{"id":46831,"date":"2021-08-22T07:10:00","date_gmt":"2021-08-22T11:10:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=46831"},"modified":"2021-09-02T19:31:49","modified_gmt":"2021-09-02T23:31:49","slug":"housing-bubble-of-2008","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/","title":{"rendered":"The Housing Bubble of 2008: What Happened?"},"content":{"rendered":"\n

What was the housing bubble<\/a> of 2008? What caused this devastating financial crash?<\/p>\n\n\n\n

The stock market crash and housing bubble of 2008 saw a huge decline in house prices from the 2006 peak. The fallout was huge, with many big financial institutions facing considerable losses. The causes are debated, but essentially too many people took on loans they couldn’t afford, leading to an inevitable crash.<\/p>\n\n\n\n

Here’s what happened during the housing bubble of 2008. <\/p>\n\n\n\n\n\n\n\n

The Housing Bubble of 2008, Explained<\/h2>\n\n\n\n

The financial crisis and housing bubble of 2008 was, by and large, the handiwork of finance professionals.<\/p>\n\n\n\n

Its proximate cause was the shift from an \u201coriginate and hold\u201d system of mortgage financing to an \u201coriginate and distribute\u201d system. In the \u201coriginate and hold\u201d system, which was the standard in the 30 years prior to the financial crisis, banks originated (or created) mortgage loans and then held on to those loans for the life of the loan<\/strong>. Because loan officers would be held responsible if one of these loans went into default, they were much more careful about whom they financed.<\/p>\n\n\n\n

In the \u201coriginate and distribute\u201d system, which became the norm in the early 2000s, banks originated mortgage loans but then sold them to investment bankers<\/strong>, who bundled them together into \u201cmortgage-backed securities\u201d\u2014essentially derivative bonds collateralized by the underlying mortgages\u2019 principal and interest. Because mortgage issuers (and their loan officers) immediately offloaded the mortgages, they were much less scrupulous about whom they were loaning to. Not only did many homebuyers receive loans without putting any money down, many received so-called \u201cNINJA\u201d loans\u2014loans where borrowers showed \u201cno income, job, or assets.\u201d<\/strong><\/p>\n\n\n\n

Investment bankers then sold a second<\/em> derivative\u2014credit-default swaps\u2014on the mortgage-backed securities<\/a>. A credit-default swap<\/a> is essentially an insurance policy\u2014if an owner of a bond (or a mortgage-backed security) is worried that the bond issuer might default on the loan, she can purchase a credit-default swap, which promises a payout if the bond issuer does indeed default. Advocates of credit-default swaps argued that because they spread risk so widely, isolated defaults wouldn\u2019t hurt the overall economy. But when large numbers of mortgage holders began defaulting on their loans and the swaps were triggered, the sellers of the swaps were saddled with huge payment obligations<\/strong>\u2014obligations they simply couldn\u2019t meet.<\/p>\n\n\n\n

The consequences of the housing bubble of 2008 were extraordinary, with some of the most storied and successful financial institutions of the 20th century\u2014Bear Stearns, Merrill Lynch, Lehman Brothers, AIG\u2014suffering staggering losses. Some of these firms, like Lehman, declared bankruptcy; others, like Merrill, merged with more stable institutions; still others, like AIG, had to be rescued by the US government.<\/p>\n\n\n\n

(Shortform note: To learn more about the 2008 financial crisis, read the summary of The Big Short<\/em>.<\/a>)<\/p>\n","protected":false},"excerpt":{"rendered":"

What was the housing bubble of 2008? What caused this devastating financial crash? The stock market crash and housing bubble of 2008 saw a huge decline in house prices from the 2006 peak. The fallout was huge, with many big financial institutions facing considerable losses. The causes are debated, but essentially too many people took on loans they couldn’t afford, leading to an inevitable crash. Here’s what happened during the housing bubble of 2008.<\/p>\n","protected":false},"author":12,"featured_media":38233,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,39,31],"tags":[469],"class_list":["post-46831","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-history","category-money","tag-a-random-walk-down-wall-street","","tg-column-two"],"yoast_head":"\nThe Housing Bubble of 2008: What Happened? - Shortform Books<\/title>\n<meta name=\"description\" content=\"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Housing Bubble of 2008: What Happened?\" \/>\n<meta property=\"og:description\" content=\"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2021-08-22T11:10:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-09-02T23:31:49+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"684\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Elizabeth Shaw\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@rina\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Elizabeth Shaw\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\"},\"author\":{\"name\":\"Elizabeth Shaw\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/df3c3c8448816a34bfdc78d7eda164c4\"},\"headline\":\"The Housing Bubble of 2008: What Happened?\",\"datePublished\":\"2021-08-22T11:10:00+00:00\",\"dateModified\":\"2021-09-02T23:31:49+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\"},\"wordCount\":462,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg\",\"keywords\":[\"A Random Walk Down Wall Street\"],\"articleSection\":[\"Economics\",\"History\",\"Money\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\",\"name\":\"The Housing Bubble of 2008: What Happened? - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg\",\"datePublished\":\"2021-08-22T11:10:00+00:00\",\"dateModified\":\"2021-09-02T23:31:49+00:00\",\"description\":\"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg\",\"width\":1024,\"height\":684,\"caption\":\"A row of colorful newer homes nicely landscaped. Great for real estate needs.\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.shortform.com\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"The Housing Bubble of 2008: What Happened?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"name\":\"Shortform Books\",\"description\":\"The World's Best Book Summaries\",\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.shortform.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\",\"name\":\"Shortform Books\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"width\":500,\"height\":74,\"caption\":\"Shortform Books\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/df3c3c8448816a34bfdc78d7eda164c4\",\"name\":\"Elizabeth Shaw\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/wordpress-profile-picture.png\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/wordpress-profile-picture.png\",\"caption\":\"Elizabeth Shaw\"},\"description\":\"Elizabeth graduated from Newcastle University with a degree in English Literature. Growing up, she enjoyed reading fairy tales, Beatrix Potter stories, and The Wind in the Willows. As of today, her all-time favorite book is Wuthering Heights, with Jane Eyre as a close second. Elizabeth has branched out to non-fiction since graduating and particularly enjoys books relating to mindfulness, self-improvement, history, and philosophy.\",\"sameAs\":[\"https:\/\/x.com\/rina\"],\"url\":\"https:\/\/www.shortform.com\/blog\/author\/elizabeth-shaw\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"The Housing Bubble of 2008: What Happened? - Shortform Books","description":"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/","og_locale":"en_US","og_type":"article","og_title":"The Housing Bubble of 2008: What Happened?","og_description":"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.","og_url":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/","og_site_name":"Shortform Books","article_published_time":"2021-08-22T11:10:00+00:00","article_modified_time":"2021-09-02T23:31:49+00:00","og_image":[{"width":1024,"height":684,"url":"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","type":"image\/jpeg"}],"author":"Elizabeth Shaw","twitter_card":"summary_large_image","twitter_creator":"@rina","twitter_misc":{"Written by":"Elizabeth Shaw","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#article","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/"},"author":{"name":"Elizabeth Shaw","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/df3c3c8448816a34bfdc78d7eda164c4"},"headline":"The Housing Bubble of 2008: What Happened?","datePublished":"2021-08-22T11:10:00+00:00","dateModified":"2021-09-02T23:31:49+00:00","mainEntityOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/"},"wordCount":462,"commentCount":0,"publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","keywords":["A Random Walk Down Wall Street"],"articleSection":["Economics","History","Money"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/","url":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/","name":"The Housing Bubble of 2008: What Happened? - Shortform Books","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","datePublished":"2021-08-22T11:10:00+00:00","dateModified":"2021-09-02T23:31:49+00:00","description":"The housing bubble of 2008 saw one of the most devastating financial crashes in recent history. Here's a look at what happened.","breadcrumb":{"@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#primaryimage","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","width":1024,"height":684,"caption":"A row of colorful newer homes nicely landscaped. Great for real estate needs."},{"@type":"BreadcrumbList","@id":"https:\/\/www.shortform.com\/blog\/housing-bubble-of-2008\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.shortform.com\/blog\/"},{"@type":"ListItem","position":2,"name":"The Housing Bubble of 2008: What Happened?"}]},{"@type":"WebSite","@id":"https:\/\/www.shortform.com\/blog\/#website","url":"https:\/\/www.shortform.com\/blog\/","name":"Shortform Books","description":"The World's Best Book Summaries","publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.shortform.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.shortform.com\/blog\/#organization","name":"Shortform Books","url":"https:\/\/www.shortform.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","width":500,"height":74,"caption":"Shortform Books"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/df3c3c8448816a34bfdc78d7eda164c4","name":"Elizabeth Shaw","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/wordpress-profile-picture.png","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/wordpress-profile-picture.png","caption":"Elizabeth Shaw"},"description":"Elizabeth graduated from Newcastle University with a degree in English Literature. Growing up, she enjoyed reading fairy tales, Beatrix Potter stories, and The Wind in the Willows. As of today, her all-time favorite book is Wuthering Heights, with Jane Eyre as a close second. Elizabeth has branched out to non-fiction since graduating and particularly enjoys books relating to mindfulness, self-improvement, history, and philosophy.","sameAs":["https:\/\/x.com\/rina"],"url":"https:\/\/www.shortform.com\/blog\/author\/elizabeth-shaw\/"}]}},"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/next-door-neighbor-1.jpg","_links":{"self":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/46831","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/comments?post=46831"}],"version-history":[{"count":1,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/46831\/revisions"}],"predecessor-version":[{"id":46832,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/46831\/revisions\/46832"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media\/38233"}],"wp:attachment":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media?parent=46831"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/categories?post=46831"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/tags?post=46831"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}