what was the 2008 great recession 
the great recession was the sharp decline in economic activity that started in 2007 and lasted several years spilling into global economies it is considered the most significant downturn since the great depression in the 1930s the term great recession applies to both the u s recession officially lasting from december 2007 to june 2009 and the ensuing global recession in 2009 the economic slump began when the u s housing market went from boom to bust and large amounts of mortgage backed securities mbs and derivatives plummeted in value understanding the great recessionthe term great recession is a play on the term great depression of the 1930s when gross domestic product gdp declined more than 10 and unemployment hit 25 while no explicit criteria exist to differentiate a depression from a severe recession there is a near consensus among economists that the downturn of 2007 2009 was not a depression during the great recession u s gdp declined by 0 3 in 2008 and 2 8 in 2009 while unemployment briefly reached 10 causes of the great recessionaccording to a 2011 report by the financial crisis inquiry commission the great recession was avoidable the appointees which included six democrats and four republicans cited several key contributing factors that they determined led to the downturn first the report identified failure on the part of the government to regulate the financial industry this failure to regulate included the federal reserve s inability to stop banks from giving mortgages to people who subsequently proved to be a bad credit risk next too many financial firms took on too much risk the shadow banking system which included investment firms grew to rival the depository banking system but was not under the same scrutiny or regulation when the shadow banking system failed the collapse impacted the flow of credit to consumers and businesses other causes that the report identified included excessive borrowing by consumers and corporations along with lawmakers who did not fully understand the collapsing financial system this created asset bubbles especially in the housing market as mortgages were extended at low interest rates to unqualified borrowers who subsequently could not repay them the ensuing selloff caused housing prices to fall and left many other homeowners underwater this in turn severely impacted the market for the mortgage backed securities mbs that banks and other institutional investors held and demand for which allowed lenders to give mortgages to risky borrowers origins and consequencesthe 2001 dotcom bubble implosion followed by the terrorist attacks of sept 11 2001 hammered the u s economy the fed responded by cutting interest rates to the lowest levels since bretton woods to stimulate the economy the fed held interest rates low through mid 2004 combined with federal policy to encourage homeownership low interest rates helped spark a boom in real estate and financial markets and a dramatic expansion of the volume of total mortgage debt financial innovations such as new types of subprime and adjustable mortgages allowed borrowers many of whom otherwise might not have qualified to obtain home loans on generous terms based on the expectation that interest rates would remain low and home prices would continue to rise however from 2004 through 2006 the federal reserve raised interest rates to control inflation as interest rates rose the flow of new credit through traditional banking channels into real estate slowed more seriously rates on existing adjustable mortgages and exotic loans began to reset at much higher rates than many borrowers expected or were led to expect by lenders as monthly mortgage payments rose beyond borrowers ability to pay and they could not simply refinance as prices had stopped steadily rising many borrowers started to sell the increase in supply burst what was later widely recognized to be a housing bubble during the u s housing boom financial institutions sold mortgage backed securities and complex derivative products at unprecedented levels when the real estate market collapsed in 2007 these securities declined precipitously in value the credit markets that had financed the housing bubble quickly followed housing prices into a downturn as a credit crisis began unfolding in 2007 the solvency of over leveraged banks and financial institutions hit a breaking point with the collapse of bear stearns in march 2008 things came to a head later that year with the bankruptcy of lehman brothers the country s fourth largest investment bank in september 2008 the contagion quickly spread to other economies around the world most notably in europe as a result of the great recession the united states alone lost more than 8 7 million jobs according to the u s bureau of labor statistics doubling the unemployment rate further u s households lost roughly 19 trillion in net worth as the stock market plunged according to the u s department of the treasury the great recession s official end date was june 2009 the 2010 dodd frank act gave the government control of failing financial institutions and the ability to establish consumer protections against predatory lending response to the great recessionthe aggressive monetary policies that the fed took along with other central banks around the world was widely credited with preventing even greater damage to the global economy however some also criticized the moves claiming they made the recession last longer and laid the groundwork for later recessions for example the fed lowered a key interest rate to nearly zero to promote liquidity and in an unprecedented move provided banks with a staggering 7 7 trillion of emergency loans in a policy known as quantitative easing qe along with the inundation of liquidity the u s federal government embarked on a massive program to stimulate the economy in the form of 787 billion in spending under the american recovery and reinvestment act these monetary and fiscal policies reduced immediate losses to major financial institutions and large corporations not only did the government introduce stimulus packages but new financial regulation was also put into place in the 1990s the u s repealed the glass steagall act a depression era regulation that separated investment from retail banking to reduce systemic risk some economists say this move helped cause the crisis the repeal allowed some large u s banks to merge and form larger institutions many of which later failed and had to be bailed out in response in 2010 the u s congress passed and then president barack obama signed the dodd frank act which gave the government expanded power to regulate the financial sector including greater control over financial institutions that were deemed on the cusp of failing it also created consumer protections against predatory lending however critics of dodd frank note that the financial sector players and institutions that actively drove and profited from predatory lending and related practices during the housing and financial bubbles were also deeply involved in both the drafting of the new law and with the agencies charged with its implementation the u s federal government spent 787 billion to stimulate the economy during the great recession under the american recovery and reinvestment act according to the congressional budget office recovery from the great recessionfollowing these policies the economy gradually recovered real gdp bottomed out in the second quarter of 2009 and regained its pre recession peak in the second quarter of 2011 3 years after the initial onset of the official recession financial markets recovered as the flood of liquidity washed over wall street the dow jones industrial average djia which had lost over half its value from its august 2007 peak began to recover in march 2009 and four years later in march 2013 broke its 2007 high for workers and households the picture was less rosy unemployment was at 5 at the end of 2007 reached a high of 10 in october 2009 and did not recover to 5 until 2015 nearly eight years after the beginning of the recession real median household income did not recover to pre recession levels until 2016 critics of the policy response and how it shaped the recovery argue that the tidal wave of liquidity and deficit spending propped up politically connected financial institutions and big business at the expense of ordinary people it also may have delayed recovery by tying up economic resources in industries and activities that deserved to fail when those assets and resources could have been used by other businesses to expand and create jobs 