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The '''Financial Crisis of 2008''' is an ongoing financial crisis centered in the United States, with reverberations in Europe and around the world. Losses thus far have run to hundreds of billions of [[dollar]]s. Owners of stock in major financial institution have lost over 50% of their money, and owners of some have lost 99% as major [[bank]]s closed down. The [[stock market]] has declined 20%-50% in major countries and [[pension]] funds have lost value. The price of American houses fell 20%. However, thus far ordinary depositors with cash in the bank have suffered no losses.  

The '''Financial Crisis of 2008''' is an ongoing financial crisis centered in the United States, with reverberations in Europe and around the world. Losses thus far have run to hundreds of billions of [[dollar]]s. Owners of stock in major financial institution have lost over 50% of their money, and owners of some have lost 99% as major [[bank]]s closed down. The [[stock market]] has declined 20%-50% in major countries and [[pension]] funds have lost value. The price of American houses fell 20%, with much larger declines in California and Florida. However, thus far ordinary depositors with cash in the bank have suffered no losses.  

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 $700 billion rescue plan was under intense debate in the U.S.

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 $700 billion rescue plan was under intense debate in the U.S.

On September 7, 2008, the government took control of the two largest mortgage holders, "Fannie Mae"<ref> Federal National Mortgage Association (FNMA)</ref> and "Freddy Mac"<ref>Federal Home Loan Mortgage Corporation (FHLMC) </ref>. The two had lost $15 billion on the $5.4 trillion in mortgages they owned, and their notes were widely held in [[China]] and many other countries.  The fear was that if the Treasury did not act the world's confidence in the US financial system would collapse.  However the rest of the world was in trouble too.  The stock markets in China and [[Russia]] plunged 50%, and the [[United Kingdom|British]] Treasury had to take over its largest mortgage company, [[Northern Rock]].  Vast sums of money flowed into the US because it was safer there than anywhere else.

On September 7, 2008, the government took control of the two largest mortgage holders, "Fannie Mae"<ref> Federal National Mortgage Association (FNMA)</ref> and "Freddy Mac"<ref>Federal Home Loan Mortgage Corporation (FHLMC) </ref>. The two had lost $15 billion on the $5.4 trillion in mortgages they owned, and their notes were widely held in [[China]] and many other countries.  The fear was that if the Treasury did not act the world's confidence in the US financial system would collapse.  However the rest of the world was in trouble too.  The stock markets in China and [[Russia]] plunged 50%, and the [[United Kingdom|British]] Treasury had to take over its largest mortgage company, [[Northern Rock]].  Vast sums of money flowed into the US because it was safer there than anywhere else.

By September the major banks were no longer lending money and most reported huge losses as they wrote down the value of the CDOs and other assets. Short sellers sold large amounts of stock in threatened companies, causing further panic and driving down share prices.<ref>The short sellers did not own the shares; the practice was stopped on Sept. 19, 2008, by the [[Securities and Exchange Commission]] because it destabilized markets.</ref> Lehman Brothers, one of the oldest and largest banks in New York, went bankrupt on Sept. 15 with no one to rescue it.  Merrill Lynch was sold to Bank of America for $50 billion, about half its value a few months before. Investors realized that AIG could no longer honor the insurance policies it wrote. It lost $13 billion in the first half of 2008 and its shares fell 95% in value. AIG was "too big" to be allowed to fail, so it was given an $85 billion loan from the government; in return the government received 80% of its stock.<ref> The Federal Reserve Bank of New York, part of the Federal Reserve System, handled the AIG case.</ref> In effect AIG, along with Fanny Mae and Freddy Mac were nationalized.  The Federal Reserve, with $800 billion in assets, was assisted by the Treasury, which gave it more funds.

By September the major banks were no longer lending money and most reported huge losses as they wrote down the value of the CDOs and other assets. Short sellers sold large amounts of stock in threatened companies, causing further panic and driving down share prices.<ref>The short sellers did not own the shares; the practice was stopped on Sept. 19, 2008, by the [[Securities and Exchange Commission]] because it destabilized markets.</ref> Lehman Brothers, one of the oldest and largest banks in New York, went bankrupt on Sept. 15 with no one to rescue it.  Merrill Lynch was sold to Bank of America for $50 billion, about half its value a few months before. Investors realized that AIG could no longer honor the insurance policies it wrote. It lost $13 billion in the first half of 2008 and its shares fell 95% in value. AIG was "too big" to be allowed to fail, so it was given an $85 billion loan from the government; in return the government received 80% of its stock.<ref> The Federal Reserve Bank of New York, part of the Federal Reserve System, handled the AIG case.</ref> In effect AIG, along with Fanny Mae and Freddy Mac were nationalized.  The Federal Reserve, with $800 billion in assets, was assisted by the Treasury, which gave it more funds.<ref> See [http://www.nytimes.com/2008/10/02/business/02crisis.html?_r=1&hp=&adxnnl=1&oref=slogin&pagewanted=all&adxnnlx=1222952525-cWL0bOgQjxNvxNo+OH1qAw Joe Nocera, "36 Hours of Alarm and Action as Crisis Spiraled," ''New York Times'' (Oct. 1, 2008)]</ref>

===European crises===

===European crises===

The crisis affected Britain and other countries as well, as the British housing bubble burst about the same time as the U.S. The British government had to take over major mortgage lenders, including Northern Rock in February, 2008.  Northern Rock's loans (£25 billion) and guarantees (£30 billion) extended by the Bank of England, together with the value of the company's mortgages (£55 billion), or £100 billion in all, were added to the British national debt.  Bradford & Bingley, half the size of Northern Rock, held £40 billion in toxic mortgages, and was nationalized in late September.  

The crisis affected Britain and other countries as well, as the British housing bubble burst about the same time as the U.S. The British government had to take over major mortgage lenders, including Northern Rock in February, 2008.  Northern Rock's loans (£25 billion) and guarantees (£30 billion) extended by the Bank of England, together with the value of the company's mortgages (£55 billion), or £100 billion in all, were added to the British national debt.  Bradford & Bingley, half the size of Northern Rock, held £40 billion in toxic mortgages, and was nationalized in late September.