Ten years ago this week, on Sept. 15, 2008, Lehman Brothers, the fourth-largest U.S. investment bank and with a history that extended over 150 years, collapsed, setting off the worst global financial crisis in over half a century. That cataclysm, sometimes called the Global Financial Crisis or the Great Recession, has receded in memory, but its impact lingers. Changes have been made to protect against another "Lehman shock," but markets again show signs of asset bubbles and questions are being asked with increasing urgency about the resilience of financial markets and whether the global financial system could absorb another shock.
Hundreds, if not thousands, of books have been written on the causes and consequences of the financial crisis, yet debate continues. It is generally accepted that the crisis had two principle causes: an overheated housing market in the United States, in which too many loans were made without regard for their ability to be repaid, and an under-regulated financial system that allowed banks to make loans without sufficient reserves and permitted them to hide their links so that vulnerabilities would quickly cascade throughout the world.
In short, a U.S. housing bubble popped and banks that had extended loans could not cover their losses. Those losses dragged down other financial institutions that were owed money by the failing banks. The result was a loss of more than $2 trillion in global economic growth, a drop of nearly 4 percent.