When did the financial crisis begin? Some say August 9, 2007 — in France
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Stop someone on the street and ask him or her: When would you mark the start of the financial crisis? Some might say when the investment bank Bear Stearns collapsed in March 2008. But probably not too many people would say August 9, 2007 — 10 years ago today.
That’s when French bank BNP Paribas froze three of its U.S. funds, the first in a chain of events which would lead to the biggest recession since the Great Depression.
Why was that act so significant?
Well, according to Andrew Metrick, a finance professor from Yale, imagine you went to take cash out of your retirement savings, “and the mutual fund said, ‘Well, I’m sorry. We can’t do this, because we don’t know what some of these stocks are worth.’”
Paribas’ funds were tied to subprime mortgages in the U.S. Metrick said this freeze was the first public acknowledgment that even the experts — even banks themselves — could not figure out what these funds were built on.
Anat Admati of Stanford Business School said Bear Stearns had frozen some fancy hedge funds earlier in the summer, but “this freezing of a money market fund, which is supposed to be, you know, as good as a bank account, was unusual.”
That caused the European Central Bank to step in, which put the rest of the financial world on notice that America’s housing boom could be a house of cards.
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