At the start of the year, it was well-known that the housing market was in crisis. But few predicted that bad loans would bring down one of Wall Street’s biggest investment banks.
This is the VOA Special English Economics Report.
We look back at this year's bad economic news in the United States. Economic growth was expected to slow in 2008. Housing prices had been falling in the United States since 2006. But few economists predicted the financial collapse only a few months away.
Yet, Nouriel Roubini, a professor of economics at New York University, did just that. In 2006, he told economists at the International Monetary Fund that the United States would likely face a housing crisis. He also predicted decreased consumer spending, high oil prices and a deep recession.
The year started with troubling economic news. Countrywide, the nation's largest mortgage lender, was in trouble. It was one of the biggest holders of risky subprime home loans. It had lost billions of dollars in bad loans the year before. Bank of America offered to buy Countrywide for four billion dollars in January. The deal was approved in June.
With the economy slowing, Congress passed a bill in February designed to ease the economic slowdown. The bill returned over 150 billion dollars to taxpayers, but did little to aid growth.
The first major sign of the financial crisis developing on Wall Street came in March with the collapse of Bear Stearns. It was once the fifth largest investment bank. But Bear Stearns was forced to sell itself to J.P. Morgan Chase bank in a government-negotiated deal. Bear Stearns had invested heavily in securities based on risky home loans.
During the summer, prices for goods such as precious metals and oil set records. Oil hit an all-time high of over 147 dollars a barrel on July 11th. As a result, Americans started driving less. They rejected fuel-hungry vehicles that Detroit carmakers had been selling profitably for years.
In September, the government was forced to take control of America's two biggest housing finance companies, Fannie Mae and Freddie Mac. The companies hold trillions of dollars in mortgage-related securities. But concerns about their value meant that creditors were unwilling to lend to them. The rescue of Fannie and Freddie signaled the start of a severe credit crisis that would shake world financial markets.
And that's the VOA Special English Economics Report written by Mario Ritter. Listen again next week for more about this year's economic news. I'm Steve Ember.