<P> The high delinquency rates led to a rapid devaluation of financial instruments (mortgage - backed securities including bundled loan portfolios, derivatives and credit default swaps). As the value of these assets plummeted, the market (buyers) for these securities evaporated and banks who were heavily invested in these assets began to experience a liquidity crisis . Freddie Mac and Fannie Mae were taken over by the federal government on September 7, 2008 . Lehman Brothers filed for bankruptcy on September 15, 2008 . Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester were all expected to follow--with a US federal bailout announced the following day beginning with $85 billion to AIG . In spite of trillions paid out by the US federal government, it became much more difficult to borrow money . The resulting decrease in buyers caused housing prices to plummet . </P> <P> While the collapse of large financial institutions was prevented by the bailout of banks by national governments, stock markets still dropped worldwide . In many areas, the housing market also suffered, resulting in evictions, foreclosures, and prolonged unemployment . The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the Great Recession of 2008--2012 and contributing to the European sovereign - debt crisis . The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity". </P> <P> The bursting of the US housing bubble, which peaked at the end of 2006, caused the values of securities tied to US real estate pricing to plummet, damaging financial institutions globally . The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for subprime borrowers; overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate; questionable trading practices on behalf of both buyers and sellers; compensation structures that prioritize short - term deal flow over long - term value creation; and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making . Questions regarding bank solvency, declines in credit availability, and damaged investor confidence affected global stock markets, where securities suffered large losses during 2008 and early 2009 . Economies worldwide slowed during this period, as credit tightened and international trade declined . Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts . In the US, Congress passed the American Recovery and Reinvestment Act of 2009 . </P> <P> Many causes for the financial crisis have been suggested, with varying weight assigned by experts . </P>

The u.s. government responded to the financial crisis with unprecedented