The 2008-2009 global financial crises was the second worst economic crisis in history since the Great Depression in the 1930s. Despite its less severity of macroeconomic ramifications of the Great Recession relative to the devastating severity, but geographically localized effects of the Great Depression, the unprecedented economic ramifications of the Great Recession were felt throughout the globe. Furthermore, the Great Recession had far reaching long-term effect on national and global economy than the short-term economic impact of the Great Depression. A decade after the end of the Global Recession unemployment levels in most countries have not yet returned to post-recession levels. This paper explores the causes and ramifications of the 2007-2009 Great Recession. The long-term effects of the Great Recession and its globally devastating impact on global financial markets, real estate and banking industries, mortgage foreclosures, and loss of billions of savings was mainly exacerbated by the subprime mortgage crisis.
International Monetary Fund (IMF) defines a global recession as a period of unprecedented fall in per-capita global gross domestic product (GDP) as proof by similar macroeconomic indicators including trade, unemployment, industrial production and oil consumption. Based on IMF definition, the Great Recession therefore began in December 2007 whereby GDP fell by 4.3%, and the unemployment rate hit 10% (Arestis and Karakitsos, 2013) .
Delegate your assignment to our experts and they will do the rest.
Economists associate the unraveling of the Great Recession by the end of 2007 with the subprime mortgage crisis that began in April 2007 with the declaration of bankruptcy by the Federal Home Loan Mortgage Corporation. An earlier real estate bubble in the mortgage industry had led to overinvestment in the sector, which led to the subprime mortgage crash. Most of mortgage multinationals followed Freddie Mac bankruptcy path, including the New Century Financial firm, and American Mortgage Investment Corp. Subsequently, the Standard and Poor’s and Moody credit ratings firms declared their decisions to cut the ratings on over a hundred bonds insured through second-lien subprime mortgages, which banished over 600 residential mortgages under subprime category on the credit watch list (Arestis and Karakitsos, 2013) . Subsequently, mortgage prices plummeted as subprime crash bite throwing millions of homeowners under the bus by undervaluing their mortgage below their overall loan value.
Regulatory interventions by the federal government escalated the Great Recession. Unlike Franklin Roosevelt administration, the Bush and Obama administration responded with ineffective economic policies that escalated the crisis to a longer period than witnessed during the Great Depression. Federal government failures included Bush administration reluctance to bail out financial investors filing for bankruptcy, which led to collapse of multinational financial banks such as Bear Stearns and Lehman Brothers.
Several other factors triggered and escalated the Great Recession. Among them include regulatory failures, especially Federal Reserve’s indifference to toxic mortgages wave in early 2000s. Recklessness and risky investment behavior triggered by an unprecedented breakdown in corporate governance also contributed to the unraveling of the Great Recession. Excessive credit and risk by homeowners and Wall Street investors also increased vulnerability of the financial system to the unraveling crisis. Breaches in ethics and accountability among policy makers also contributed to the escalation of the crisis.
The Great Recession had far reaching ramifications on global and national economy. The impacts included loans defaults by several European states as the crisis bite including Greece, Cyprus, Ireland and Portugal. The resultant austerity measures such as social benefit cuts and tax increases triggered a political backlash in default states, which led to mass protests and regime changes in several European states (Kumkar, 2018) . Stock owners also lost billions of dollars as stock price plummeted to a historical low. Furthermore, mortgage prices fell by 20% to a historical low of $55 trillion, marking a $14 trillion loss between the fall of 2007 and the spring of 2009 (Arestis and Karakitsos, 2013) .
References
Arestis, P., & Karakitsos, E. (2013). Origins of the ‘Great Recession’. Financial Stability in the Aftermath of the Great Recession, 13-40.
Kumkar, N. C. (2018). Introduction: Protests in the Wake of the Great Recession. The Tea Party, Occupy Wall Street, and the Great Recession, 1-29.
