2008 Credit Crisis

On 15 September 2008, the financial giant Lehman Brothers, which had existed for over 160 years, filed for bankruptcy and this resulted in a financial earthquake, the consequences of which reverberated across the world. This chapter examines in detail how the 2008 US Credit Crisis unfolded, the contribution of US housing market and how it became a global credit crisis. Both prime and sub-prime credit assets began to be securitized, based on a ‘originate to distribute’ model. Credit default swaps (CDS), one of the popular credit derivatives, is an over-the-counter (OTC) derivative. There are two kinds of derivative contracts: exchange traded and OTC. The chapter briefly outlines the financial disorder caused by the housing market.