Causes Of The 2008 Recession

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The 2008 recession was a major worldwide economic downturn that began in 2008 in America and continued into 2010 and beyond. The 2008 Recession was caused by the Financial Crisis of 2008; The 2008 crisis was due to a collapse of Lehman Brothers. Lehman Brothers a sprawling global bank, in September 2008 almost brought down the world’s financial system. The 2008 recession was by far the worst recession since the Great Depression of the 1930s. The worldwide recession hit bottom in December 2009; however after five years there were few signs that the American economy started moving upward again. Five million of the 8 million jobs lost did not return. Recent Unemployment rates have been around five percent which is some of the better numbers of…show more content…
In this film by PBS it shows the one of the major causes of the 2008 FInancial Crisis; the Credit Default Swaps. The credit default swaps were created by JP Morgan. A credit default swap according to Investopedia is, “A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well all interest payments that would have been paid between that time and the security’s maturity date.” The credit default swaps created a housing bubble as banks were now able to trade mortgages and offer more money at what they thought was low-risk. In “The Giant Pool of Money” we heard from some of the home owners who were getting massive mortgages. They had surprised responses as one named Clarence Nathan who made around forty-five thousand a year got a mortgage of five hundred and forty thousand. These loans/mortgages looked great for a while until banks started to run out of cash to afford taking on Credit Default Swaps. The first bank to run out of cash was Bear-Stearns. Their stocks started to crash as Bear-Stearns assets turned “toxic”. After this the Lehman…show more content…
You could say that it saved the American economy, but I think it showed how fake and feeble our economy is. I believe that it actually hurt our economy in the long run to save it for the short run. The correct response to the 2008 recession would have been a Laissez-faire or “hands off” response. A Laissez-faire response fully conveys a true economy as an economy is meant to have its ups and downs, but will always balance itself since there will always be supply and demand. The invisible hand will guide the free market through hard times and competition according to Adam Smith and the U.S. government choose to try to artificially speed up the invisible hand. Instead of helping the U.S. Government showed that Wall Street could get away with whatever they want and still have a safety net for whatever they do. One of the reasons why the Government choose not to do this is because the people in power at the political level did not want to lose their jobs. The quick response for the politicians to avoid taking the blame was to bailout the economy and put trillions into the economy to stimulate it. This has set us up for failure in the future as it provided short term answers and not long term stability. We have seen how large the 2008 recession was. The 2008 Recession had an effect on the global and American economy. One of the major causes of the 2008 financial crisis was Credit
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