"The [economic crisis] means that we have to address the challenges and the risks, and we need to take into account the level of resources. Doing better with less means doing it more together." - Stephane Abrial

The recession started in December 2007 and ended in June 2009, but many, particularly in the US, continued to suffer long after that. Between 2007 and 2009, around 7.5 million jobs were lost, reflecting a doubling of the unemployment rate, which was 5% in December 2007, rising to 9.5% in June 2009, peaking at 10% in October 2009, and was only recovered to pre-crisis levels in October 2009.

In the US alone, the stock market fallen, wiped about nearly $8 trillion in worth between late 2007 and 2009. Americans lost $9.8 trillion in wealth as their home values dove and their retirement accounts evaporated. In intra-day trading, the Dow Jones Industrial Average dropped 777.68 points, the largest point drop in history. In a single day, £ 90 billion was wiped out of the value of Britain's biggest companies.

12 years later, many misconceptions are about the crisis — ranging from why it began to who was responsible, what was the main reason for the fallout, how we recovered. There is no perfect explanation for this complex question. 

There are different assumptions for crisis; the closest cause for the financial crisis of 2008 is highly complex. It can be assumed that the housing bubble in the United States sparked a chain reaction that revealed the cracks in the financial system followed by the Lehman Brothers bankruptcy that led to a devastating impact on the American and European economies. Lehman was an essential factor, but it was one of the parts of major symptoms of the greater crisis rather than worked as a catalyst for sure. 

Let’s take a step back and look at a series of events that took place figuring out the reasons. 

The financial crisis of 2008 also known as the subprime mortgage crisis had its roots in the housing market. Housing is one of the essential commodities and has been a symbolic pillar of American prosperity for decades. Since the 1930s, the U.S. government is funding the mortgage market and federal policy has explicitly promoted the American dream of homeownership. 

In late 2005, the construction of new housing units peaked at around 2.2 million per year, nearly 50 percent above its historical average. Housing supply gradually surpassed demand and housing prices decreased. Housing-related financial assets such as mortgage-backed securities have fallen dramatically in value, resulting in household and financial institution losses. It exposed the international financial system, causing many big investment and commercial banks, mortgage lenders, insurance comp insurance (or near-failure). Mortgages were authorized by banks and other lenders, often to borrowers, and then these risky instruments were sold to other financial companies. 

Firstly, the US Fed reduced the Fed rate that banks charge each other for overnight loans of federal funds 11 times between May 2000 and December 2001, from 6.5 percent to 1.75 percent. This helped the bank to give credit to the consumer at a lower prime rate and encourage enough to lend to subprime or high-risk customers at a little higher interest rate. Besides, From June 2004 to June 2006 the Fed increased the rate from 1.25 to 5.25 percent, inevitably resulting in more defaults from subprime borrowers. This led to the creation of a housing bubble( market price greater than intrinsic value due to excessive speculation) also the housing market reached a saturation point, home sales, and eventually, home prices started to fall in 2005. 

The Federal National Mortgage Association, or Fannie Mae and Freddie Mac, were such entities in the late 90s that brought mortgages from lenders and then bundled them into securities to sell to investors as part of a securitization deal spewing income into government coffers. Fannie Mae wanted everyone, regardless of credit, to attain the American dream of homeownership.

As a result, People started investing heavily in gold, bonds, and the US dollar or Euro currency by September and October of 2008, as these were seen as safer alternatives to the poor housing and stock markets. 

 How Crisis was handled?

The Fed agreed to lend $85 billion to American International Group (AIG), the largest insurance company in the country, to cover losses related to its sale of credit default swaps, including MBSs, in the event of a default on the underlying loans. Merrill Lynch was near breakdown and was rescued by a Bank of America purchase subsidized by the government.

Washington Mutual and Wachovia were in deep misery and only through their acquisition by JP Morgan and Wells Fargo, respectively, they were able to prevent insolvency.

Lehman's had tried to find partners or buyers and hoped for government assistance to simplify a deal. The Treasury Department of the US refused to intervene, citing "moral hazard, as a result, they went for insolvency. For Lehman, the U.S. government decided not to engineer the salvation of the company, as it had for Lehman's rival Merrill Lynch, AIG, or the investment bank Bear Stearns as they assumed that it was too small to ignore and not significant.

The role of new President Barack Obama was not to deal with the financial crisis, but also to deal with the resulting financial cleanup, financial policy reforms, and significant macroeconomic recession. In 2008, Congress approved the much needed $700 billion bank bailout was now known as the Troubled Asset Relief Program, also Obama in 2009 proposed the $787 billion economic stimulus package and also American Recovery and Reinvestment Act, which helped a lot in tackling global depression.

Conclusion

In the long list of those who refused to see the financial crisis brewing, Wall Street bankers, the Federal Reserve, banking regulators, lawmakers, and economists top the long list. Although some warned of a housing bubble, few were able to forecast the impact it would have on the stock market and the economy.

The true reason was that financial institutions were actively seeking risky mortgage loans, often bundling lower-quality mortgages with subprime mortgage loans in chase of generating more profits from those securities such as MBS or CDO (high-risk investments due to lower subprime mortgage) at the same time engaging in various sectors of the mortgage the securitization industry. Compared to the rebound from past recessions, economic growth resulting from the 2008 financial crisis has been disappointing. 

The lesson learned from this Crisis is that we should stop trying to time the market based on economic forecasts. The U.S. workers and homeowners would have suffered even greater losses if the government would have not intervened and enacted policies like TARP, ARRA, and the Economic Stimulus, etc.