The Great Recession was caused by a number of different factors and the effects were abundant. With so much disagreement on what truly caused the recession, it is apparent that it cannot be pinpointed to one single event or action, but rather a number of factors that set off this devastating economic event. The recession can be blamed on a combination of factors such as deregulations by politicians, AIG, the S.E.C, and many others. The effects of the recession were felt by homeowners, banks, and many working Americans as the economy declined, leaving numerous drowned in debt.
In 2004 the Security and Exchange Commission (S.E.C) minimized the requirements for larger investment banks by allowing them to go further into debt. This gave banks …show more content…
The global derivative market had reached nearly 530 trillion dollars and the global Credit Default Swap (CDS) market was up to 62 trillion by mid-2008. Of the 62 trillion dollars in CDS, 80 percent were reportedly speculative. American International Group (AIG) had sold 440 billion in CDS that were tied to mortgage securities. The company was not required to have a stockpile of reserves or collateral due to their high credit rating. However, rating agencies were paid by the bank or company that they were supposed to be rating, causing ratings to be high. AIG continued to sell these CDS even as their ratings began to plunge and foreclosures were increasing. (Colquhoun, Borrowing …show more content…
The two largest GSE’s, Fannie Mae and Freddie Mac, combined to back 5.4 trillion dollars in debt securities, essentially leaving the majority of home mortgage lenders reliant on the two GSEs. They gave out more subprime and Alt-A loans and their management had access to cheap money and the increasingly growing economy generated fast returns. This caused an increase in foreclosures housing prices to go up which in turned lead to losses for Fannie Mae and Freddie Mac. The Federal Reserve would try to help with allowing low interest rates and Treasury bought the stocks. This failed and they eventually lost 90 percent of their value (Colquhoun, The Borrowing Binge).
Because of the economic slowdown from the 2000 crisis the Federal Reserve decreased the interest rates and eased credit availability. This in return put more doubt in many aspects of the economy and especially in private home owners who went out and purchased expensive house with little money (Tankersley, Inside the
In 2004 the Security and Exchange Commission (S.E.C) minimized the requirements for larger investment banks by allowing them to go further into debt. This gave banks …show more content…
The global derivative market had reached nearly 530 trillion dollars and the global Credit Default Swap (CDS) market was up to 62 trillion by mid-2008. Of the 62 trillion dollars in CDS, 80 percent were reportedly speculative. American International Group (AIG) had sold 440 billion in CDS that were tied to mortgage securities. The company was not required to have a stockpile of reserves or collateral due to their high credit rating. However, rating agencies were paid by the bank or company that they were supposed to be rating, causing ratings to be high. AIG continued to sell these CDS even as their ratings began to plunge and foreclosures were increasing. (Colquhoun, Borrowing …show more content…
The two largest GSE’s, Fannie Mae and Freddie Mac, combined to back 5.4 trillion dollars in debt securities, essentially leaving the majority of home mortgage lenders reliant on the two GSEs. They gave out more subprime and Alt-A loans and their management had access to cheap money and the increasingly growing economy generated fast returns. This caused an increase in foreclosures housing prices to go up which in turned lead to losses for Fannie Mae and Freddie Mac. The Federal Reserve would try to help with allowing low interest rates and Treasury bought the stocks. This failed and they eventually lost 90 percent of their value (Colquhoun, The Borrowing Binge).
Because of the economic slowdown from the 2000 crisis the Federal Reserve decreased the interest rates and eased credit availability. This in return put more doubt in many aspects of the economy and especially in private home owners who went out and purchased expensive house with little money (Tankersley, Inside the