While the US Banking Panic of 1933 and the sub-prime mortgage crisis of 2007/2008 were caused by similar circumstances , both signaled the beginnings of serious recessions that involved falls in world production, world trade, and increases in unemployment.
However, the recession following the 2008 crisis was by no means on the scale of the Great Depression, and this is due to the lessons learned from the 1933 US banking panic: public confidence was insured and money availiable in the market was decreased as part of the measures. The 2007/2008 financial crisis was on par with the us banking panic in the 1930’s. One of the main causes of this crisis was due to the bursting of the housing sector that had reached it’s full potential in 2006 in the United States; which led to high cases of default on adjustable and subprime mortgages. The crisis was caused by the availiabiity of credit within the United States driven from an influx of foreign money. Investors and institutions from all over the world were willling to invest in the American housing sector because of the inccrease in financial agreements known as collaterillized debt obigations and mortgage backed securities which obtained value from housing prices and mortgage repayments.
Another factor in the 2007/2008 crisis was the practise of predatory lending by some financial institutions. Financial institutions were deceiving borrowers into entering risks secured loans. One of the major financial institutions were advertising mortgages at low interest rates. At first borrowers thought they were paying a 1% interest rate but were actually charged 1.5% and put under an adjustable rate mortgage. Negative amortization was a result of this predatory lending ,and, when the prices of homes went down, causing home owners under the adjustable rate mortgage unwilling to pay their monthly installments because home equity was lost .
The Us government responded to this crisis by introducing Emergency Economic Stabilization act of 2008 which authorised the US secretary of of treasury to spend $700 billion to defect the effect the crisis had on the economy.
