2008 Stock Market Crash Of 2008 Research Paper

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On October 8 of 2007, hit an all-time high of 14,164.43. At the time, few people realized that this would mark the last time it would be at that level for years. In just 18 months, it had dropped to 6,594.44. This March 5, 2009 figure marked more than a 50 percent drop and was one of the largest stock market declines in history. One of the few times the stock market had a larger drop was during the Great Depression when it fell by 90 percent. In comparison, the 2008 recession had a lower fall, but it occurred over just 18 months instead of three years, like the Great Depression. To explore the causes of the 2008 crash, we have a timeline in place to mark the gradual changes in the economy and the stock market that led to this decline.

2007: …show more content…
It remained fairly stable throughout the year, despite warnings about a housing bubble. Starting in 2006, there were signs that the housing market was starting to drop. On November 17 of 2006, the Commerce Department released a warning that the new home permits had dropped 28 percent from the October of the previous year. Since housing prices started to fall in 2006, it started a chain reaction of defaults on subprime mortgages. Despite these warning signals, the government did not believe that a drop in the housing market would lead to a decline in the rest of the economy.

This situation started to change in August of 2007. At this time, the Federal Reserve Bank realized that many of the banks were having liquidity issues. The Federal Reserve tried to stymie this issue by selling off Treasury reserves. They allowed banks to use their subprime mortgages as collateral. Once the Dow Jones hit its peak, top economists released warnings about the problems that would occur due to the derivatives and debts that had been used as …show more content…
The United States lost 17,000 jobs, and the BEA stated that GDP growth was just 0.6 percent in the last quarter of 2007. Despite these concerns, the Dow Jones remained between 12,000 to 13,000 until March. By this time, the Federal Reserve stepped in to prop up the struggling Bear Stearns investment bank. The March 17th rescue of Bear Stearns was the first loss of the subprime mortgage problem. News of this bank rescue caused the Dow Jones to fall to 11,650.44, but it managed to rise back to more than 13,000 in May.

Although some believed that the worst was already over with, July of 2008 showed a different picture. The subprime mortgage crisis affected the government-backed agencies, Fannie Mae and Freddie Mac. This caused the federal government to bail them out, and the Treasury Department guaranteed $25 billion of their loans. At the same time, the FHA guaranteed $300 billion in new loans, and the Treasury Department bought up stock in Fannie Mae and Freddie Mac. On July 15, the Dow Jones dropped to 10,962.54 before returning to more than 11,000 for the remainder of the
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