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Abstract

In 2008 a series of bankruptcies of financial institutions led the United States and the principal economies of the world into a recession of great magnitude that required exceptional government intervention.

It started on September 14th when Lehman Brothers announced that it was entering into chapter 11 bankruptcy. After this, there was intervention in recognized multinational corporations like Fannie Mae, Freddie Mac, and American International Group. There were also the bank failures of Washington Mutual and Citigroup.

The main cause of this crisis was the excessive level of leverage of the financial industry, which had its roots in the real estate boom and subprime mortgages. This paper explains the outbreak of the Global Financial Tsunami and the fallout of the financial industry in 2008. The document is organized in the following order: the first part is an introduction, second gives a background of the crisis, third is an explanation of the "Emergency Economic Stabilization Act", fourth explains the concept of market psychology, and finally conclusions and recommendations.

Recommended Citation

Chaves Echeverri, J. M. (2012). The global financial tsunami: 2008. Lingnan Journal of Banking, Finance and Economics, 3. Retrieved from http://commons.ln.edu.hk/ljbfe/vol3/iss1/1