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The recession of 2008-2009

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The recession of 2008-2009

  1. The recession of 2008-2009 was the most prominent economic tragedy over more than the last 70 years. Economic failure was stated to be the result of the free-market policies. However, it can be better described as the result of the failure of economic policies adopted and implemented by the US government over the decade. The financial institutions lost track of the mortgage securities and decided to issue mortgages to the ones who were inclined towards a default.

The subprime mortgage crisis led to events of fraud, especially for the different loans offered to the residents despite their lack of ways of loan repayment. The fraudulent activities incurred a massive loss to the financial organizations that, in turn, impacted the national economy. The federal experts also failed to anticipate the impacts of such actions, thus resulting in a crash of the stock market and a considerable portion of investors losing their investments made over the past years.

  1. There is a wide range of factors that contributed to one of the most tragic economic crises in the history of the USA. Among them, inevitable missteps have taken by the government, and the financial organizations also have noteworthy contributions. The US recession has been identified as the result of subprime mortgage loans issued to likely defaulters. Other banking missteps include the provision of loans to those without any jobs, assets, or resources, or to those who are more likely to get defaulted.

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The prime reason behind this action was to draw in great rates of interest due to high risks. This led to an increase in fraudulent activities. Further, the stock market also suffered a massive crash and came down to less than half the initial state. This, in addition to federal gaps in economic regulation, has been identified to be some of the prime reasons behind the 2009 recession.

  1. One of the common myths associated with the great recession of 2009 is that it was the result of irrational risk-taking due to the policies of the free market within Wall Street. Truth be told, the extensive network of subsidies offered by the government and their control had significant contributions behind the economic crash.

Some of the prime ones in the list include issues high-risk mortgages to individuals who could not provide any assurance of loan repayment. It is because the rate of interest on such mortgage issues is high. In addition, the federal policies of economy regulation were also week, and the reserves failed to recognize the warning signs that had been present for a long time. The government policies that had been considered to bring in economic growth for the nation have been recognized to be a contributing factor behind the great recession of the USA in 2009.

  1. Recession is one of the worst incidents that can impact any national economy. Though there can be a variety of reasons that can lead to a recession in a market, the great recession of 2009 can be described as the result of mismanaged policies incorporated by the government itself. It extends to subsidies offered by the government, grants, and other supports that can impact the economy. In addition to that, subprime mortgage issues, a crash of the share market, and the lack of federal efforts to evaluate the policies for the success rates also had noteworthy contributions behind the tragedy.

However, the government tried to cover up the entire scenario under the curtains of free-market policies of Wall Street, stating the free policies to be the reason for unemployment and decline in GDP rates. Economists are still conducting extensive researches to understand recession and determine the best possible ways to mitigate such threats at the earliest.

  1. As per the given article, the great recession of 2009 was caused by the policies of the United States government. The housing policies of the government had resulted in the money of the federal banks getting concentrated around the housing sectors. This was primarily because the government wanted most of the population to buy homes. The government also lowered the lending standards, which resulted in the housing financial bubble getting inflated with time.

The governments then encouraged firms to buy riskier mortgages, which became a liability once the pricing fell in 2008. As a result, the financial firms on which the government relied on loans and mortgages, collapsed one by one. Some of the notable examples are Freddy Mac and Fannie Mae, which helped the governments in providing affordable housing plans in 1992. The investment made by these financial institutions became bad once the housing prices began to decline, and the loans started to default at higher interest rates.

  1. In the given article, the author states that the worldwide economic recession of 2009 was caused by faulty government policies rather than the free market. The government had relied heavily on the real estate market, with the sole intention of providing affordable houses for the population. For this, they depended on financial institutions such as Freddy Mac and Fannie Mae. The federal monetary policy was too loose and was mostly concentrated around the real estate market. This resulted in the boom of the housing markets in the early 200s. In 2008, the prices for the houses declined.

As a result, the loan, which was encouraged by the governments to be issued at a lower rate, began to default on higher interest rates. The financial institutions had converted the loan in mortgage-backed securities (MBs) whose price began to fall. Also, the government was responsible for the decline of lending standards and encouraged lending to parties who had a spotty lending history.

  1. The root cause of the great recession of 2009 has been tried to be covered up by active effort by the government. The blame was put on the policies encircling the free markets that caused the investors to take extreme risks in the share market. However, the ineffective policies of the government, in addition to the subsidies, had laid the foundation for this tragic historical incident.

The banks and financial institutions had made significant contributions with their efforts of issuing a subprime loan to the candidates who had an increased chance of default for the loan. Mortgage values for housing projects liquidated, and the federal policies that were framed to handle such situations fell short, leading to a crisis in the share market, a decline in GDP, unemployment, and other such symptoms of recession. The government has also put in efforts to handle the situation after the incident and have implemented specific policies to keep the economy in check.

  1. The incidents of recession create a massive hole in the national economy. The tragic event of 2009 was no different and impacted the growth of the USA economy to a great extent. For a long time, the government tried to cover up the leading cause of the recession by stating free-market policies to be responsible for the crash. However, the crash of the Wall Street share market was the result of the recession and not a cause for it.

New housing policies were introduced by the US government during the last decade of the 20th century. The changes in the housing industry, mortgage loan approval to subprime individuals, ineffective management of the financial organizations to reap in high rates of interest based on high risks created enormous craters. Price inflations as a result of specific federal policies also had significant contributions behind the recession, thus leading to the market crash, unemployment, violence, drug abuse, and other such impacts on the society.

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