The Great Recession

From the 1990s into the 2000s, home prices climbed, and housing-related sectors accounted for roughly 40 percent of net private job creation between 2001 and 2005. Lenders offered high-risk “subprime” mortgages and repackaged them into securities, expanding credit and bidding up prices. Decades of financial deregulation — including the repeal in the 1990s of parts of the Depression-era Glass-Steagall Act and the exemption of credit-default swaps from regulation — had loosened restraints on risky practices.

The housing boom peaked in 2006. As prices fell and homeowners defaulted, losses spread through the heavily leveraged financial system, because mortgages had been bundled and resold so often that it was hard to tell who owned what.

Major firms such as Bear Stearns and Lehman Brothers disappeared almost overnight. President George W. Bush signed the Emergency Economic Stabilization Act, and the government poured billions into propping up banks. The Federal Reserve cut its key interest rate from 5.25 percent in September 2007 to nearly zero by December 2008 and began buying mortgage-backed securities and other debt to support the housing market and the financial system. President Barack Obama continued the bank rescue and won an $800 billion economic stimulus, the American Recovery and Reinvestment Act, in 2009.

Millions lost jobs and homes. Resentment of bank bailouts fueled both the conservative Tea Party movement and the left-leaning Occupy Wall Street protests. In 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to prevent future meltdowns.

Recovery was slow: as of 2013 unemployment was still above 7 percent. The crisis magnified rising inequality and deepened distrust of financial and political elites, shaping American politics for years afterward.