Delve into the Great Recession’s timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
By Brad Nakase, Attorney
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The Great Recession is infamous in American history. It was a time of great economic turmoil that touched every American household, whether through unemployment, plummeting house prices, or rising prices. However you may be surprised at the answer to when was the Great Recession. The effects of the Great Recession lasted 4 years; however, the official dates of the Great Recession state it only lasted 18 months.
The main cause of the Great Recession was the housing bubble crash in 2007.
In the years leading up to 2005, financial institutions loosened the eligibility requirements for mortgages. However, some institutions took this a little far and issued bad mortgages. These bad mortgages were mortgages that were lent to borrowers with bad credit who were unlikely to be able to pay off the mortgage.
This availability of credit meant that many Americans were buying homes, driving up residential real estate prices. The values of homes increased to more than the homes were actually worth. When the housing bubble crashed, house prices plummeted, and many Americans were left with mortgages that cost far more than their home was worth.
At the same time, financial institutions went under as borrowers were unable to repay these bad mortgages and defaulted on their loans. Many of these financial institutions went under due to the sheer number of bad loans they held.
Many Americans lost their homes, either because they defaulted on their mortgage or because the financial institution that held their mortgage went under. This had a massive impact on consumer spending as the American public tightened their budgets.
The Great Recession was avoidable, and the Obama government instituted stricter regulations on mortgages to ensure that the housing bubble crash would not happen again.
The Great Recession lasted 18 months, between December 2007 and June 2009. However, the official answer to when was the Great Recession undersells the long-lasting impact the Great Recession had, not just on the US economy, but the entire world. Unemployment rates, higher prices, and supply chain disruptions persisted long after the Great Recession had officially ended. It took four years for the US economy to return to normal following the Great Recession.
The Great Recession was one of the worst in US history. Some economists say that it is the second worst recession in America’s history. Others say that it would’ve been the absolute worst if not for the quick intervention of the government and Federal Reserve.
Millions of Americans lost their jobs during the Great Recession. It is estimated that the number of jobs in the US declined by 6.8% during the recession, and unemployment rates reached 10%. These are high in comparison to previous recessions in US history, however, it is even more dramatic considering that the housing bubble created jobs.
Another impact of the Great Recession was the liquidity crisis. Investment banks were hit hard by the bad mortgages and many of them were forced to declare bankruptcy, merge, or obtain private federal loans. The US government spent over $100 billion during the Great Recession bailing out investment banks and insurer AIG.
The Great Recession was so bad that it had a global impact. However, the Great Recession did not hit the rest of the world as badly.
Europe was hit the worst because of its links with the US. Countries like Australia, China, Iran, and India avoided recessions, but their economies experienced some decline. They either did not decline enough to be considered a recession, or they did not decline for long enough to be considered a recession.
Latin America, Africa, and large parts of Asia were not impacted by the Great Recession.
In Europe, multiple countries implemented austerity programs and sovereign debt crises. Greece faced large public debts. Countries whose economies are deeply linked with the US were hit more than the other countries. For example, countries like Spain, Greece, Italy, Ireland, and the UK were hit hard by the Great Recession because of their banking links and business links with the US. However, their economies were not as badly impacted by the Great Recession as the US economy.
Recessions are notoriously difficult to predict because they require 6 consecutive months of economic decline. This means that economists cannot confidently declare a recession until we are a few months into the recession. That is why it feels like economists are always talking about recessions.
So, on one hand, there is no way to tell a recession has happened until it has been happening for a few months.
However, there were early warning signs of the financial crisis that caused the recession. The problem was there was no government oversight of financial institutions at that time. So, the government was not able to see it coming.
Also, these bad mortgages were packaged up into mortgage-backed securities and sold to investors and banks, so the people paying for the mortgages weren’t able to see that the mortgages were bad.
So, while the last recession in the US was preventable, in terms of government regulations, it should’ve been in place to prevent these bad mortgages. It was not preventable because there were no systems in place that could’ve identified the issue.
Both the Federal Reserve and the US government intervened in the Great Recession and helped the economy to recover. The Great Recession is the longest recession in recent US history. It officially lasted 18 months, but the effects were felt for years to come. However, without intervention by the US government and the Federal Reserve, the recession would’ve been worse and lasted far longer.
Some of the things that the Federal Reserve and the US government did to help the US recover from the Great Recession include:
The stimulus packages were particularly useful in restoring consumer confidence and stimulating the economy. They provided US households with much-needed disposable income. Congressional approval of stimulus packages can take time, though, which is why automatic stabilizers are so important. They provide relief to the most vulnerable households until the stimulus packages can be implemented.
The Great Recession was the worst recession the US has seen since World War II. The Great Recession is officially recorded as lasting 18 months between 2007 and 2009. However, its effects were felt around the world, and it took economies years after the official end to fully recover.
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