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Great Recession Essay

620 Words3 Pages

Since the Great Depression of 1929-30, the economy faced another biggest turmoil or what is being called as the worst financial crisis in 2008. The indications for the arrival of such crisis began in January 2008 when there was news of drastic fall in the profits of the Citigroup banking. It had a great impact over the New York Stock Exchange at that time. Followed the incidence, there was a series of declaration of a number of American and European banks. All these banks and financial institutions declared massive losses in their 2007 end of the year results. Later in the same year, a 158 year old investment bank – Lehman Brothers became bankrupt and the stock broking firm – Merrill Lynch was taken over. Such kind of moves and incidents further increased the …show more content…

The basic reason behind the recession was that there was too much increase in the money supply in the economy because central bank had reduced the interest rate. It motivated the investors to borrow high amount for more investment particularly in the real estate sector in the economy. Increase in money supply in the economy helped in easing out the credit access which encourages people to take loans particularly home loans. This leads to rise in the demand for homes and the prices of real estate had shoot up. Particularly the mortgage lenders offered too much “creative financing” to lot of risky borrowers who did not had good credit background as well. They allowed for adjustable rate mortgages which took the loans on unpaid interest on the principal amount of home loans. They were speculating that the price of the real estate sector will increase a lot giving them benefit in long run. But in the long run, people were not able to pay back their loan which made the banking sector bankrupt. It was one of the main repercussion effects of subprime mortgage recession in

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