The U.S. Recession and the housing crisis of 2007 and 2008

The U.S. Recession and the housing crisis of 2007 and 2008

The U.S. Recession and the housing crisis of 2007 and 2008

The global financial crisis rapidly transformed starting in mid 2007. During this crisis, there was a burst of the housing bubble in the United States that caused the worst recession witnessed in the world for nearly six decades. It was a sharp decline in the economic activity during the 2007 and 2008. During this time, housing market dropped significantly where derivatives and mortgages-backed securities amounting to billions of dollars lost significant value. The collapse of these securities jeopardized the solvency of financial institutions and over-leveraged banks in Europe and the U.S.

This paper aims at identifying four key messages using a thorough review of the crisis in regard to consequences, causes, and policy responses. In addition, this paper will identify the causes, remedies and discourses of the Great Recession.

Background and Introduction

The 2007 global financial crisis laid its long shadow on many countries’ economic fortunes that was referred to as the ‘Great Recession’. Initially, it started as an isolated turmoil in the sub-prime segment of the housing market in the US that was transformed into a whole blown recession towards the end of 2007.

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In collaboration with the Congress, he managed to come up with coherent ideas that fixed the financial system. Specifically, there was an initiative to stem the rising tide of foreclosures and stabilize the housing market. To add on to that, the treasury and the Federal Reserve worked jointly to help reduce interest rates in mortgages. Markedly, this intervention resulted to lower payments for the many Americans who refinanced their homes.

Hetzel, R. L. (2012). The great recession: Market failure or policy failure?. Cambridge: Cambridge University Press.

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