- From December
2007 to June 2009,
the United States suffered
an extended economic downturn
that came to be known
as the Great Recession.
It was the worst
financial crisis in the US
since the Great
Depression, leaving
an impact on homes
and businesses
in America and around the world.
We'll look at the
causes of the recession,
the recession itself,
and its lasting impact.
While failures in
financial regulation
and excessive borrowing by
households and Wall Street
contributed, the primary
cause of the Great Recession
was the subprime
mortgage crisis.
A mortgage is a loan that allows
people to buy a house upfront.
A subprime mortgage is
normally issued to borrowers
with low credit ratings.
And historically, many banks
wouldn't even make loans
to people with bad credit.
In the early 2000s however,
the housing market was booming,
so banks began giving
subprime mortgages to people,
even if they had
low credit ratings.
In other words,
lenders, often banks,
were loaning money to people
who are less likely to be
able to pay them back
and charging them
more money for
those mortgage loans
through high interest rates.
Now on the face
of it, it doesn't
sound like the best deal for
the lender or the borrower.
But many people took on
these subprime mortgages
because they stood to make a
large profit if their house
increased in value.
And that seemed like
a pretty good bet.
Houses had been
increasing in value
over the past several years.
Home ownership had always been
central to the American dream.
And people who may never have
imagined they could own a home
saw the possibility
in front of them.
So where did things go wrong?
In 2007, the housing
bubble burst.
As demand went down, the prices
of homes dropped rapidly.
People stopped
investing in real estate
since it was no
longer as profitable.
Many people were no longer
able to pay off their mortgages
or sell their houses.
And the banks
foreclosed their homes.
Since the foreclosed houses
were now worth less money,
financial institutions
lost money
too along with the homeowners.
As a result, the housing
market failed, banks collapsed,
the economy plummeted,
and the Great
Recession had officially begun.
So what did this mean
for the average American?
The economic downturn
was devastating.
Many people and businesses
suffered huge financial losses
and therefore spent less money,
further damaging the economy.
Financial firms were not as
capable of lending money.
And in 2008, the US
government finally
had to step in and bail
out the banks, increasing
the national deficit.
During the Great Recession,
more than 8 million Americans
lost their jobs, nearly
four million homes
were foreclosed each year, and
2.5 million businesses closed.
Bank bailouts, federal
aid to the auto industry,
and government spending
programs helped
avoid an even bigger crisis.
But it may take
decades more to fully
understand the significance
of the Great Recession.
