Subprime Mortgages Trigger the 2008 Global Financial Crisis
Lehman Brothers files the largest bankruptcy in U.S. history, and economists still argue over which failure mattered most
Quick facts
- Lehman Brothers bankruptcy
- September 15, 2008 ($619 billion in debt)
- TARP program
- $700 billion, October 2008
- NBER-dated recession start
- December 2007
- Debated causes
- Deregulation, subprime lending, loose monetary policy
What happened
In the years before 2008, subprime mortgage lending, home loans to borrowers with weak credit histories, grew rapidly as rising home prices kept default rates artificially low and lenders increasingly waived income verification, a shift Econlib's account notes drew in borrowers whose real risk of default was higher than their credit scores suggested. New Century Financial, a major subprime lender that had made 60 billion dollars in such loans in 2006 alone, declared bankruptcy in April 2007 as defaults mounted. The crisis accelerated through 2008: the U.S. Treasury took over Fannie Mae and Freddie Mac in September, and on September 15, 2008, Lehman Brothers filed the largest bankruptcy in U.S. history, involving 619 billion dollars in debt. Congress passed the 700 billion dollar Troubled Asset Relief Program that October, and the National Bureau of Economic Research later determined, in its formal business-cycle dating, that the recession itself had begun in December 2007. Economists remain divided on the primary cause: some point to deregulation, including the Commodity Futures Modernization Act's exemption of derivatives from oversight, others to loose monetary policy and low interest rates that inflated the housing bubble, and the U.S. government's own Financial Crisis Inquiry Commission split along ideological lines, producing three separate official narratives rather than one agreed account.
Why it matters
The 2008 crisis triggered the deepest global recession since the Great Depression, wiped out trillions of dollars in household wealth, and reshaped financial regulation worldwide, while also directly motivating, a few weeks after Lehman's collapse, the pseudonymous proposal for a currency designed to operate without banks or governments at all.
How we know
The NBER's Business Cycle Dating Committee independently reviewed employment, income, and production data to fix the recession's official start and end dates, while the bankruptcy filings, government bailout figures, and the Financial Crisis Inquiry Commission's own published, if divided, findings form the documentary record of the crisis's scale and causes.
Sources
- HISTORY (A&E Networks). Great Recession Timeline · Reputable sourcehistory.com · The domain "history.com" is on our Reputable source registry. · Link is live and its text matches the event's key terms (Jul 2026)
- National Bureau of Economic Research. Business Cycle Dating Committee Announcement, December 1, 2008 · Unclassified sourcenber.org · Cited as a "academic" source (no stronger domain match). · Link is live and its text matches the event's key terms (Jul 2026)
See something wrong? . Corrections with a source get fixed fastest.
Part of a timelineHistory of Money26 events · Clay tablets that recorded debt before coins existed, a Chinese dynasty that printed the first paper money, and a currency divorced from gold in a single televised announcementView all →