Worldwide economic recession of 2009
- 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.
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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.
- 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.