Discover the confluence of events that prompted the Great Recession in America and its main culprit: the subprime mortgage housing crisis. Learn how the Great Recession affected the economy and how it differed from the Great Depression of the 1930s. #HistoryChannel
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Here’s What Caused the Great Recession
The Great Recession, which spanned from December 2007 to June 2009, was one of the most severe economic crises experienced by the United States and several other countries around the world. It not only resulted in massive job losses and a significant decline in wealth but also had a profound impact on global financial markets. Understanding the causes of this economic downturn is crucial to ensure that such a catastrophe is not repeated in the future. In this article, we will explore the key factors that led to the Great Recession and how they unfolded.
1. Housing Bubble and Subprime Mortgage Crisis:
One of the primary causes of the Great Recession was the housing bubble, which refers to the rapid increase in housing prices that occurred in the early 2000s. Low mortgage interest rates, along with relaxed lending standards, fueled a surge in demand for homes. This led to a speculative frenzy where investors bought properties expecting their prices to keep rising. However, this housing bubble eventually burst, resulting in a significant decline in home values.
Adding to this crisis was the subprime mortgage market. Many homebuyers, especially those with low credit ratings, were granted mortgages that had high interest rates and low initial payments but later reset to higher rates. These subprime mortgages allowed individuals who would otherwise not qualify for loans to purchase homes. Unfortunately, these borrowers were particularly vulnerable to financial stress, which led to a surge in mortgage defaults and foreclosures.
2. Financial Deregulation and Complex Financial Instruments:
Another crucial factor contributing to the Great Recession was the deregulation of the financial industry. In the late 1990s and early 2000s, financial institutions were given more flexibility in their operations. Many regulations that were in place to prevent risky practices were lifted, leading to a boom in high-risk lending and trading activities.
This deregulation was accompanied by the proliferation of complex financial instruments like mortgage-backed securities, collateralized debt obligations (CDOs), and credit default swaps (CDS). These instruments were often bundled together and sold as investment products to various financial institutions. However, they were based on the assumption that housing prices would continue to rise, making them extremely vulnerable to the bursting of the housing bubble. When borrowers started defaulting on their mortgages en masse, these complex financial instruments collapsed, causing massive losses across the financial sector.
3. Lack of Bank Capitalization and Systemic Risk:
The financial crisis was further amplified by the insufficient capitalization of many banks and financial institutions. Banks held relatively low levels of capital reserves, making them susceptible to shocks in the system. As the losses from the housing market spread throughout the financial industry, many institutions faced insolvency and were unable to meet their obligations. This lack of bank capitalization and subsequent failures further fueled the economic downturn.
Additionally, the interconnectedness of the global financial system meant that the failure of one institution could have a domino effect on others. The systemic risk inherent in the highly integrated financial markets meant that the crisis spilled over beyond the housing sector, impacting the broader economy and causing a severe recession.
In conclusion, the Great Recession was caused by a combination of factors, including the housing bubble and subprime mortgage crisis, financial deregulation, and the lack of bank capitalization. The subsequent collapse of complex financial instruments amplified the crisis and spread its effects throughout the global financial system. By understanding these causes, policymakers can take measures to prevent a similar catastrophe in the future, ensuring a more stable and resilient economy for all.
Yes, It’s called predatory banking. They knew what they were doing
I've been homeless ever since and now I have a drinking problem.
we're probably heading for another one within the next 3-4 years
Those subprime mortgages.
When u can just print money or lend money from thin air , money that doesn't exist or have extremely creedy banks …
Basicilaly there wasnt something wrong with the system, just greedy bankers trying to make interest and greedy people taking loans they wont pay back.
Real Estate prices traditionally keep pace with inflation. if home prices outpace inflation.. a bubble could be developing. Although there were many issues with a few housing markets demand was strong. Demand was so strong that several new investors got into the process of ordering new construction homes. If a buyer could put 10% down and it took 12 months for the home to be completed and the home increased in value by 10% In a few markets the numbers were greater than that. Builders were sensitive to this so they were self correcting by only taking orders from buyers who were planning to live in the homes. Then on one day…demand stopped…..why in the world did demand stop on one day. It was the day that every major media company including Fox News told listeners that their home prices were going to drop by as much as 50%. I saw the Fox News Business analyst who actually was a art history major who knew nothing about business…..tell the world that ….Naples….Prices may go down as much as 50%. It was all based upon a "FAKE" study by Global Insight and National City Bank. They called their method of pricing "Time Regression Analysis" big words that sounded like something coming from Harvard Law School ? The market stopped, prices in the best homes fell by 405….Barack Obama was ushered into office by this Real Estate Depression. I was so convinced at the time that there was malicious interference with the Housing Market that I wrote a report….and gave it to the FBI in Minneapolis. It picked up a lot of interest as it headed up to the desk of the head of the White Collar Crime Division. Te response I received was that they were very interested in my study but were devoting all their resources into putting Petters (Sun Country) in jail. It took them two years to do that ….by that time the middle class in America was gone. I had been selling homes to buyers since 1974..and it was a fact that just about everyone I worked with had most of their net worth in their homes equity. The middle class was wiped out that day which included 70,000,000 baby boomers. I forgot about the study and went about my business of recovering from my real estate losses. In July of 2023 i was encouraged by my Grandson (US Marine) to watch the movie The Big Short. That spurred my interest in doing some follow up research.
I WAS SHOCKED. COMPLETELY SHOCKED. The company that created the study…..one owner and one board of director….was Joseph Kasputys who was Barack Obama's Law Professor at Harvard Law School. I remember researching his home value in 2007 …which went from 2.3 million to 1.3 million. I wondered at the time why in the world would he destroy his own net worth. At that time Global insight was financially struggling. Low and Behold in 2008 someone made Joseph Kasputys a multi millionaire. After the election was delivered to Joseph Biden and Barack Obama Global Insight was rewarded by a sale of the company that had been struggling for $200,000,000. Yes 200 million dollars. What a coincidence that Michael Burry shorted the housing market by $200,000,000 yes 200 Million dollars. That sounds pretty German to me….like maybe the mind of George Soros who was born a German….liking symmetrical numbers. Michael Burry became the forcasting Guru on wall street because of his confidence in shorting the housing market. George had shorting the bank of England on his Resume" Both Barack Obama and Joseph Biden are racketeers. It is rumored that George Soros met Obama originally in Hawaii when Barack was a handsome boy for George to play with. At that time Obama was in the Choom Gang….which he himself wrote about. He was heavy into Marijuana and Cocaine. In his book he said he did not get into Heroin because he did not like the Heroin dealer.
Put all the pieces together, $200,000,000 + $200,000,000 , Global Insight, Joseph Kasputys who was Obama's Law Professor at Harvard …it does not leave much room for any plausible deniability. In fact it will be very easy for FIN CIN to pick up these pieces and prove without a shadow of a doubt as to who created the conditions to destroy the net worth of the Baby Boomer, make them work until the drop in most cases. The one thing they maybe did not think of is that working may have made them healthier. Thus they needed something like Covid 19 to take care of the aging baby boomer. I think the REAL ESTATE DEPRESSION was the election game changer just like covid 19 was an excuse for Joseph Biden to win in 2020.
Bruce Jorgensen Realtor Emeritus (since 1074)
theres one thing i dont understand…if the only thing that his value dropped was the homes, how did it become HARDER to pay for them?
The county I live in is heavy into manufacturing and it came to a screeching halt. Some businesses took over a year to get busy again.
I got through it alright but knew people that lost homes.
Builders were building expensive homes as fast as they could as mortgages were easy to get.
There ended up a lot of foreclosed homes and one big builder actually left the country when things fell apart..nobody haven't heard from him since
One local large bank went under which was a shock .
Lots of small banks were trying to get on the bandwagon and they got hurt also.
Gas was spiking in price right before then also and I could just feel something bad was going to happen to the economy.
How about the cause of Kung Flu 19?
Moral of the story, don't live outside your means.
Good Morning
This size jar honey is $100.
So it’s people like me that screwed the country
My first name your last name
Physical pain is Not love..fake
Physical pain is Not love..fake
The Balance of factors in many area.sss in a business-environment departed into many imbalances but artificially prevented by superficial intervention from normal-correction (auto rebalancing of demand and supply) (politicians not well schooled in economics) (stupidity of price protection theories) resulting in an imbalance too big to hide thus causing a bigger and longer stock-market correction known as recession to the last few support-levels (financial-health of population – demand and supply).
Thank you for the explanation, I needed it for my economics class.
This is cray-zy!
Bush administration George Bush administration
You should ask why would the banks make such foolish loans? Because Freddy Mac and Fannie Mae were buying these loans. Why would they buy such risky loans? Because congress was pushing them to do so, so that more Americans could buy homes. It all got started in the 90's and took ten years to blow up in their faces. Every time the government gets involved in the economy it never works out well.
If Freddie Mac and Fannie Mae had done their jobs and said "I'm not buying this junk", the recession would have never happened.
Lot people blame Obama for The Great Recession of 2008, which I keep telling it was the greedy banks who cause by accepting default credits.
CHINA 2.0 XD
Best time of my life, I purchased two houses for cheap on a regular job. Now they are worth 5 times what I paid for.
great video
I think sadly another recession is on its way in 2022
The reality is everyone, not just banks, not just the Government, everyone caused the crisis. I worked for a title mortgage company back in the early 2000's and it was booming. Everyone was trying get a piece of the pie. In 2005 I was making about $50k a year at 22 years of age. I was pre approved for a $650k home loan. I knew that didn't make sense. It was "too good to be true." Thank god I didn't follow through with that. I waited 5 more years and bought a home after I got married. Which i'm still in 12 years later. Everybody from banks to homeowners were greedy at that time. That what caused it to collapse.
Boom and bust!
Almighty God bless everyone
1:43 You failed to say why home prices dropped in the first place.
Get ready for round 2
Waiting for another housing crash so I can afford a 2 bed 1 bath house that doesn’t cost 400K
Washington DC bailed out the wealthy. I will never trust Washington DC again. They have BETRAYED the American people. Wealthy people got billions and poor got evictions.
Besttt everrr explanation
The Great Depression, The Great Recession and now The Great Incession. Move on and learn from prior Generations.
Capitalism has failed this country
The recession has only made us stronger. We've learned a lot and we're ready to take on the world.
I would have been okay these statements except for if he didn't say "they had to bail out the banks." No, they chose to bail out the banks. They also could have bailed out the people who lost their homes and their jobs. Instead they bail out the banks responsible for all the bad home loans that led to the recession.
Are we going to add the fact that Al Gore pushed most of our jobs overseas due to his global warming drive and was told, on camera, that if he signed the trade agreement into effect while allowing China to be exempt of the regulations being imposed on Americans would loose Americans millions of jobs just after Clinton was pushing for banks to lower their expectations of people applying for loans they wouldn't normally have been approved for???
These two actions played a huge part in people getting loans that took both the husband and wife working to afford. Then pushed the jobs overseas and millions of people lost their jobs. This helped fuel the problem. Then when some major investors saw the trend, they started investing money towards a short on the housing bubble. These people needed it to tank to make their money. All the while, Al Gore had a lot of his money invested in overseas companies when he made his move and it enriched him to have all these jobs move away from Americans.
So sick of everyone hiding these facts. Just look into it all people. Look hard, as they're not letting this information out to the public without a fight.