The Beginning Of The Great Recession - 1392 Words

a. The Beginning of the Great Recession The definition of a recession is this: a significant decline in general economic activity, typically involving two consecutive quarters of decline in gross domestic product (GDP). In December of 2007, the American economy experienced an event of this nature—the Great Recession. This global financial crisis stemmed from what seemed like an isolated disturbance within the subprime US housing market but transformed into a catastrophic event. The GR officially ended in June of 2009. According to an article outlining an interview with David Wessel of The Wall Street Journal, the task of defining a recession is, delegated to a small committee of academic economists who are convened by†¦ the National†¦show more content†¦Macroeconomist Dean Baker argued: â€Å"The central element in the current financial crisis is the housing bubble. The irrational exuberance surrounding this bubble created an environment that was ripe for the cowboy financing that got†¦ the country into so much trouble.† With encouragement from politically influential persons to increase home ownership rates and the optimism that followed the yields on government bonds, lenders and investors sought assets with even higher-yields. The problem, however, was the lack of credit-worthy borrowers. To remedy this, lenders sought out those who would not ordinarily meet typical credit standards within the sub-prime (and non-standard loans) segment of the housing market. These subprime borrowers were considered profitable and were viewed as the solution to the lenders search for higher yields. This, of course, was a much riskier tactic and led banks to hide their questionable transactions. The actions on behalf of the banks, along with their reckless behavior, resulted in the creation of the subprime US housing market and ultimately led to the deterioration of the economy. II. Comparison and Contrast of Past Recessions Graph 1 Durations of US Recessions, 1929-2009 As shown by Graph 1, the eighteen-month long Great Recession was the lengthiest recession the United States had experienced