<p>It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007.</p>

<p>The financial crisis was indeed caused by a <a href="https://www.nber.org/papers/w15223" rel="nofollow noreferrer">run on wholesale funding</a> that was precipitated by significant losses on real estate, <a href="https://www.nber.org/papers/w21261" rel="nofollow noreferrer">both subprime and otherwise</a>. As noted in the first link, stresses in wholesale funding first appeared in August 2007. At that time, oil prices (WTI) were still \$70-\$80/barrel. </p>

<p>Losses to financial institutions during the crisis that can reasonably be linked to oil are limited, and the timing is all wrong, so it's not credible to suggest that the increase in oil prices would have led to a financial crisis absent the actual mechanism (run on wholesale funding, significant losses on real estate assets) by which the financial crisis occurred.</p>

<p>That said, it's certainly likely that oil prices contributed to the recession that began in December 2007, as <a href="https://www.brookings.edu/wp-content/uploads/2009/03/2009a_bpea_hamilton.pdf" rel="nofollow noreferrer">documented</a> by James Hamilton, though the severity of this recession was in large part <a href="https://www.imf.org/external/np/seminars/eng/2012/fincrises/pdf/ch8.pdf" rel="nofollow noreferrer">due to the fact</a> that there was a financial crisis:</p>

<blockquote>
  <p>Recessions associated with financial crises have been more severe and
  longer lasting than recessions associated with other shocks.
  Recoveries from such recessions have been typically slower, associated
  with weak domestic demand and tight credit conditions.</p>
</blockquote>

<p>Thus, oil prices are likely to have contributed to pushing the economy into recession, which may have worsened credit losses, fueling the stresses in the financial sector, but it's not credible to claim that they were a primary factor in causing the financial crisis, as compared to the structural vulnerabilities relating to wholesale funding and securitized assets.</p>

CC BY-SA 4.0
2021-07-27T15:29:28.623Z
[Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?](https://economics.stackexchange.com/questions/46001/was-the-financial-crash-of-2008-caused-by-top-graduates-of-the-american-ivy-leag)
BCLC
CC BY-SA 4.0
2019-02-05T15:04:43.687Z
2019-03-08T03:19:55.947Z
2019-03-08T03:19:55.947Z
dismalscience
<p>Decrease in oil discovery &amp; production itself linked to 'peak' oil levels having been reached globally is what caused it.</p>
<p>Its getting much harder to get oil and we are producing less of it, whilst population levels keep increasing, and citizens globally keep aiming for and reaching for much higher levels of energy consumption.</p>
<p>This crisis was therefore only a precursor to much worse environmental, civil, economic and geopolitical crisis to come, as we are unable to extract more and more fossil fuels from the earth, but are instead extracting less and less, and are consequently incapable of replacing those types of fuel sources with greener alternatives, due to instrinsic limitations attached to renewables for example.</p>
<p>Our economies and our populations will have to learn to operate with less energy, and learn to live in a state of constant decreasing economic output (technical recessions).</p>
<p>I doubt we will have robots and driveless cars in this scenario, and anticipate we will instead have to increase our manual workforce across essential industries such as agriculture, manufacturing. Whilst service industries will mostly collapse due to reduced transformative-type industries requiring services, and individuals will evade cities to get closer to food sources (the cost of transporting resources will explode).</p>
<p>This is only a short list of what is to come.</p>
<p>Watch out for the signals that demonstrate that certain individuals, organisations, and countries - who have understood all this - are preparing for it.</p>
<p>And let's ask yourselves the question...are we preparing too ?</p>

CC BY-SA 4.0
2022-09-07T15:28:04.537Z
https://yearbook.enerdata.net/crude-oil/world-production-statistics.html, global oil production increased steadily in the last 40 years, ignoring the drop caused by COVID.
Alex
CC BY-SA 4.0
2022-09-07T15:31:00.773Z
https://www.energypolicy.columbia.edu/research/report/oil-intensity-curiously-steady-decline-oil-gdp#:~:text=By%202019%2C%20oil%20consumption%20per,number%20giving%20pause%20for%20thought). and oil intensity, the use of oil per GDP declines significantly. The recession in 2008 was almost certainly not caused because of oil
Alex
CC BY-SA 4.0
2022-09-07T12:47:07.197Z
2022-09-07T12:53:06.877Z
2022-09-07T12:53:06.877Z
rascasse83
<p>I recently read The Big Short by Michael Lewis in which the depiction of the role of subprime mortgage lending in the US and then run away speculation on CDOs are shown to be the central and primary cause of the 2008 financial crisis.  Then today I watched a lecture called The Third Industrial Revolution (<a href="https://www.youtube.com/watch?v=QX3M8Ka9vUA" rel="noreferrer">https://www.youtube.com/watch?v=QX3M8Ka9vUA</a>) by Jeremy Rifkin in which he portrays the 2008 subprime mortgage crash as being an "aftershock" of the real financial "earthquake" which was international oil prices hitting $147/barrel 6 months prior to the 2008 crisis.  He continues this analogy by insisting global policy makers are, when they bail out the banks who invested in subprime mortgages or change investing laws, "trying to address the aftershock rather than the earthquake."  I have never heard this view of the situation and am ignorant as to how international oil pricing functions and affects the world economy.  How do people in the know square the relative significance of the US subprime mortgage investment bubble with this international oil price situation when trying to label the root causes of the 2008 global financial crisis?</p>

<macroeconomics><financial-crises><energy-economics><oil><economic-crisis>
Was the 2008 financial crisis caused more by the US subprime mortgage lending or more by an international energy and oil pricing crisis?
Double Who
# Was the 2008 financial crisis caused more by the US subprime mortgage lending or more by an international energy and oil pricing crisis?

(Asked by: username_0 on 2019-02-04)

I recently read The Big Short by Michael Lewis in which the depiction of the role of subprime mortgage lending in the US and then run away speculation on CDOs are shown to be the central and primary cause of the 2008 financial crisis. Then today I watched a lecture called The Third Industrial Revolution (<https://www.youtube.com/watch?v=QX3M8Ka9vUA>) by Jeremy Rifkin in which he portrays the 2008 subprime mortgage crash as being an "aftershock" of the real financial "earthquake" which was international oil prices hitting $147/barrel 6 months prior to the 2008 crisis. He continues this analogy by insisting global policy makers are, when they bail out the banks who invested in subprime mortgages or change investing laws, "trying to address the aftershock rather than the earthquake." I have never heard this view of the situation and am ignorant as to how international oil pricing functions and affects the world economy. How do people in the know square the relative significance of the US subprime mortgage investment bubble with this international oil price situation when trying to label the root causes of the 2008 global financial crisis?

**Tags:** macroeconomics, financial-crises, energy-economics, oil, economic-crisis

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## 2 answers

### Answer by username_1 on 2019-02-05. Score: 4

It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007.

The financial crisis was indeed caused by a [run on wholesale funding](https://www.nber.org/papers/w15223) that was precipitated by significant losses on real estate, [both subprime and otherwise](https://www.nber.org/papers/w21261). As noted in the first link, stresses in wholesale funding first appeared in August 2007. At that time, oil prices (WTI) were still \$70-\$80/barrel.

Losses to financial institutions during the crisis that can reasonably be linked to oil are limited, and the timing is all wrong, so it's not credible to suggest that the increase in oil prices would have led to a financial crisis absent the actual mechanism (run on wholesale funding, significant losses on real estate assets) by which the financial crisis occurred.

That said, it's certainly likely that oil prices contributed to the recession that began in December 2007, as [documented](https://www.brookings.edu/wp-content/uploads/2009/03/2009a_bpea_hamilton.pdf) by James Hamilton, though the severity of this recession was in large part [due to the fact](https://www.imf.org/external/np/seminars/eng/2012/fincrises/pdf/ch8.pdf) that there was a financial crisis:

> Recessions associated with financial crises have been more severe and
> longer lasting than recessions associated with other shocks.
> Recoveries from such recessions have been typically slower, associated
> with weak domestic demand and tight credit conditions.

Thus, oil prices are likely to have contributed to pushing the economy into recession, which may have worsened credit losses, fueling the stresses in the financial sector, but it's not credible to claim that they were a primary factor in causing the financial crisis, as compared to the structural vulnerabilities relating to wholesale funding and securitized assets.

> **Comments:**
> **username_2**: [Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?](https://economics.stackexchange.com/questions/46001/was-the-financial-crash-of-2008-caused-by-top-graduates-of-the-american-ivy-leag)  

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### Answer by username_3 on 2022-09-07. Score: -2

Decrease in oil discovery & production itself linked to 'peak' oil levels having been reached globally is what caused it.

Its getting much harder to get oil and we are producing less of it, whilst population levels keep increasing, and citizens globally keep aiming for and reaching for much higher levels of energy consumption.

This crisis was therefore only a precursor to much worse environmental, civil, economic and geopolitical crisis to come, as we are unable to extract more and more fossil fuels from the earth, but are instead extracting less and less, and are consequently incapable of replacing those types of fuel sources with greener alternatives, due to instrinsic limitations attached to renewables for example.

Our economies and our populations will have to learn to operate with less energy, and learn to live in a state of constant decreasing economic output (technical recessions).

I doubt we will have robots and driveless cars in this scenario, and anticipate we will instead have to increase our manual workforce across essential industries such as agriculture, manufacturing. Whilst service industries will mostly collapse due to reduced transformative-type industries requiring services, and individuals will evade cities to get closer to food sources (the cost of transporting resources will explode).

This is only a short list of what is to come.

Watch out for the signals that demonstrate that certain individuals, organisations, and countries - who have understood all this - are preparing for it.

And let's ask yourselves the question...are we preparing too ?

> **Comments:**
> **username_4**: https://yearbook.enerdata.net/crude-oil/world-production-statistics.html, global oil production increased steadily in the last 40 years, ignoring the drop caused by COVID.  
> **username_4**: https://www.energypolicy.columbia.edu/research/report/oil-intensity-curiously-steady-decline-oil-gdp#:~:text=By%202019%2C%20oil%20consumption%20per,number%20giving%20pause%20for%20thought). and oil intensity, the use of oil per GDP declines significantly. The recession in 2008 was almost certainly not caused because of oil  

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