Final answer:
The collapse of the U.S. housing market in 2008 exemplified a swift shift in the economic environment, precipitated by a mix of deregulation and mortgage market failures, leading to a broader banking crisis.
Step-by-step explanation:
The collapse of the U.S. housing market in 2008 was an example of a rapid change in the economic environment. This downturn resulted largely from factors like a deregulated bond market and risky mortgage innovations, leading to real estate overvaluation. As the bubble burst, delinquency rates and late payments on mortgages increased, and an oversupply of new homes led to falling house prices. This decline in housing prices and the consequential decrease in overall household wealth forced homeowners to reduce spending, triggering widespread economic repercussions.
Multiple mortgage lenders went bankrupt as homeowners defaulted on their loans. The crisis quickly spread beyond the housing market, significantly impacting the financial markets. Banks, previously investing in securities backed by these mortgages under the assumption of safety, faced the reality of potential losses and the threat of bankruptcy, with 318 banks failing between 2008 and 2011.
The governmental response included controversial bailouts of banks and financial institutions. Despite these interventions, such as the American Recovery and Reinvestment Act of 2009, credit markets remained tight, and the economic distress extended beyond these sectors, indicating a far-reaching financial and banking crisis.