This website uses cookies to ensure you have the best experience. Learn more

Causes Of The 2008 Us Recession

1821 words - 7 pages

Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas". The 2007 financial crisis was composed of the fall of many major financial institutions, an unknown increase in mortgage loan defaults, and the derived freezing up of credit availability (Brue). It was the result from risky mortgage loans and falling estate values (Brue) . Additionally, the financial crisis of 2007 was the result of underestimation of risk by faulty insurance securities made to protect holders of mortgage-back securities from risk of default and holders of mortgage-backed securities (Brue). Even to present day, America stills suffers from the aftermaths of the financial crisis.
The Mortgage Default Crisis
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening home ownership to the general public (Isidore, 2008). Banks lent most of its money to investment companies that had bought many of the mortgages from mortgage lenders (Isidore, 2008). Unfortunately, the mortgages would take a turn for the worst; thus, resulting in investment funds lost and the inability to repay the loans that they borrowed from the banks (Isidore, 2008). Left with nothing, the banks were forced to declare the loans as unrecoverable, reduce the bank’s reserve, and limit their ability to generate new loans (Isidore, 2008). These actions destroy the economy because both businesses and buyers need loans to pay for investment expenditures and finance consumption (Isidore, 2008). An early problem was “ mortgage-backed security”. According to AP Economics 19 edition, “ Mortgage- backed securities are bonds backed by mortgage payments”(Brue). In order to create mortgage- backed securities, lenders begin by creating mortgage loans (Brue). When they do, the lenders combine hundreds of loans into one and sell them off as bonds; basically selling the right to regain all future payments (Brue). In the end, banks receive an individual payment for the bond. Bond buyers recover the mortgage payments as the gain on the...

Find Another Essay On Causes of the 2008 US Recession

The Causes and Effects of a Recession

3459 words - 14 pages : [Accessed: 6th December, 2013]. Hills, S., Thomas, R. & Dimsdale, N. (2010) ‘The UK Recession in Context-What do Three Centuries of Data Tell us’ Bank of England Quarterly Bulletin. winter. pp. 277-291. [Online] Available at:[Accessed: 10th December, 2013]. HM Revenue and Customs (2008

Causes of the 2008 Financial Crisis

972 words - 4 pages Financial crisis The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries. The victims in the United States were: the largest commercial banks, the

Causes for the 2007 Recession

1202 words - 5 pages The United States faced one of its worst recessions in history during the latter half of the first decade of the twenty first century. Termed as the Great Recession, this period rivaled the Great Depression of the 1930s and had such an impact on the entire world that international economies were severely affected, and several national governments had to work together to get their countries out of the crisis. The crisis initially began as a

Fiscal and Monetary Policy Before During and After the “Great Recession” of 2008

874 words - 4 pages One of the most interesting facets of The Great Recession of 2008 is that it didn’t really begin in 2008. The fiscal and monetary policy that prompted what we know now as the Great Recession of 2008 really began in 2006 and 2007. What was happening then and why did it take so long for the nation to feel the recession? The answers to those questions explain a great deal about how the Federal Reserve Bank operates and how the different ideologies

The 2008 Housing Crisis: A Brief Overview of Causes

2200 words - 9 pages The 2008 Housing Crisis: A Brief Overview of Causes In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined as “a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices” ( 2014). When the bubble

The 2008 Housing Crisis: A Brief Overview of Causes

1119 words - 5 pages In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined by (n.d.) as a “temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. As with most economic bubbles, it eventually bursts, resulting in a

How has The 2008 Recession affected Third World Countries?

1659 words - 7 pages picture” – Dalai Lama. Causes To understand what really happened in the Great 2008 Recession, we must go all the way back to the end of the Second World War. After the fighting had stopped, the European economic system had grinded to a halt as the war-time technology and equipment trade ceased, “The economic mechanism of Europe is jammed”, wrote David Lloyd George, Britain’s war-time president of the time. On an international level, this

Causes and Consequences to the Irish Recession

1401 words - 6 pages Since the turn of the millennium Ireland witnessed unprecedented growth, in stark contrast to the economic hardship of the 1900’s. Ireland became one of the most prosperous countries in Europe during the 2000’s. Times were good for Ireland as unemployment was low, growth and GDP was growing year on year and inflation was constant. In 2008, all this was to change and Ireland witnessed the worst recession in its history. The banking crisis, the

Causes of Government Shutdown in the US

1692 words - 7 pages powerful nation must seek unemployment compensation while other staffers are continuing to work with no guarantee of pay should humiliate the government's elected leadership -- particularly House Republicans who led us into this briar patch." (Davidson) Davidson uses the stinging diction with the use of the words "briar patch" to show the sticky, thorny situation that the House of Representatives led the United States into. Briar patch is a

The Great Recession Of 2007

3273 words - 13 pages Academic One.Montanna, S. (2010, September). What Caused the Great Recession of 2008-2009?. Retrieved February 15, 2013Paul, R. (2011, October 21). Blame Bernanke and Federal Reserve for Economic Crisis. In USA News. Retrieved February 1, 2013Rampell, C. (2013, February 2). In Hard Economy for All Ages, Older Isn't Better . It's Brutal. In The New York Times. Retrieved March 3, 2013Reid, J. L. (n.d.). Why did the American Recovery and Reinvestment

Discuss the major causes of the US Civil War

1251 words - 5 pages , John Nirven hasstated that it is very difficult for historians to agree on the basiccauses because it was a sectional combat in which the roots ofpolitical, economic, social, and psychological elements were verycomplex. (The Coming of the Civil War, 1990).When any historian investigates the causes of the Civil War,immediately slavery comes to mind. Problems initially began because ofdisagreements of slavery the North was against it and saw it

Similar Essays

The Economic Recession Of 2008 Essay

2314 words - 9 pages Ever since the Recession of 2008, the process of acquiring employment has become extremely challenging and exhausting. After months of searching, a significant amount of job seekers are willing to accept any job offers that will allow them to put food on the tables. If you follow the United States’ economic recovery, you probably know that there are about 10.5 million unemployed Americans and constant debates about how to create more jobs. What

The 2008 Economic Recession Essay

1308 words - 6 pages The 2008 Recession Between January 2008 and February 2010, employment fell by 8.8 million, the largest decline in American history. The 2008 Recession, which officially lasted from December 2007 to June 2009, began with the bursting of an 8 trillion dollar housing bubble. Job losses during the recession meant that family incomes dropped, poverty rose, and people all over the country were suffering. Things like this don’t just happen. Policy

The Video Game Industry And The Recession Of 2008

783 words - 3 pages The Video Game Industry and the Recession of 2008In our days, videogames are starting to be more recognized as a powerful entertainment outlet. Because of this, there are more people playing games every day. Since 1971, the game industry evolved economically. In June 2011, the global video game market was valued at US$65 billion. But, even this great industry has had its share of economic troubles. One of them has been the 2008 recession. So

The Onset Of The Great Recession In 2008

1872 words - 8 pages The onset of the Great Recession in 2008 ushered in an era of fiscal and economic crises worldwide. As the world’s economy suffered, so did its smaller subunits—including cities. In a time of economic hardship, city residents—virtually the sole financers of cities—move from the expensive downtown areas into more affordable suburbs, taking their property taxes with them. When coupled with raised taxes in order to supply the city budget, such a