2008 Recession

1.Specify the exact duration and severity of the 2008 recession
*The great second recession, and the aftermath of the events will never be ignored. The antecedent events of 2008 were highly questionable, as to why they transpired. As of present day, the United States is still amongst a financial slump. Again, the rippling effects in the recession of 2008 are still felt both near and far. We as American, never believed that such a financial atrocity would ever occur yet again after the financial issues that the United States observed in the 1930’s. The National Bureau of Economic Research indicated the the actual recession of 2008 took place in December of 2007 (Isidore, 2008). The York Times released a statement in September of 2010, “The
recession officially ended in June 2009, according to the Business Cycle Dating Committee of the National Bureau of Economic Research, the official arbiter of such dates” (Rampell, 2010). Definably, the recession of 2008 was the deepest on record that had ever been recorded since the “Great Depression” of the 1930’s. One must keep in mind, this period of time inexplicably did not include the length of time that the economy rebounded to the status that it once was. As aforementioned statements concluded, the United States is still in a “opinion based” economic slump. The full encompassing affects of the depression were felt not only in the employment sector, rather the influences against income, employment, industrial production, wholesale-retail sales, GDP and the direct impact on various economic indicators (Rampell, 2010). The assessment of many of the issues related to collapse of the economy were necessary so that future events did not transpire once again. This analysis was an in-depth inquiry of the disparities experienced while the economy was in a cataclysmic downfall, this type of assessment by multiple sources took a prolonged amount of time to analyze the multifaceted facts. Of course during this time period so many individuals lost their homes, vehicles, and short/long-term investments.
Identify and explain the root causes of the 2008 recession. 6 points *To further analyze the root cause of this full encompassing depression, we must look at multiple contributing influences.
The downfall that many if not all bank and lending institutions faced, catapulted the economy dramatically. The previous lending habits of these institutions show a direct correlation with the credit bubble that occurred from 2001 until 2007. The results of these lending habits were experienced not only in the United States, but worldwide issues began to surface. Though, many believe that the final factor may have been the “bursting” of the U.S housing bubble. The housing “burst” causing many individuals to default on their mortgages. The National Bureau of Economic Research stated that, “while large on an absolute scale, are modest relative to the $8 trillion lost in U.S. stock market wealth between October 2007 and October 2008” ("The National Bureau of Economic Research"). Additionally, In Deciphering the Liquidity and Credit Crunch 2007-2008 (NBER Working Paper No.14612), Markus Brunnermeier describes how those lesser and larger losses were linked and shows how economic mechanisms amplified losses in the mortgage market into broad dislocation and turmoil in the financial market” (Brunnermeier,2009,pp 77-100). Yes, the depression did in fact begin in 2008, however, the actions that occurred in the aforementioned time period were notable confounding influences on the depression of 2008. Other causation factors include the collapse of Lehman Brothers. Yes, this financial institution is based in the United Stated, yet their demise, as The Economist indicated that, “ In September 2008 almost brought down the world’s financial system” ("The Economist", 2013). The saving grace for Lehman Brothers, was that they were to “large” to fail. The monetary and fiscal abilities of the United States tax payers prevented the less than favorable quote “buddy-can-you-spare-a-dime” depression” ("The Economist", 2013). The United States practices further
suppressed the GDP, which in fact, are still subpar from the pre crisis. Lets not forget the dependence on our market by many other countries as well. For their economies corresponded with ours and soon went into a crisis know as the “Euro Crisis”. Imaginably, other factors were to blame for the depression. The questionable practices of many financers allowing borrowers with inadequate financial means to repay the debt to be financed. Moreover, these already unsteady mortgages were then turned into low-risk securities. Per chance these were false advertisements that many agencies took on with the false hopes of capitalizing on the supposed growth in the housing sector. With these false hopes, many lending institutions allowed their balance sheets to surge. Per chance, the lending institutions were writing checks that they feasibly did not have the groundwork to back those checks. Once again, the unsteady practices of lending institutions caused no one to trust each other.

3.Identify the three individuals, firms or agencies that, in your opinion, contributed the most to the recession and explain your answer. 4 points *My true beliefs related to the individuals that contributed to the worst economic slow down in the previous 80, are as follows. Alan Greenspan, ironically was awarded a honorary knighthood in 2002 for his “contributions to global economic stability” (Ro, 2012). Alan Greenspan, the chairman of the Federal Reserve who as Investopedia states “The main responsibility of the chairman is to carry out the mandate of the Fed. The statutory mandate of the Fed is to promote the goals of maximum employment, stable prices and moderate long term interest rates” ("Investopedia", 2015). Greenspan allowed the housing market to steam forward even after his inability to address the plummeting share prices experienced during the “.com era” of the 1990’s. His disinclination to learn from former occurrences did not influence his thoughts and ideas related to issues that were experienced in the aforementioned era. Greenspans interest rates reductions, caused unknowing homeowners to finance more than they could afford. Lets keep in mind that, many of these consumers were unable to become gainfully employed, with no job prospects. Furthermore, the consumers mostly were unable to have a savings built up to carry them through a term of unemployment. The so called subprime borrowers, thrust the United States economy into collapse. *Moody’s Credit Rating Agency is one other contributing agency to the depression of 2008. As Hall states, “Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression” (Hall, 2009). Moody’s agency misrepresentations allowed banks to trust them and these banks gave out loans to consumers that were once again, unable to pain these loans back. The Securities and Exchange Commission (SEC), “issued a blistering report on how profit motives had undermined the integrity of ratings at Moody's and its main competitors, Fitch Ratings and Standard & Poor's, in July 2008, but the full extent of Moody's internal strife never has been publicly revealed” (Hall,2009). With the above-mentioned statements, Moody’s revenue increased dramatically with fees from yielding AAA ratings to many of these lending institutions. Moody’s rating system enabled them to be regarded as safe, moreover, as safe as U.S. government securities (Hall,2009). Oddly enough, we bare witness to Moody’s initial shares price of $12.57 in 2000 surging to $72 dollars per share in February 2007 (Hall, 2009). Moody’s had a notable individual by the name of Brian Clarkson, the president of Moody’s in 2007, made many implications to others futures with Moody’s. Many executives feared Mr. Clarkson’s, implications that, “they'd be fired if they didn't issue ratings that matched competitors' and helped preserve Moody's market share” (Hall,2009)
. Additionally, another concerning issue that presented itself was that many executives were given stock options, which would absolutely increase the likelihood of the accuracy of the ratings that these executives reported. If said executives inflated ratings, their own earnings would then increase.
*One additional fallacy that occurred to further thrust the U.S. Economy into the depression of 2008, was the weak dollar. Notably, Dodd-Frank made the statement that, “The failure to modernize the financial oversight system sooner is the most important reason why this crisis was more severe than any since the Great Depression, and why it was so hard to put out the fires of the crisis” (Domitrovic, 2012). With the oversight of so many risky financial activities that occurred, distrust among the market became ramped. Many of these lending institutions enticed the consumers in with severely low interest rates. However, when the introductory rates changed, the inabilities of the consumer to repay the new mortgage rate swelled. As Domitrovic pointed out, “Household debt rose to an alarming 130% of income, with a huge portion of those loans originated with little to no supervision and poor consumer protections” (Domitrovic, 2012). With many of these household’s unforeseen increases, many were yet again, unable to pay the newly augmented debt. Therefore, reform was necessary, to protect the consumers. Had these reforms been in place prior to this depression, maybe the depth of the depression would not have been as stark.