Causes Of The Great Recession Of 2008

1415 Words 6 Pages
With every decision made, there’s always a consequence that proceeds it. For example, only focusing on the “big picture” and not paying attention to the little details can have some serious repercussions. The reason for these repercussions is because those specific details of the “plan” were overlooked and they might have had a huge impact or effect on the rest of the plan. As a result, the consequences may not be foreseen and may not be avoidable, but could have been preventable if all of the details were well viewed. One of the best examples of this exact phenomenon was the “Great Recession” of 2008. This is a perfect example of this phenomenon because while the economy preceding the event was doing very well, there were decisions being …show more content…
After the recession in 2001 many financial agencies within the government had made it possible for people with low income to take out larger loans. They had made this possible by loosening up the down payment standards and other previous policies that made taking out loans much easier to receive, which in turn had placed more pressure on loan lenders to give out loans to people who were previously unqualified. To back them up and be able to make these “risky” loans, they had the Federal Reserves’ cheap money policy. The Federal Reserves’ cheap money policy made receiving loans much easier for consumers because it had much lower interest rates which was good for the borrower but bad for investors since they too would see the same interest rates. These adjustments to the policies and other unusual money policies were some of the causes that led up to the credit crunch and can serve as a basis for it. The credit crunch was happening during the period of economic stability where banks had more confidence in the consumers thus leading the banks to lend consumers larger loans than what they could pay …show more content…
Along with many other things, the biggest fall was the house market crash, which was arguably the biggest cause of the recession. The credit crunch and the collapse of the housing market go hand in hand because lenders had lower standards on giving people larger loans, it had become harder for people to repay their loans back to the banks. Although the credit crunch played a role in the collapse of the economy, the housing market crash had the biggest impact on the economy. Since it was accumulating high demand during a period of good economic stability and during the time of the changes in money policy it had steadily

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