AMERICAN HISTORY: The Great Recession and the 2008 Election

09 May 2012

A realtor's sign on the lawn of a foreclosed New Jersey home in 2008

STEVE EMBER: Welcome to THE MAKING OF A NATION -- American history in VOA Special English. I'm Steve Ember. This week, our series brings us to the events of two thousand eight. It was a year that combined one of the nation's worst financial crises with one of its most exciting elections in recent history.

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In two thousand six and two thousand seven, the American housing market began to collapse. Home values had been going up and up. Now the balloon burst.

People started losing homes they had bought with money borrowed on easy credit terms -- loans they were then unable to repay.

The hope was that the crisis in the housing market could be contained, and that it would not spread to the wider economy.

Traditionally, local banks would have suffered the losses on the bad loans. But times had changed. Big investment banks had been buying those loans. The investment banks then resold them as securities offering high returns.

Credit rating agencies working for the investment banks had told investors that the securities were safe. Selling a financial product based on a large group of loans was supposed to limit the risk if a few loans went bad. That was the idea. But that was before millions of homeowners stopped paying their mortgage loans.