The Great Recession of 2008

        The Great Recession of 2008, which was the greatest international economic crisis since the Great Depression, has its roots traced back to the United States, which saw housing prices begin to fall in 2006 after years of only skyrocketing upwards. Due to the belief that the value of real estate would only increase, subprime mortgages, mortgages that were given to borrowers with little to no credit, were widely made available by many banks and investing firms. If the borrower failed to pay off their mortgage, the lender could seize the house that was purchased and use that to turn a profit. Banks were willing to provide these subprime mortgages because they believed that house prices would always remain high, so even if the borrower could not pay off their debts, they bank would still make money either way. However, when the real estate market collapsed, many of the providers of subprime mortgages lost a lot of money when the houses they seized could not be resold at an adequate price.

        If the crash of the real estate industry only affected the providers of these loans, then how did it lead to an entire economic collapse? The answer lies in how these subprime mortgages were passed around. Rather than merely holding the loans, the mortgage lenders often sold these loans to other banks or to Fannie Mae or Freddie Mac, two private mortgage companies that's sole purpose was to buy up mortgages. Fannie Mae and Freddie Mac would then sell these mortgages they acquired to other investment banks, who in turn bundle these up and sell them to investors as "low-risk" investments. Thus, when the housing market crashed, both the aforementioned institutions as well as the investors who the subprime mortgages were sold to lost a lot of their money.

        In 2008, the entire American economy shrank by 0.7% in the first quarter, signaling the start of the Great Recession. However, it wasn't until the third quarter that experts realized that the country had fallen into an economic recession, as it became clear after the economy had shrunk four quarters in a row. The housing market continued its downwards spiral, dropping 28% since its peak in 2006. Confidence in the American economy plummeted, and this reverberated throughout the entire world.

        The crisis became so bad that even giant institutions were going bankrupt. Among these were Countrywide Financial Corp., the country's largest mortgage lender. The company's value plummeted, resulting in its purchase in January 2008 by Bank of America for a fraction of its market value. Another victim was Wall Street investment house Bear Stearns, which had to have its failing assets absorbed up by the Federal Reserve. The Fed's involvement in the bailout of Bear Stearns showed how bad the situation had become; the fact that Bush's conservative administration was willing to spend so much federal taxpayer money to save the economy was astonishing. As many other major institutions went bankrupt, the government proceeded to bail them out.

        What saved the economy was the $787 Billion Stimulus Package that Congress approved in March 2009. In ended the recession by July of that year, granting $288 billion in tax cuts, $224 billion in unemployment benefits, and $275 billion "shovel-ready" public works. The bill also included $54 billion in tax write-offs in small businesses. This economic stimulus was able to bring the country out of the recession, but it took a couple of years for it to fully do so.



Sources:
https://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264
https://www.thebalance.com/the-great-recession-of-2008-explanation-with-dates-4056832