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The Great Recession Of 2007 Essay

3273 words - 13 pages

The Great Recession of 2007Michael SchildKeystone CollegeThe economic collapse of 2007, also known as the great recession, officially started in December of 2007 and officially ended in July 2009. The start of the recession was long before Americans and bankers on wall street realized there was going to be a recession. Most bankers feel the official end of the recession in July of 2009 is a joke (Montanna 2010).There is a lot of blame to go around for this recession. In this paper will be discussed who is responsible for the recession, who has been affected most, how has it affected those families, and what the government has done to get out of the recession.The main reasons for the recession was the U.S. government and politicians, mortgage companies, banks, and the federal reserve. First what is a housing bubble? A housing bubble is when there is an increase of prices for houses which is fueled by demand. These bubbles usually start when there is an increase in demand and a limited supply. To fill the demand for houses takes a relatively long period of time. Eventually at some point in time, the demand decreases or stagnates while the supply still increases. When this happens there is a sharp drop in prices (investopedia).The government and politicians wanted deregulation of the banking and investment industries. Before 1999, the Glass-Steagall Act kept the banking and investment industries separated. This act came after the great depression when regulators called for separate industries. Then in 1999, they wanted to repeal this act because they believed they were smarter now and would not let another incident happen like it did in the 1930's. But as you can see, they abused the deregulation and let the greatest recession happen since the depression (Montanna 2010).The mortgage companies have a lot to do with the recession of 2007. They were giving out loans for homes to anyone and everyone that applied for one. In the early 2000's, they were advertising "get a mortgage with no money down". With this kind of advertising, the lending standards were lowered. People with no job, no income, no assets, and credit rating were getting enormous loans and had no way of paying it back (Montanna 2010).Once this trend of giving money out to anyone and everyone started, the mortgage writers deliberately didn't check information and encouraged applicants to lie on the applications. These kind of loans given out with no job, income, or assets were known as sub prime, Alt-A and NINJA loans. The loans that were just mentioned came with low starting rates and had adjustable rate mortgages (Montanna 2010).The reason for the mortgage companies to give out loans to people who couldn't afford them is simple more money. The mortgage writers were essentially paid based on the number of mortgages they could pass through. The more they pushed through the higher their income for the year would be. With this way of pay, the brokers would do whatever it would take to push...

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