The financial crisis of late 2008, if left unaddressed, has a tendency to depress Real GDP as well as the level of prices in general.
The CDO fiasco developed into a full-fledged credit crisis by the spring of 2008. Given all the packaging and repackaging, it was difficult to determine where these toxic securities were and whose balance sheets were housing them, so banks began charging high-interest rates to lend to other banks and organizations.
The stock market had a strong reaction. The Dow Jones Industrial Index plunged 3,600 points between September 19 and October 10, 2008.
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