Analyze the Great Recession of 2007–2009. In response to each post, discuss the consequences of the financial crisis. As Americans assessed the causes identified in your peers’ posts, what lessons did the nation take away from the crisis? How did America’s political and economic structures change afterward?
Post 1 – Zivia
The Great Recession, known as the longest recession since World War II, began in 2007 and ended in June of 2009. A major effect was the financial downfall. With unemployment on the rise, and significantly increasing all the way up to 10% by October of 2009, prices for selling houses continued to drop as well. As the recession went on, the United States was hyper-aware of the negative effects it was having on the entire nation. As the government strived to make a fix, it took time and thought. The first attempt was reducing federal fund rates, these rates significantly dropped all the way down to 0-0.25%. This significant reduction in federal rates, had a positive outlook continuing to decrease inflation. The Great Recession has taken a turn to the left and has seriously hurt the economy and federal government, still, 11 years later we are recovering from this downfall. While unemployment is still high at 7.3% the federal government continues to strive to find the most effective and beneficial plan for the entire nation. The government continues to work for a better economy, a better system, and a more unified front, this is to ensure that another Great Recession doesn’t happen again.
Rich, Robert. “The Great Recession.” Federal Reserve History, 2013,
Post 2 – Jacqueline
Long-term causes of the Great Recession of 2007-2009
There were signs of the growing bubble in real estate long before 2007. In the ten years before the crash some bankers saw the rising problem and opted out of the subprime mortgage market. House prices were inflated, lending practices were lax, and homeowners were taking on too much debt. Warren Buffet called the situation “‘mass delusion’ shared by ‘300 million people’”[1]
Bursting of dot.com bubble led to real estate as the next investment opportunity. The rising cost of real estate and the ability to acquire a home with no down-payment encouraged people to count on the increase in home value to protect their investment. The ability of banks to sell mortgages in the subprime market meant they only cared about collecting fees, not the ability of the borrower to repay the loan. Non-traditional loans, like interest only loans, began to appear and lenders were encouraging people to take on debt and even falsifying loan application documents where no one was verifying income or credit worthiness.
In 2005, the Economist magazine published a cartoon showing a brick falling from the sky and predicted this would be the end of the housing boom.[2]
Short term causes
In 2007, the real estate bubble began to burst with home values declining and people left owing more than the value of their home. Since mortgage loans had been sold on the subprime market, a borrower didn’t have the opportunity to work with their bank on a solution, and some just walked away from their home and the mortgage debt.
Institutions that owned the mortgages, found themselves in debt as the loans lost value. Financial institutions were so interconnected that when one failed, it brought down others. The failures threatened to destroy the two big government-sponsored loan agencies Fannie Mae and Freddie Mac. A federal takeover saved these two institutions. As financial institutions failed, the stock market declined and the damage spread to all industries and workers were laid off, increasing the inability to pay mortgages.
In 2009, the effects of the recession leveled off, in part encouraged by a stimulus bill to encourage government spending to offset the slowdown in private spending.
