The Moral Economy Of The Great Recession By Thomas Cushman

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

After the optimistic forecast from the realstate that the houses value were going to increase, many institutions started to make adjustments to take profit from this trend. In some cases, prime mortgages were allowed for subprime borrowers to take. This might look like a great idea to financial institutions because the house values were rising: if a people (who in the first place couldn’t afford a house) stop paying their mortgages then the bank could sell the house for a value greater than the one at the moment of default. Everything was going well, so how is it that the crisis unfolded? Well, these institutions wanted to make more profit

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

A budgetary stimulus is a necessity to help avoid recessions. Fiscal policy is when a government adjusts its’ spending levels and tax rates in order to impact the nation’s economic status. It is linked to the monetary policy which involves a bank and affects the nation’s money source. When there is an increase in unemployment and the economy is soon reaching a recession, the fiscal policy will help maintain the economy. The fiscal policy will decrease taxes and widely promote government spending. On the other hand, when unemployment is declining and prices are escalating, the policy will reduce government spending and raise the prices on taxes. The Great Recession was a horrific economic crisis that led businesses and buyers to drastically

The Great Recession officially began in December 2007 and ended in June 2009, making it the longest recession since World War II. Some people blame it on the greed of the Wall Street bankers and others on subprime mortgage lenders. It began with the bursting of an 8 trillion dollar housing bubble. The subsequent loss of wealth prompted sharp reductions in consumer spending. This loss of consumption, joined with the financial market mayhem, also led to a collapse in investment banking. Massive job loss followed the same trend as the dwindling consumer spending and business investment. In 2008 and 2009, the U.S. labor market lost 8.4 million occupations - the most considerable business contraction of any recession since the Great Depression. The Great Recession of 2008 was sparked by the housing crisis and Americans today still struggle with its effects.

The year is 2007 and lt is the holidays, yet for some people, there is no joy. The housing market has crashed and with it, the value of mortgage backed securities. Many are homeless and without a job. Over the course of 2 years, 7.5 million jobs and $16 trillion were lost. Unemployment hit 10% and the Dow Jones lost half of its value. Times were tough for everyone. Then, in 2009, the USA started to pull out of the crisis. The federal reserve lowered interest rates and aided banks with $7.7 trillion dollars of emergency loans. The Great Recession has ended, but to this day, some people haven’t fully recovered.

Five years post the Great Recession of 2008, Jennifer still makes out a weekly budget. She calculates her paycheck and expenses and leaves 50$ for gas and groceries and avoids frivolous spending. “It’s worth the wait for things. I consider whether I really need or I really want something” says Jennifer, 35, who lost her job, her car, her house and filed for bankruptcy in the last four years. These stories are common among many Americans who continue to practicing these money saving habits to keep financially afloat since the collapse of the housing market. Two trillion dollars of Americans’ retirement savings gone, 16.4 trillion of American household net worth vanished, global economies

The Great Recession was an economic behemoth the likes the United States had never seen before since the Great Depression. In fact, the Great Recession of 2007-2009 was an unmitigated disaster for the US and world economy, its effects still lasting to this day. The Great Recession was spurred by an influx in subprime mortgages and loans. Normally, banks lend money to those they know are capable of paying it back with interest; however, in the early 2000s, banks took advantage of the unregulated sector of subprime loans, creating a substantial housing bubble at the cost of considerable profit. Soon millions of low-income and middle-class Americans were buying homes for much more than their normal income could pay for, but with ever increasing

The demand for houses, along with a belief that home values would continually soar, fueled the building boom that would eventually result in our demise. Once the grace period on mortgage loans ended, and house prices began to decline, many people found themselves unable to escape the high monthly payments and began to default. Increasing foreclosures continued to lower the prices of homes, by 2008 it was estimated that 23% of all homes were worth less than their mortgages. 2.9 million vacant homes later, it is safe to say the consequences of short-sighted expenditures were severe. Since then, more than 6 million Americans have lost their homes to foreclosure. Much of the blame for the housing crisis can be traced back to rumor in the stock market. While homes are not typically viewed as investments under speculation, statistics show that this was not the case during the mortgage crisis. 22% of homes purchased in 2006 were for investment purposes.

In 2008, the recession hit hard in St. George, Utah, which caused my father to be laid-off and become unemployed for two years. With the urging of a friend, my dad packed up his tools and drove to Williston, North Dakota with no job and no place to live. He took a leap of faith to save our family, and the day he arrived, he found a job and a place to live. Having him leave me was heartbreaking. He went from being there daily to quarterly. He is my hero because he made the biggest sacrifice of his life. He moved fourteen hours away to work twelve hours a day and seven days a week to support us.

The 2008 housing market meltdown in America created a ripple effect that had a negative impact on multiple real estate and stock markets throughout the world. Also, many people who were investors in the America market have never recovered from this financial disaster. So, one must contemplate how this event could have transpired in a country with such a strong economy with governmental regulations designed to protect the average investor. Nevertheless, it is simple, it took brokers, real estate appraisers, realtors, Wall Street, and mortgage companies combined unethical behavior to allow greed to be his or her guidance in pursuing wealth form unsuspecting new home purchasers who could afford his and her recent purchase, a new house.

The housing slump set off a chain reaction in our economy. Individuals and investors could no longer flip their homes for a quick profit, adjustable rates mortgages adjusted skyward and mortgages no longer became affordable for many homeowners, and thousands of mortgages defaulted, leaving investors and financial institutions holding the bag.

Well how did the Housing crisis happen in the first place? Well what banks were doing was looking for fast short term profits. To get these profits banks had to give out “sub-prime mortgages”. Sub prime mortgages are basically loans given to people who would have a rather hard time paying back the cash. Because of this banks were able to increase interest rates. When the banks raised the interest rates what they did was create a hypothetical bubble that was bound to burst. When this happened banks began to fail.

Case two would fit in dimension three, its behavior that is legal yet unethical. Marketing sub-prime loans are not against the law for them to be reputable securities. Bob embraces that idea and it is legal for him but it is believed to have caused the “Great Recession”. This makes the procedure unethical because even though there are no laws against it but it has been blamed for causing the “Great Recession”, than it would be problematic for him to embrace the idea of marketing sub-prime loans as

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began