The Great Recession refers to the economic downturn from 2007 to 2009. This article will discuss, "What Was the 2008 Great Recession? What Caused The Great Recession?" Let's get started.
What Was the 2008 Great Recession?
The 2008 Great Recession refers to a significant decline in economic activity that commenced in 2007 and persisted for several years, affecting economies worldwide. It is widely regarded as the most substantial decline since the Great Depression of the 1930s. The term "Great Recession" encompasses Both the recession in the United States, officially lasting from December 2007 to June 2009, and the subsequent global recession in 2009.
The economic downturn began when the housing market in the United States shifted from a period of rapid growth to a decline, resulting in a substantial decrease in the value of mortgage-backed securities (MBS) and derivatives.
What Caused The Great Recession?
According to a report released in 2011 by the Financial Crisis Inquiry Commission, the Great Recession could have been prevented. The commission, consisting of six Democrats and four Republicans, identified several key factors that they believed contributed to the economic downturn.
Firstly, the report highlighted the failure of government regulation in the financial industry. This included the inability of the Federal Reserve to prevent banks from granting mortgages to individuals who ultimately proved to be high credit risks.
Furthermore, numerous financial institutions took on excessive risks. The shadow banking system, which encompassed investment firms and grew to rival traditional banks, operated with less scrutiny and regulation. When the shadow banking system collapsed, it had a profound impact on the availability of credit to consumers and businesses.
The report also identified other causes, such as excessive borrowing by consumers and corporations, as well as lawmakers who lacked a comprehensive understanding of the collapsing financial system. These factors contributed to the formation of asset bubbles, particularly in the housing market, where mortgages were extended at low-interest rates to unqualified borrowers who ultimately could not repay them. As a result, housing prices plummeted, leaving many homeowners with negative equity. This had severe consequences for the market of mortgage-backed securities held by banks and other institutional investors, As the demand for these securities, which allowed lenders to grant mortgages to risky borrowers, diminished.
What Was the 2008 Great Recession? What Caused The Great Recession? - Hopefully, this article can help you to get some knowledge.
