What did the country learn from the crisis? Could a similar collapse happen again? Here are five take-aways from a Great Recession that has indelibly affected a generation, in America and around the world.
1. A HOUSE ISN'T AN ATM.
With his trademark blend of humor and social criticism, Charles Dickens once described credit as a system in which "a person who can't pay, gets another person who can't pay, to guarantee that he can pay."
This ethos got pushed to its limit in the housing market in the early 2000s. Credit was extended far beyond prudent standards, resulting in a boom-and-bust cycle that, in turn, helped trigger a wider crisis. In the process, the credit bubble symbolized a broader lesson that history teaches again and again: The very financial system that helps to fuel growth in good times is also a source of big risk to the wider economy.
The housing market became a realm of now-familiar abuses: Low "teaser" interest rates that would jump sharply after a few years. Loans with no down payment. Mortgages with "negative amortization," in which the balance due on the home would rise over time rather than fall, allowing borrowers to pay less in early years. It all seemed OK because home prices were going to keep rising inexorably.
Fueling this excess at the consumer level was excess in high finance. Home loans were packaged into securities that investors snapped up for their seemingly safe returns – with blithe approval from rating firms like Moody's and Standard & Poor's.
All the while, economists marveled at the moderate but sustained growth of the economy, a seemingly golden era of stability. A period of intense financial innovation was perceived as more than just an economic boon. It represented the next phase of evolution for a capitalist society – a sort of postindustrial Shangri-La.