Annex: Timeline of the Crisis
The definition of “the crisis” period is complex as it involves market events and macroeconomic developments that evolved across countries over a couple years. The five systemic economies have experienced the crisis with varying levels of severity over its course:
The U.S. housing downturn was underway by late-2006, with U.S. home prices peaking in the mid-2006 according to the Case-Shiller indices.
The housing downturn revealed the nature of some “toxic assets” in off-balance sheet entities in early 2007. The potential systemic effects of these assets on the banking sector did not become apparent until Bear Stearns had to rescue one of its hedge funds in June, and BNP Paribas froze three of its funds in August 2007. The need for exceptional support for the banking sector in Europe became apparent at Northern Rock and a few German banks in late 2007.
Real U.S. GDP declined every quarter starting in Q3 2008, when oil prices peaked. The NBER later declared that the U.S. recession began in December 2007.
Bear Stearns collapsed in March 2008, but its Federal Reserve-aided purchase by JP Morgan was initially seen as a reprieve. Only in September 2008, with Lehman Brothers’ bankruptcy, did a consensus emerge that a global crisis had unfolded.
Unless otherwise stated, what is meant by “the crisis” in this paper is the internationalization of financial and macroeconomic turmoil that took place after the collapse of Lehman Brothers.