The Reasons for the Great Crisis of 2008-2009
Introduction
The Great Recession in American capital markets triggered significant instability from 2008 onwards. During that time, economic disruptions impacted both customers and business owners significantly. The circumstances that lead to this financial failure culminated in company frustration and corruption. The collapse of the housing bubble and the evolving mechanisms of mortgage origin led to an economic slowdown, which has negatively impacted the lives of many people. Corrupt decisions brought on the Great Depression, where many businesspeople wanted, which caused both creditors which consumers who spent their money in those markets to financially battle. This paper seeks to analyze the causes of the Great Recession of 2008-2009.
The loss of jobs was 8.4 million, or 6.1%, in 2008 and 2009 in the United States. At the end of 2008, the price of homes dropped by 18 percent on average. In Los Angeles, household valuation losses were higher in 2008; Miami was 29 percent and San Diego 27 percent. The twin consequences of rising household prices and reductions in profits after taxes have been shown in consumer trust. In the period 2004-2008, average household spending enhanced by 16.3%. Household costs decreased by 8.1% from 2008, but this is not sufficient to offset the steep growth, which started in 2004. In contrast to household spending, gas rates went up by $3.00 or more per gallon beginning in 2009. Besides, this is a simple expense and comes under the context of everyday life tasks.
Healthcare prices have also increased; this is addressed later in more depth, which also continued to improve customers ‘ trust. A decline in disposable income has also led to a drop in consumer morale. At the start of 2009, actual household incomes fell by 0.06 percent after taxation and increased expenses. Also, this is a modest reduction, but improvements in health care rates have led customers to refrain from any investment.
Individuals usually are incredibly conscious of two specific things, the first being economy, and the other being their wellbeing. The economic situation has been discussed and more examined, but the relation of employment and community services to the great crisis must be considered. On a personal level, I am not a fan of the Affordable Care Act in full disclosure and outside politics. The current national discussion on health policy interchanges with the terms of health coverage and health insurance. The difference in health services, preventive care, and life insurance is essential.
Health is a state of being, what is wrong, or correct with an individual. Wrong or right are oversimplifications, subject to debate, and terms I have used here only for expediency. Health care is all about correcting that which is wrong with an individual. Health care can also be about preserving an individual’s correct health. Health insurance focuses on payment for health care costs. In 2010, the Accessible Healthcare Act was passed. The estimated out-of-pocket cost was doubled and no longer included. ACA also specified full-time and other aspects not related to health care. This political policy affected the economy and public trust greatly. Without the newly compulsory health care, those in the labor market were required to take on some part-time jobs to seek to reinstate earlier losses.
In addition to the decreased coverage, the quality of medical treatment doubled. In 2010, the health security quality $3,600.00 in 2011, and the premium in comparison was over $9,000.00. Most of these people optioned to pay fines to live without convincing health insurance. The sum came until heavy copayments and deductibles were paid. Also, note that since the time, there have been more family costs and a fall in pre-recession real profits. It is an indication of an intervention by the government that can affect public trust.
Community Reinvestment Act in 1977
Initially, borrowers were allowed to approve loans, beginning with the Community Reinvestment Act (CRA) of 1977, for people under stellar status or people who did not meet the necessary income requirements for the money lent, also known as subprime loans. Some of these lenders ended up in government-supported companies. The CRA has triggered higher demand and house prices. Housing rates grew relatively slowly until 2005 and rose quickly in 2005. House prices declined in 2006 and 2007. The losses were most severe in 2008 and lasted until 2012. In 2006 and 2007, the rate of mortgage forfeiture rose to the point of the recession in 2008. Throughout 2008, the US budget received more than half of the US$ 900 billion for government-sponsored loans.
The collapse of mortgages was a noticeable element of the major recession. The collapsing mortgage bubble has triggered a dramatic drop in new domestic revenues. Before the explosive housing bubble, household owners could steadily increase their shareholdings to a greater extent. These withdrawals of household equity permitted many to continue increasing household costs and to finance improvements in homes. Many of those who were not part of subprime loans, including many, were left with decreasing home values that were more valuable in their homes than their homes.
Participation in workers is one aspect of the Great Recession that still needs to recover. The level decreased by 67 percent from higher in 2000 to its current 63% rate. Besides, it is one justification that the argument continues “is truly ended with the Great Depression.” While a 4 percent decline can seem not to be an economic improvement, many people employed or holding many part-time positions must not be ignored. Indeed, the US has an aging population; this drop is not just due to a rising pension increase.
Analysis
The Great Recession has two significant causes that closely reflect each other, the collapse of the housing bubble, and the cycle of mortgage origin. Besides, the housing bubble has issues with mortgage development so that we could first discuss that. Mortgage loan providers offered a home loan more efficiently, and more consumers started to purchase one as such loans were cheaper and more convenient to receive. This might not sound like a problem, but many of those who lent had no means of repaying them soon. However, the desire of borrowers to repay their debts was not a problem for mortgage firms.
Investment banks were making money off of the increased number of loans being taking out by American citizens. So the more comfortable the loans were to obtain, the more money these investment banks would make. Some investment banks even began to realize that they could buy out mortgage loan firms and then sell the loan packages to investors at a higher value. As the loans were no longer being sold in an open market, these investment banks did not present the same amount of credible information about the loan packages, as required in a free market. That later resulted in trouble, as the people who took out mortgages realized they could not afford to repay the loans that they had gotten at such a great value. Also, Lack of ability to repay loans resulted in a downward spiral for the housing market and the economy as a whole hence putting pressure on the housing bubble.
A rapid increase in housing value causes the housing bubble until it reaches unsustainable levels and then quickly declines. People were already losing large sums of money as they were forced to try and pay back expensive mortgage loans that they could not afford, and this loss of wealth meant there was a decrease in other consumer spending. When the housing bubble burst, home values decreased drastically, and individuals began to realize that their loans cost more then what their homes were worth. This hurt many different markets. Along with the drop in home values, mortgage markets were negatively affected as individuals had to sell their homes. There was a decrease in the demand for homebuilders and a decreased need for real estate and home supply stores. People could not afford their homes, let alone the luxury items that generally accompanied them. The housing bubbles are believed to occur periodically; however, there are ways that this particular housing bubble burst could have been made less destructive if not completely prevented.
The way mortgage loans were being created and sold was a significant factor in the housing bubble burst, and the mortgage market could have quickly been reformed. If mortgage firms had not been allowing their loans to be so easily attainable, fewer people would have had the means to take out loans, and only those who could afford to pay them off would have had access to them. Investment banks made the same destructive decision when allowing investors to buy packages of loans at such a high value without any concern about the mortgage owners’ ability to pay them off in the future. If loans had only been granted to those who could afford them, payments would have been made on the loans. Instead, some so many individuals realized that they owed more in loans then they could afford, which often meant they could not afford to keep their homes any longer.
People who could no longer afford their homes were known as “underwater” mortgagees. They were stakeholders in the mortgage market, and as a result, they were directly affected by the corrupt actions of mortgage loan firms and investment banks. When the prices of homes fell, and mortgagees realized the financial trouble they were in, they did not have many options. Their debt only increased, and without enough savings, many were forced to abandon their homes. However, these underwater mortgages were not the only stakeholders who were negatively impacted during the Great Recession.
Investors who bought securitized products often faced similar difficulties. At this time, many bonds were backed by home mortgages; this process was known as the mortgage-backed security. So, when the housing bubble burst and mortgages could not be paid, and these bonds no longer held the same value, investors began to lose money. With investors and mortgagees, and many other Americans, struggling for financial security, the Federal government had to respond in some way to appease the public.
During the Great Recession, the Federal Government’s actions received both positive and negative reviews. The Federal Government has been accused of not placing enough attention and regulation upon the mortgage firms and investment banks, to begin with. Many believe that if the business of these companies had been regulated, then there would not have been so many people who could not afford to pay off their loans, and the housing bubble burst may not have caused such an economic disaster. In the eyes of the public, the Federal Government flawed by not increasing its public investment as this might have helped to keep the economy stable.
Congress also cut taxes, which was viewed negatively, as this tax cut only seemed to positively benefit the wealthy Americans, not the already struggling middle and lower classes. Despite these negative accusations, the Federal government took some action to help struggling Americans during the Great Recession. They contributed to bailing out some of the struggling banks and auto industries. The American Recovery and Reinvestment Act (ARRA) was formed to help stimulate the economy. The act gave 787 billion dollars to fund the creation of new jobs, investments in long-term growth, and to make sure there would be accountability in government spending.
Conclusion
In summary, through the lives of the multiple players impacted, the adverse effects of the Great Recession can be seen. Also, the facts of greedy businesses to be more productive can lead to economic ruin for the entire nation as I am learning more about the events of the Great Depression. The property bubble burst, and two of the leading causes of the great crash were the reckless origination of mortgages. Although economic hardships for most Americans were induced in the Great Depression, these problems were avoidable. The Great Depression undoubtedly would not have happened if businesses such as crooked investment banks and mortgage lenders met with higher expectations.
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