The first indications of a serious crisis appeared in December 2007 and January 2008. On 15 January, news of a sharp drop in the profits of the Citigroup bank led to a sharp fall on the New York Stock Exchange. On 21 January, a spectacular fall in share prices occurred in all major world markets, followed by a series of collapses. Several American and European banks declared massive losses in their 2007 end of year results.

Later months of the year witnessed the bankruptcy of Lehman Brothers, a 158-year-old investment bank, the takeover of the stockbroking firm and investment bank Merrill Lynch, and the move by Goldman Sachs and Morgan Stanley to seek banking status in order to receive protection from bankruptcy. During the same weeks, the remaining four investment banks on Wall Street all went under in one way or another. To stop further collapse and to ward off total economic catastrophe, the US government made its most dramatic interventions in financial markets since the 1930s. Only the infusion of hundreds of billions of dollars into the US banking system, coinciding with equally colossal interventions in Europe, staved off an entire crash of the world’s financial markets.

The collapse of financial markets was soon being matched by the decline of the real economy. The world appeared to be heading for a period of inevitable economic stagnation or recession (a period of negative economic growth). Advanced economies experienced their sharpest contraction of the postwar period. Although emerging and developing economies were more resilient than in previous global downturns, they also suffered setbacks. In China growth slowed to 9.6 per cent, down from 14.2 per cent, and in India it fell to 3 per cent, down from 7.6 per cent (World Bank 2019b). It is not often that the world is faced with financial and economic turmoil so severe that the IMF calls it “the largest financial crisis in the US since the Great Depression”.

Among the experts there was a consensus that the immediate cause of the crisis lay in the US sub-prime mortgage lending market. Since the start of the 1990s, a large number of people, previously considered to be bad credit risks, were offered mortgages.