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The Financial Crisis of 2007-2009 (The Great Recession) definitions

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  • Subprime Mortgage
    A high-interest loan offered to borrowers with poor credit, often requiring little to no down payment, and carrying a high risk of default.
  • Mortgage-Backed Security
    A financial asset created by bundling various home loans, with returns dependent on homeowners making their mortgage payments.
  • Investment Bank
    A financial institution that trades securities and played a central role in the crisis by holding large amounts of risky mortgage assets.
  • Commercial Bank
    A depository institution insured by the FDIC, primarily involved in traditional banking activities like accepting deposits and making loans.
  • Securitization
    The process of pooling various loans and selling them as tradable financial instruments to investors, spreading risk across markets.
  • Shadow Banking System
    A network of non-bank financial intermediaries engaging in credit activities without traditional regulation or insurance protections.
  • Insolvency
    A financial state where liabilities exceed assets, preventing institutions from meeting their obligations to creditors or depositors.
  • Troubled Asset Relief Program
    A \$700 billion government initiative to purchase distressed assets from banks, aiming to stabilize the financial system during the crisis.
  • Moral Hazard
    A situation where entities take greater risks, believing they will be rescued from negative outcomes, often due to previous bailouts.
  • Bank Panic
    A scenario where widespread fear leads depositors to withdraw funds simultaneously, risking the collapse of financial institutions.
  • Default
    The failure to meet the legal obligations of a loan, often resulting in losses for lenders and investors in related securities.
  • Too Big to Fail
    A concept describing institutions whose collapse would threaten the entire financial system, prompting government intervention.
  • FDIC Insurance
    A federal guarantee protecting bank deposits up to a set limit, designed to prevent depositor losses during bank failures.
  • Real Estate Market
    The sector involving the buying, selling, and valuation of property, whose collapse triggered widespread financial instability.
  • Credit Loosening
    A period when lending standards are relaxed, allowing more borrowers—including high-risk ones—to obtain loans easily.