The avoidance of the Banking crisis in 2008

.docx

School

Carleton University *

*We aren’t endorsed by this school

Course

3206

Subject

Economics

Date

Jan 9, 2024

Type

docx

Pages

Uploaded by CorporalMetal12956

The avoidance of the Banking crisis in 2008. “ the Great Recession.” Rue Madzorera Professor : Stephan Waxmen LAWS:3206A Fall: 2023 1

Table of Content Introduction .......................................................................................................................................................... What is a recession .................................................................................................................................. So what caused the 2008 recession ? ........................................................................................................ Subprime mortgages ................................................................................................................................... Effects it had on other countries ................................................................................................................. How did America handle the 2008 recession ? ........................................................................................... Research Question and Thesis ........................................................................................................................... - ........................................................................................................................................................................ Argument 1 ........................................................................................................................................................... Canada-insured mortgage program; ( IMPP) .................................................................................................... Argument 2 ........................................................................................................................................................... Different banking system then the usa: ............................................................................................................. Argument 3 ........................................................................................................................................................... ● Steven harper implementation during the recession ...................................................................................... Conclusion ............................................................................................................................................................ Bibliography ......................................................................................................................................................... 2

Introduction The following is a paper discussing the 2008 banking crisis, also known as the Great Recession, written by Rue Madzorera for Professor Stephan Waxmen's LAWS:3206A course in Fall 2023. The paper includes an introduction, a definition of a recession, an analysis of what caused the 2008 recession, the effects it had on other countries, how America handled the crisis, a research question and thesis, three arguments, and a conclusion. The paper concludes with a bibliography. The 2008 recession was a significant event in the world's economic history. This paper aims to investigate the causes of the crisis and how different countries responded to it. The discussion begins by defining what a recession is and then goes on to examine the factors that led to the 2008 recession, including subprime mortgages. The paper also explores the impact the crisis had on other countries and how America managed the situation. The research question of the paper is how various countries dealt with the 2008 recession. The thesis statement puts forward that Canada's insured mortgage program and its different banking system were key factors in its successful handling of the crisis. The paper presents three arguments to support this thesis. 3

What is a recession The recession of 2008 was dramatic for everyone across the globe, many would wonder why a recession would harm individuals in society. Or how does it directly affect an economy? Essentially a recession is an economic downturn that is usually characterized by a significant decline in economic activity in a society. Due to this decrease in activities the unemployment rate rises which leads to people having a lower income. When people in society have lower income it results in them not being able to afford things causing a lower economic output in the country. During a recession you would see a decline in a country's gross domestic product ( GDP). Typically a country's central bank and government will try their best to implement measurements to encourage economic output during a recession. There are other things that individuals can do to protect themselves during a recession , such things include taking out an adjustable rate mortgage ( ARM) , co-signing a loan or taking on new debt. 1 So what caused the 2008 recession ? 2 In 2008 the US housing market crashed which affected Canada and led us into what is known as the Great Recession. leading causes of this had to do with the housing market collapse, the subprime mortgage crisis, and the ensuing financial crisis. What caused this problem to exist had to do with high-risk lending of mortgages for people who do not qualify for a home loan. , 1 Team, T. I. (n.d.). 5 things you shouldn’t do during a recession . Investopedia. https://www.investopedia.com/articles/pf/09/avoid-five-recession-risks.asp#:~:text=A%20recession %20refers%20to%20a,consumer%20demand%2C%20and%20high%20unemployment. 2 Team, Investopedia. “2008 Recession: What It Was and What Caused It.” Investopedia , 30 Apr. 2023, www.investopedia.com/terms/g/great-recession.asp#:~:text=The%20Great%20Recession%20lasted %20from,increased%20risk%20to%20the%20lender. 4

and a general lack of transparency in the financial sector. This Led, to a widespread credit crunch and a significant downturn in global economic activity. 3 Subprime mortgages The crash of the US housing market was caused by several factors such as lax lending standards, and the proliferation of subprime mortgages. Lenders from banks or other financial institutions were providing loans to borrowers with poor credit histories. The loans consist of adjustable interest rates and low initial payments. This led to high housing prices. When housing prices eventually began to decline, many homeowners found themselves with properties worth less than the amount of their mortgage, leading to a wave of foreclosures and a subsequent collapse in the housing market. Most of the subprime mortgage companies who were giving these loans filed for bankruptcy. This caused the housing market to crash which triggered a broader financial crisis in 2008, contributing to a severe economic downturn and the global recession. 4 Effects it had on other countries So how did this issues affect other countries, -the recession had a profound global impact, leading to a widespread economic downturn in many countries. The global trade worldwide declined by nearly 15% as well as global unemployment increasing by 3 percent 3 Team, Investopedia. “2008 Recession: What It Was and What Caused It.” Investopedia , 30 Apr. 2023, www.investopedia.com/terms/g/great-recession.asp#:~:text=The%20Great%20Recession%20lasted %20from,increased%20risk%20to%20the%20lender. 4 Rodini, Laura. “What Was the Great Recession? How Did It Affect the World?” The Street , 28 July 2022, www.thestreet.com/dictionary/g/great-recession#:~:text=The%20Great%20Recession%20didn't,30%20million %20total%20jobs%20lost. 5

between 2007 - 2010, causing nearly 30 million people to have lost their jobs. this caused a ripple effect across various economies. Countries that were heavily reliant on exports or closely tied to the financial markets of the United States were particularly affected as well as countries that rely on the US for humanitarian aid. Many nations experienced declines in GDP. This affected Canada because it caused Oil prices to continue to surge, which caused the collapse of oil prices and other Canadian exports, leading Canada into a recession. The Canadian GDP dropped by 3 percent 5 Some countries also faced sovereign debt crises as they struggled to manage their economies amidst lower global demand and tightening credit conditions. The global nature of the recession emphasized the importance of international cooperation in addressing economic challenges and stabilizing the financial system. 6 How did America handle the 2008 recession? The question remains, how were the states able to handle the recession? For the United States to properly manage the financial crisis that they were facing, the U.S. government introduced the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in 2010. Which was made to prevent banks from taking speculative risk. In 2008 the US Congress passed a “ bailout bill” which provided 700 billion dollars in emergency aid to banks and financial institutions, similarly, Canada did the same. As well as a Troubled Asset Relief Program ( TARP) aimed to stabilize the financial system by purchasing troubled assets such as mortgage-backed securities. It also aimed to inject capital into struggling financial institutions. 5 Gordon, Stephen. "Recession of 2008–09 in Canada". The Canadian Encyclopedia , 24 October 2017, Historica Canada . www.thecanadianencyclopedia.ca/en/article/recession-of-200809-in-canada. Accessed 30 October 2023. 6 Rodini, Laura. “What Was the Great Recession? How Did It Affect the World?” The Street , 28 July 2022, www.thestreet.com/dictionary/g/great-recession#:~:text=The%20Great%20Recession%20didn't,30%20million %20total%20jobs%20lost. 6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version