The great recession of 2009 – a glimpse into the real reasons behind it

The great recession of 2009 – a glimpse into the real reasons behind it

The great recession of 2009 had been one of the worst economic downfalls that the world has witnessed in nearly the last 70 years. It had been reflected as the resultant of free-market schemes that led to the crash in Wall Street. However, the truth behind the incident may be something that is totally different from the myth. For understanding the topic to a deeper extent, literary sources are chosen and analyzed to determine valuable insights.

A look into the literature

Various researchers, economists, and scholars have conducted multiple studies to determine the main reason that resulted in the tragic recession of 2009. Many studies are based on an extensive review of literature on the topic that analyzes the downturns faced by the world to date, along with the reasons that caused those recessions. Other studies are based on an in-depth review of the various policies, their impacts on the national economy, and the other variables that influenced the economic growth of the nation during that period.

Despite the government efforts to cover up the recession under the lie of the free market causing the crash, multiple reasons have been identified. Most of them can be regarded as shortcomings of government policies that can be held guilty for the tragedy (Khandker, 2011). The data collected by the various researchers have been thoroughly analyzed to determine such conclusions. Of all, two primary reasons have been identified across multiple studies that were the main reasons behind the economic failure – the subprime crisis of the mortgage firms, and the federal rates of interest (Rosenstein et. al., 2013).

• Subprime mortgage crisis

This refers to the mess that was invited by the financial institutions of the nation. It relates to the issuing of mortgages to the candidates with high risk. The banks could not afford mortgages to these candidates but and issued the same anyhow with the dream of bringing in increased profit returns. It usually refers to the mortgages issued to candidates having low credit scores – thus, issues increased risk for the bank (Reeves, McKee & Stuckler, 2014).

• Interest rates and packages offered at the federal level

During the period of 2007, the stock market skyrocketed to 14,000 points. However, the market crashed and came down to as low as 6,547 over the next year. It cost vast amounts of investment from the American investors of the stock market. It severely impacted a considerable portion of the households and non-commercials. A net loss worth $14 trillion was reported from this section.

These are not the only reasons that triggered the great recession in 2009. Various faulty policies adopted by the government of the USA also had significant contributions to the tragedy. The crash was not a sudden accident, but the result of repetitive stress added to the national economy over the decade. The government took in additional steps to handle the crash after the incident took place. However, the impact was too much to handle at once, and unemployment, mass layoffs, foreclosures, GDP crash, and stock market downfall were some of the most common associations of the event.

Reference

Khandker, A. (2011). In Search of the Reasons of “The Great Recession”: Time for a Change in Policies?’. World Review of Business Research, 1(1), 103-114.

Reeves, A., McKee, M., & Stuckler, D. (2014). Economic suicides in the great recession in Europe and North America. The British Journal of Psychiatry, 205(3), 246-247.

Rosenstein, C., Riley, V., Rocha, N., & Boenecke, T. (2013). The distribution and policy implications of US state government general operating support to the arts and culture: Lessons from the great recession. Cultural Trends, 22(3-4), 180-191.