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

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  • Subprime Mortgage
    High-interest home loan offered to risky borrowers, often with little or no down payment, prone to default during economic downturns.
  • Mortgage-Backed Security
    Financial asset created by bundling various home loans, generating returns from homeowners' payments, but vulnerable to widespread defaults.
  • Investment Bank
    Financial institution trading assets like stocks and bonds, not insured by government, central in the crisis due to risky investments.
  • Commercial Bank
    Depository institution insured by the government, accepts deposits and provides traditional loans, less exposed to crisis risks.
  • FDIC Insurance
    Government guarantee protecting depositors' funds up to a set limit, preventing bank panics and ensuring financial stability.
  • Securitization
    Process of pooling loans and converting them into tradable financial instruments, enabling risk transfer and secondary market creation.
  • Shadow Banking System
    Network of unregulated financial entities and activities, facilitating credit expansion and risk-taking outside traditional banking.
  • Default
    Failure to meet loan repayment obligations, triggering losses for lenders and undermining financial asset values.
  • Insolvency
    Condition where financial institutions cannot meet their debt obligations, often leading to collapse or government intervention.
  • Troubled Asset Relief Program
    Government initiative purchasing toxic financial assets from banks to prevent systemic collapse and restore market confidence.
  • Bailout
    Emergency financial support provided by the government to failing institutions, aiming to avert broader economic fallout.
  • Moral Hazard
    Situation where entities take excessive risks, expecting government rescue, distorting incentives and undermining market discipline.
  • Market Failure
    Breakdown in efficient allocation of resources, often due to unregulated risk-taking and inadequate oversight in financial markets.
  • Too Big to Fail
    Belief that certain large institutions must be rescued to prevent widespread economic disruption, influencing government policy.
  • Regulation
    Rules and oversight imposed to limit risk, ensure stability, and promote responsible behavior in financial markets.