The Great Recession of 2008: Causes and Consequences

Table of Contents

Introduction and Objectives3

Literature Review4

Analysis9

Summary and Conclusions10

References13

The Great Recession of 2008: Causes and Consequences

Introduction and Objectives

The objective of this research paper is to discuss the “Great Recession of 2008: Causes and Consequences”. The 2008 financial crisis erupted directly due to the collapse of the housing bubble in the United States in 2006, which caused around October 2007 due to the so-called subprime mortgage crisis. The impact of the mortgage crisis began to manifest itself in an extremely serious since early 2008, infecting U.S. financial system first, and then to the international, having resulted in a deep liquidity crisis. The predecessor of the 2008 financial crisis has served the mortgage crisis in the U.S., the first signs of which appeared in 2006 in the form of reduction in the number of home sales, and by the spring of 2007 turned into the crisis of high-risk mortgages (subprime lending). In the summer of 2007, the mortgage crisis began to develop into a financial system and affect not only the United States but other countries as well.

The economy began slowing with a recession starting in 2007 that also triggered a major retreat in stock prices. Many U.S. households saw significant reductions in personal wealth as the value of both real estate and equity holdings were significantly lowered. The 2007 recession posed a new set of challenges for the conduct of monetary and fiscal policies. Both the U.S. Treasury and the Fed were called on to deal with a banking crisis that was much larger than the S&L crisis but not as severe as during the depression (Fabozzi, 2009).

The emergence of the global financial 2008 crisis was associated with the factors such as general economic cycles, imbalances in international trade and capital flows, overheating of the credit market and mortgage crisis, credit expansion, high commodity prices (including oil ), overheating of the stock market etc.

Literature Review

The global financial crisis of 2007 was comparatively recent in origin as compared to other financial crises, and is possibly persistent until now. It was triggered by increasing defaults on subprime mortgages and the disruption of the markets for mortgage-backed securities. The financial crisis took root in the United States of America, and spread to the United Kingdom and other countries the world over. There were numerous things that lead to the financial crisis like the process of globalization that has been occurring since the part thirty years. The crisis began in the sub- prime markets in the United States and spread to the United Kingdom, remainder of Europe and the world. The world's markets were and still are highly integrated. The next trigger was the increase in leverage of the household sector and the corporate sector by way of the sub- prime crisis. Furthermore, this lead to having effects on the entire financial system. Additionally, majority of the risks were underestimated mostly in the corporate sector (Flannery, 2008).

The crisis began in summer 2007 because of "subprime" mortgages made ...