2008–2009 Great Financial Crisis
The deepest US recession since the 1930s. A collapse in subprime mortgage credit triggered a banking panic, Lehman's September 2008 failure, and a global demand collapse. Unemployment doubled from 5% to 10%, the S&P 500 lost 57%, and the Fed took the policy rate to zero for the first time.
What caused it
- •Housing bubble and lax underwriting in subprime mortgages
- •Shadow-banking leverage through MBS, CDOs, and CDS
- •Concentration of counterparty risk in too-big-to-fail institutions (Lehman, Bear, AIG)
- •Pro-cyclical mark-to-market accounting accelerating the capital crunch
The indicator playbook
The 2s10s curve inverted in 2006, SLOOS tightening was flashing red by late 2007, and credit spreads blew out months before NBER dated the peak. It is the single clearest modern case for watching financial-conditions indices and bank lending-standards data.
What ended it
TARP bank recapitalization, QE1 from the Fed, the 2009 stimulus package under Obama, and stress testing that restored confidence in the banking sector. Real recovery took 6+ years — employment did not recover its pre-crisis peak until mid-2014.
Modern parallels
The 2023 regional-banking stress (SVB, First Republic) rhymed with the early 2008 liquidity phase. The big difference is that post-Dodd-Frank capital rules made the system materially less fragile.