The degree of financial unease then varied during the course of the following year. The TED spreads peaked when the banks wanted to secure their liquidity ahead of the turn of the year 2007-2008. A further peak was reached in March 2008 when Bear Sterns suspended payments, but things calmed down again after the Federal Reserve mediated the takeover of the bank by JP Morgan. In mid-September 2008, when Lehman Brothers was forced to file for bankruptcy protection, the financial unease became an acute financial crisis. The TED spreads were driven up to very high levels. Many banks, institutions and funds were highly exposed to Lehman Brothers. Few had expected that such an important bank could fail. Previously the US authorities had let the shareholders take the consequences. Now the borrowers also had to take some of the losses. There was a great deal of concern that more players would end up in a similar situation. The remaining large investment banks in the United States also disappeared as independent investment banks. The TED spreads have risen and varied during different periods of time in Sweden, too, but they have been lower than in the United States and the euro area. Causes of the crisis – mortgages, imbalances and inadequate supervision The factor that triggered the financial crisis was thus the problems on the US housing market and mortgage market. An important element behind the prolonged rise in US housing prices was the rapid growth of lending for house purchases to low-income households.
In the United States, responsibility for supervision is divided between a large number of authorities and in Europe between a large number of countries, which makes it difficult to take the overall approach required. Another problem has been that the causes of the crisis largely relate to macroeconomic phenomena such as the development of housing price bubbles, while supervision traditionally focuses on microeconomic issues such as how individual institutions manage their lending. Nor have the supervisors reacted to the fact that the banks have built up considerable risks alongside their balance sheets. These risks have then returned to the banks via lines of credit, that is, earlier loan agreements entered into, and in other ways when the funding problems have increased. There are further reasons behind the crisis. For example, the regulations for the financial markets have been procyclical, that is they have tended to reinforce cyclical fluctuations. There has also been a rewards structure among the private players on the financial markets that has encouraged a short-term approach and a high level of risk taking. Handling of the crisis The authorities in Europe and the United States have tried to counter the effects of the crisis in a variety of ways and to restore confidence on the financial markets. The central banks have primarily contributed by adding large amounts of liquidity via loans against collateral to the banks. This has been necessary as the banks have found it difficult to borrow in the short and medium terms.