The Impact Of U.s. Economy On The Housing Crisis

1188 WordsNov 4, 20155 Pages
In 2008, the National Bureau of Economic Research publicized that the U.S. Economy had entered into a recession. The overall agreement of what was the primary cause of this recession was the credit crisis from the bursting of the housing bubble. This lead the U.S. into the worst recession in over sixty years (Holt). The decade before the 2008 crisis, showed the development of a key factor that would later contribute to the crisis. It was the dramatic increase in aggregate households’ indebtedness that had become so severe in the United States. This large growth in household indebtedness was a direct result in large by the significant and sustained expansion in residential mortgage lending. With the growth in the residential mortgage…show more content…
Another economist by the name of Thomas Sowell stressed that the government’s role in creating the housing bubble. With the housing markets that had the largest home price increases were often markets that the local government had forced land use restrictions on the amount of land available for housing. Having relaxed mortgage lending standards were mainly the result of being government influenced (Russo). During the 2008 recession, the Federal Housing Administration increased its insurance activity to keep money flowing into the market. Without this government agency’s backing, it would have been much more challenging for the middle class to get a home loan from the start of the recession (Griffith). A few large financial firms experienced financial stress during the 2008 Recession and in response, the Federal Reserve provided the liquidity and support through a variety of programs motivated to help the functions of financial markets and institutions, and in effect limit the damage done to the U.S. economy. The Federal Reserve had provided record amounts of monetary accommodation in response to the severity of the reduction and the gradual return of the ensuing recovery. Finally, the financial crisis caused major reforms in banking and financial regulation, which included congressional legislation that significantly affected the Federal Reserve. One example is the
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