hundreds of billions of dollars of "toxic" securities, mostly based on U.S. [[mortgage]]s; they could not sell the toxic securities because no one knew how much they were worth, and large scale loans between major institutions stopped flowing as the system lost liquidity and froze up. A $800 billion rescue plan became law in the U.S. October 3, but its impact will not be clear for a while. Meanwhile Europe's economic crisis continues to deteriorate, as trillions of dollars in losses accumulate there and in Russia, China and India and in many smaller countries.  International agencies such as the International Monetary Fund are trying to arrange emergency bailouts for medium-sized countries, like Pakistan.  All around the world people are sending their money to the U.S. and Japan because the banks there are safer than their own banks.  The price of oil, which reached $150 a barrel in the summer, plunged in half. That eased the gasoline crisis, helped commuters, and helped the airline industry.

In late September the crisis focused on liquidity--financial companies owned hundreds of billions of dollars of "toxic" securities, mostly based on U.S. [[mortgage]]s; they could not sell the toxic securities because no one knew how much they were worth, and large scale loans between major institutions stopped flowing as the system lost liquidity and froze up. A $800 billion rescue plan became law in the U.S. October 3, but its impact will not be clear for a while. Meanwhile Europe's economic crisis continues to deteriorate, as trillions of dollars in losses accumulate there and in Russia, China and India and in many smaller countries.  International agencies such as the International Monetary Fund are trying to arrange emergency bailouts for medium-sized countries, like Pakistan.  All around the world people are sending their money to the U.S. and Japan because the banks there are safer than their own banks.  The price of oil, which reached $150 a barrel in the summer, plunged in half. That eased the gasoline crisis, helped commuters, and helped the airline industry.

Although an American presidential election is in its last month, candidates have not focused on the crisis. Both major parties blame the other for neglecting adequate regulation. Both the major party candidates have expressed anger at the crisis, and have promised extensive new regulations of the financial industry.

Both parties have expressed anger at the crisis, and have promised extensive new regulations of the financial industry. However the Republicans have blocked additional bailout aid to General Motors, which is on the verge of bankruptcy.

The Bush administration undertook a "bailout" program in which it took control of several of the largest financial institutions (Fannie Mae, Freddie Mac, and AIG insurance), forced the mergers of others, and purchased $125 billion of ownership in the 9 largest banks in the U.S.  

The Bush administration undertook a "bailout" program in which it took control of several of the largest financial institutions (Fannie Mae, Freddie Mac, and AIG insurance), forced the mergers of others, and purchased $125 billion of ownership in the 9 largest banks in the U.S.  

Until October the crisis had little impact on the mom-financial sectors of the world economy, but then negative impacts started appearing.  Companies could not borrow money for expansion or in some cases for routine operations, and had to cut back. Consumer spending fell.  By late October it appeared the financial crisis was slowing down the economies of all countries of the world, leading perhaps to a serious recession with widespread unemployment and loss of business. The major countries have been taking aggressive steps to dissolve the liquidity freeze and get money flowing again, and to stimulate economies that are headed downward.

Until October the crisis had little impact on the non-financial sectors of the world economy, but then negative impacts started appearing.  Companies could not borrow money for expansion or in some cases for routine operations, and had to cut back. Consumer spending fell and unemployment started to rise sharply.  By mid-November pessimistic reports were coming in daily from practically every sector of the  American economy. There were no bright spots, and with tax revenues down, state governments began large-scale cutbacks, especially in New York and California.

 

By late October it appeared the financial crisis was slowing down the economies of all countries of the world, leading perhaps to a serious recession with widespread unemployment and loss of business. The major countries have been taking aggressive steps to dissolve the liquidity freeze and get money flowing again, and to stimulate economies that are headed downward.

==Causes==

==Causes==

<ref> Gretchen Morgenson, "Countrywide to Set Aside $8.4 Billion in Loan Aid," [http://www.nytimes.com/2008/10/06/business/06countrywide.html?ref=business ''New York Times'' Oct. 6, 2008]</ref>   

<ref> Gretchen Morgenson, "Countrywide to Set Aside $8.4 Billion in Loan Aid," [http://www.nytimes.com/2008/10/06/business/06countrywide.html?ref=business ''New York Times'' Oct. 6, 2008]</ref>   

==Crisis in Auto industry==

==Crisis in Auto industry==

In 2008 a series of damaging blows drove the "Big Three" (GM, Ford and Chrysler) to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.), which prevents lower prices. The Big Three had in recent years stressed expensive, fuel-guzzling SUVs and large pickups. They were much more profitable than smaller, fuel-efficient cars. When gasoline prices shot past $4 in 2008, Americans stopped buying the big cars, and the Big Three saw their sales plummet.  The Financial Crisis played a role as no one was willing to loan GM the money to buy Chrysler. Consumer credit has tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car, so sales fell further.  Stock prices fell as shareholders worried about bankruptcy; GM's shares fell to 1942 levels. Intense debate is underway about a massive bailout, that would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency.

In 2008 a series of damaging blows drove the "Big Three" (GM, Ford and Chrysler) to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.), which prevents lower prices. The Big Three had in recent years stressed expensive, fuel-guzzling SUVs and large pickups. They were much more profitable than smaller, fuel-efficient cars. When gasoline prices shot past $4 in 2008, Americans stopped buying the big cars, and the Big Three saw their sales plummet.  The Financial Crisis played a role as no one was willing to loan GM the money to buy Chrysler. Consumer credit has tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car, so sales fell further.  Stock prices plummeted as shareholders worried about bankruptcy; GM's shares fell to 1946 levels. Intense debate is underway about a massive bailout, that would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency. President Bush has proposed changing the terms of that loan so it could be used to cover daily operating expenses. Republicans in Congress in mid-November blocked Democratic proposals to underwrite a new bailout of the auto industry.

In addition to the Big Three hundreds of large suppliers of parts are in financial crisis as well; most would go under if the Big Three go bankrupt.

In addition to the Big Three hundreds of large suppliers of parts are in financial crisis as well; most would go under if the Big Three go bankrupt.