preview

The Great Recession: A Case Study

Good Essays
During the late 2000s, United States took a dire turn towards failure, as it experienced the longest recession since World War II. There are many contributing factors that brought on the Great Recession; however, the vital influences were the highly risky mortgage backed securitizations and the failure of the rating agencies. Overall, the financial sectors were loosely regulated and fueled with corruption, which led to years of scarring the economy, most importantly the people. As a result, the real gross domestic product (GDP), which assesses the value of economic activity in a nation including the inflation, received the largest decline, since post-war era (U.S. Bureau Of Labor Statistics, 2012). Consistently, the unemployment, which consists…show more content…
Notably, the credit rating agencies were not run or monitored by government, they were private companies that were obligated to analyze how likely debtors are to pay off their loans. During the time, there were multiple companies that were responsible for rating debt; however, the most popular ones were the Standard and Poor’s (S&P) and Moody’s Corp. The typical scale that indicated the safest rates was labeled AAA, and the unsafe ones were labeled usually Bs, Cs, or Ds depending on the company (Tom, 2016). The development of more complex mortgages rose the demand for rating agencies, since there were too many debtors for banks to assess them on their own. According to Amanda J. Bahena, “The volume of requests for rating structured finance products such as mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) increased drastically between 2004 and 2006, as did the complexity of the rated products. In hindsight, it appears that the structured finance hype caused the CRAs to lose their grip on reality, (Bahena, 2010). Since the companies had no one to look over them, they were free of consequences even when they did not rate their cases correctly. Overall, they were open to outside influence and brought on destruction to the housing marking and the financial sectors worldwide. “The CRAs were criticized for worsening the…show more content…
For instance, one of the most well known indicators of a recession is the unemployment rate. The downturn in the business cycle of the 2007 to 2009 delineates that individuals suffered from the recession quickly and painfully. When a person becomes suddenly unemployed, he or she typically relies on savings and the government, but the government was also experiencing financial dilemmas. Additionally, studied have linked that as unemployment increases, the suicides in a country also increase (Carey, 2012). Without a job, or an opportunity to find one, hard working americans lost their ability to provide for themselves and their families. The long term unemployment rose dramatically around the year 2008, all the way to 4.4%. According to the U.S. Bureau of Labor Statistics, the long term unemployment was the highest in 2008, since 1948, and it affected different demographics with various intensities (U.S. Bureau Of Labor Statistics, 2012). For instance, the African American unemployment rate was higher than the white rate. Similarly, manufacturing and construction industries experienced the biggest increase in unemployment; “During the most recent recession... the private sector experienced a total of 235,000 establishment deaths,”(U.S. Bureau Of Labor Statistics, 2012). The economy experienced mass layoffs, “employers took 3,059 mass layoff actions in February 2009 involving 326,392 workers,
Get Access