The Great Recession Outline

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1. Who was affected?

American families

At the peak of the housing boom, mortgage packages reached every racial and ethnic group, income level, and geographic area in America

Family incomes dropped severely

Rise in poverty levels

Many people without health insurance, including children

61% of people who bought packages from Wall Street had good credit scores

2. What were the consequences?

Market Crash

Triggered by collapse of enormous credit and the housing bubble collapse

Crash of 8 trillion dollar housing market

Between 2007 and 2010, median value of America’s homes fell 42%

By May 2012, 31.4% of homeowners with mortgages owed more money on their houses than the house was actually worth

Those with good credit scores tried to refinance with subprime loans in order to take more cash out of their houses than a regular mortgage would allow

Subprime mortgages carried more interest, but required no initial payments

Many planned to refinance again before their monthly payments got too high or sell for a high profit

Too unpredictable, didn’t really work

Collapse of stock market

Destroyed 18.9 trillion in household wealth total

Between October 2007 and March 2009 plunged 57%

12 years of gains lost in 17 months

Extremely severe job loss coupled with very sluggish recovery

Led to sharp cutbacks in consumer spending

Loss of consumption with chaos in financial market led to collapse in business development

Massive job loss

In 2008 and 2009, labor market lost 8.4 million jobs, 6.1% all payroll employment

Most dramatic employment contraction since the Great Depression

After technical end of recession in summer 2009, still not enough growth to create enough jobs to keep pace with normal population growth or to even replace jobs lost

October 2010, 16 months after official end, still 5.4% fewer jobs that before recession

3. Where did the effects reach?

All ethnic, racial, income, and geographical groups in the United States, all businesses affected because even if they weren’t directly involved, consumer cutbacks threatened the livelihood of their business

4. When?

The Great Recession lasted from December 2007 to June 2009

5. Why did it happen?


More focus on managing financial wealth than on production of commodities

Started in 1980s, encouragement from economic discipline and the government

Economists told people that markets were rational and efficient

Government responded with less regulated financial industry and a more hands-off approach to economic policy

Unequal distribution of income

If wealth is distributed evenly, more consumer spending

Banks made money selling loans to Wall Street

Wall Street packaged the loans into asset-backed securities and sold to private investors

To feed the system, mortgage lenders marketed high-risk subprime loans

Little regard to how customer will pay for them


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