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Running head: GREAT RECESSION 1
Analysis of the Quality of History.Com 2017 Explanation of the Great Recession
Student Name
Institution
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GREAT RECESSION 2
Introduction
Since World War II, the 2008 Great Recession was the longest economic downtime in the
United States of America. Economic recession refers to the significant decline in the spread of
economic activities across an economy lasting for several months defined by a decline in an
economic spread such as significant decrease in GDP levels, low employment rates, decline in
real income, low wholesale and retail sales, and declined industrial production (Reinhart, 2011).
According to the article “History.com, explanation of Great recession,” the 2008 crisis increased
worldwide mortgage foreclosures that led to the loss of life-savings for millions of people and
immense loss of employment and homes. According to the article “History.com, the explanation
of great recession,” the definition of the great recession was perfect factoring in the effects of the
recession on various economic sectors. The United States of America was hit hard by the 2008
economic crisis, where millions of people lost their jobs, a significant decrease in the real GDP,
and a significant loss of financial assets.
Analysis of Causes of the Great Recession
The article addresses the causes of the recession in the United States of America. The
article author links the 2008 recession in the United States of America to bursting of the
subprime mortgage crisis. Subprime mortgages refer to the home loans that are issued to
borrowers whose credit history is poor (Benmelech, Meisenzahl & Ramcharan, 2017). Similarly,
the author defines subprime mortgages as a high-risk home loan granted to people with a very
low credit rating score. Such loans are not only high risk but threaten a decline in the housing
and finance industry. In the history of banking, borrowers with low credit ratings are denied
loans. However, in the early 2000s, the banks started issuing subprime mortgages as the real
estate industry was ballooning. In 2007, the demand for housing and the real estate industry
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GREAT RECESSION 3
declined significantly; therefore, most investors stopped investing in real estate. Consequently,
many borrowers could not sell their houses to pay off the loans, nor could they pay off their
mortgages, leading to foreclosing of houses. Since the houses were too many in the real estate
market with very few interested buyers, the prices of real estate and houses declined
significantly. Therefore, the banking and housing market collapsed, and the Great Recession
occurred.
The author of the article “History.com, explanation of Great recession,” explain in detail
how the great recession happened and the causes. One of the causes highlighted is the decline in
the value of houses below the mortgage values offered by New Century Financial lender. Such
loss of value of houses was caused by low demand and a high supply of houses leading to a
market crisis in the real estate and banking industry. The author narrates how and the first
mortgage lender, New Century Finance, ran bankrupt, and the Federal Home Loan Mortgage
Corporation pulled out of risky subprime mortgage and related securities purchases. Later the
author states that pulling out of Federal Home Loan Mortgage Corporation created a demand
deficiency for houses, and the real estate companies could not sell homes to recoup investment
money for repaying mortgage loans as the prices of houses declined greatly. Such narration
shows how the imbalance between demand and supply created a market crisis affecting the
housing and banking industry. In a nutshell, the causes of great recession were issuance of high-
risk subprime mortgage loans leading to a ballooning of the housing industry, creating a credit
supply shock.
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GREAT RECESSION 4
References
Reinhart, V. (2011). A year of living dangerously: the management of the financial crisis in
2008. Journal of Economic Perspectives, 25(1), 71-90.
Benmelech, E., Meisenzahl, R. R., & Ramcharan, R. (2017). The real effects of liquidity during
the financial crisis: Evidence from automobiles. The Quarterly Journal of
Economics, 132(1), 317-365.

Unformatted Attachment Preview

Running head: GREAT RECESSION 1 Analysis of the Quality of History.Com 2017 Explanation of the Great Recession Student Name Institution GREAT RECESSION 2 Introduction Since World War II, the 2008 Great Recession was the longest economic downtime in the United States of America. Economic recession refers to the significant decline in the spread of economic activities across an economy lasting for several months defined by a decline in an economic spread such as significant decrease in GDP levels, low employment rates, decline in real income, low wholesale and retail sales, and declined industrial production (Reinhart, 2011). According to the article “History.com, explanation of Great recession,” the 2008 crisis increased worldwide mortgage foreclosures that led to the loss of life-savings for millions of people and immense loss of employment and homes. According to the article “History.com, the explanation of great recession,” the definition of the great recession was perfect factoring in the effects of the recession on various economic sectors. The United States of America was hit hard by the 2008 economic crisis, where millions of people lost their jobs, a significant decrease in the real GDP, and a significant loss of financial assets. Analysis of Causes of the Great Recession The article addresses the causes of the recession in the United States of America. The article author links the 2008 recession in the United States of America to bursting of the subprime mortgage crisis. Subprime mortgages refer to the home loans that are issued to borrowers whose credit history is poor (Benmelech, Meisenzahl & Ramcharan, 2017). Similarly, the author defines subprime mortgages as a high-risk home loan granted to people with a very low credit rating score. Such loans are not only high risk but threaten a decline in the housing and finance industry. In the history of banking, borrowers with low credit ratings are denied loans. However, in the early 2000s, the banks started issuing subprime mortgages as the real estate industry was ballooning. In 2007, the demand for housing and the real estate industry GREAT RECESSION declined significantly; therefore, most investors stopped investing in real estate. Consequently, many borrowers could not sell their houses to pay off the loans, nor could they pay off their mortgages, leading to foreclosing of houses. Since the houses were too many in the real estate market with very few interested buyers, the prices of real estate and houses declined significantly. Therefore, the banking and housing market collapsed, and the Great Recession occurred. The author of the article “History.com, explanation of Great recession,” explain in detail how the great recession happened and the causes. One of the causes highlighted is the decline in the value of houses below the mortgage values offered by New Century Financial lender. Such loss of value of houses was caused by low demand and a high supply of houses leading to a market crisis in the real estate and banking industry. The author narrates how and the first mortgage lender, New Century Finance, ran bankrupt, and the Federal Home Loan Mortgage Corporation pulled out of risky subprime mortgage and related securities purchases. Later the author states that pulling out of Federal Home Loan Mortgage Corporation created a demand deficiency for houses, and the real estate companies could not sell homes to recoup investment money for repaying mortgage loans as the prices of houses declined greatly. Such narration shows how the imbalance between demand and supply created a market crisis affecting the housing and banking industry. In a nutshell, the causes of great recession were issuance of highrisk subprime mortgage loans leading to a ballooning of the housing industry, creating a credit supply shock. 3 GREAT RECESSION 4 References Reinhart, V. (2011). A year of living dangerously: the management of the financial crisis in 2008. Journal of Economic Perspectives, 25(1), 71-90. Benmelech, E., Meisenzahl, R. R., & Ramcharan, R. (2017). The real effects of liquidity during the financial crisis: Evidence from automobiles. The Quarterly Journal of Economics, 132(1), 317-365. Name: Description: ...
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