Causes And Consequences Of The 2008 Recession
The Recession of 2008 caused widespread panic and distress globally. Trillions of dollars were lost during this time. It was a frightening time for people because they were unsure of what was to come regarding their situations. These losses of money lead to a decrease in consumer spending, which decreased the GDP. This then invoked companies to lower salaries and cut large numbers of their employees. The huge loss of jobs made the unemployment rate skyrocket. All of these consequences of the Recession put many people under stress and lead to an increase in poverty in working class families. The documentary, Inside Job, covered the causes and consequences of the Recession in great depth. There are many underlying causes that lead to
this crisis; however, the two major causes were the deregulation that occurred and the dangerous loans that were given out. The first cause of the Recession of 2008 was the deregulation. The deregulation of financial businesses began many years before the Recession of 2008; however, it impacted the Recession greatly. One major act that was overturned was the Glass-Steagall Act. The Glass-Steagall Act forbade commercial banks from taking part in the investment business. However, the merging of two businesses that created Citigroup violated this act, and later proposed a new act. Eventually, the Gramm-Leach-Bliley-Act was put in its place and allowed Citigroup to remain. This then opened the door for other businesses to do the same. This gave the businesses more power, which was abused and contributed to the start of the Recession. Another financial aspect that was deregulated was derivatives. With derivatives, people are able to bet on something in the financial market (like stocks). A law was passed a few years before the Recession of 2008 that left derivatives unregulated. After the market for derivatives took off, many big financial businesses became very powerful. Credit rating agencies are another example of deregulation. These agencies were basically making all of their money from the businesses they rated. All of the powerful financial businesses were paying the credit rating agencies for AAA ratings. With more regulation, these businesses would not have been able to obtain those ratings so easily. Deregulation in the years before the Recession of 2008 caused this crisis.
this crisis; however, the two major causes were the deregulation that occurred and the dangerous loans that were given out. The first cause of the Recession of 2008 was the deregulation. The deregulation of financial businesses began many years before the Recession of 2008; however, it impacted the Recession greatly. One major act that was overturned was the Glass-Steagall Act. The Glass-Steagall Act forbade commercial banks from taking part in the investment business. However, the merging of two businesses that created Citigroup violated this act, and later proposed a new act. Eventually, the Gramm-Leach-Bliley-Act was put in its place and allowed Citigroup to remain. This then opened the door for other businesses to do the same. This gave the businesses more power, which was abused and contributed to the start of the Recession. Another financial aspect that was deregulated was derivatives. With derivatives, people are able to bet on something in the financial market (like stocks). A law was passed a few years before the Recession of 2008 that left derivatives unregulated. After the market for derivatives took off, many big financial businesses became very powerful. Credit rating agencies are another example of deregulation. These agencies were basically making all of their money from the businesses they rated. All of the powerful financial businesses were paying the credit rating agencies for AAA ratings. With more regulation, these businesses would not have been able to obtain those ratings so easily. Deregulation in the years before the Recession of 2008 caused this crisis.