In 2007, towards the end of President George Bush’s presidency, America faced its worst economic crisis since the Great Depression. Called the Great Recession, (December 2007 - June 2009), the crisis caused a decline in economic activity, soaring unemployment rates, and the failure of key businesses. When President Bush left office in 2008, the country was still reeling from the crisis and recovery attempts were just being implemented. Unsurprisingly, a key part of then presidential candidate Barack Obama’s platform that he ran on was a promise to fix the economy. This paper will analyze and discuss the causes and effects of the crisis itself, various governmental measures that were taken to address the crisis, and their efficacy. Furthermore,
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Although it is beyond the scope of this paper to fully explain such a complex issue with so many inter-related elements as the 2008 financial crisis, undoubtedly one of its main causes was the bursting of the housing bubble in 2005.
The bursting of the housing bubble was primarily triggered by what is commonly referred to as the subprime mortgage crisis. The subprime mortgage crisis came about from many banking and governmental policies that encouraged home ownership, in the manner that banks were providing home owner loans to people with lower credit reliability, as well as an overvaluation of certain subprime mortgages on the theory that the housing prices would continue to rise.
Essentially what was happening was that banks were loaning money to unreliable borrowers to purchase homes. The standards for whom was eligible for a loan were becoming increasingly more lenient and flexible; from 2004- 2006, the subprime mortgage lending rate was at an all-time high of approximately 23%. Previously, the lending of subprime mortgages ran at approximately 8%, as demonstrated by Figure A below. Obviously, with more people with the ability to buy homes, the demand for homes went up and the housing market got stronger and stronger as the lending standards got less and less stringent.
Although it is beyond the scope of this paper to fully explain such a complex issue with so many inter-related elements as the 2008 financial crisis, undoubtedly one of its main causes was the bursting of the housing bubble in 2005.
The bursting of the housing bubble was primarily triggered by what is commonly referred to as the subprime mortgage crisis. The subprime mortgage crisis came about from many banking and governmental policies that encouraged home ownership, in the manner that banks were providing home owner loans to people with lower credit reliability, as well as an overvaluation of certain subprime mortgages on the theory that the housing prices would continue to rise.
Essentially what was happening was that banks were loaning money to unreliable borrowers to purchase homes. The standards for whom was eligible for a loan were becoming increasingly more lenient and flexible; from 2004- 2006, the subprime mortgage lending rate was at an all-time high of approximately 23%. Previously, the lending of subprime mortgages ran at approximately 8%, as demonstrated by Figure A below. Obviously, with more people with the ability to buy homes, the demand for homes went up and the housing market got stronger and stronger as the lending standards got less and less stringent.