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What Caused the Great Recession

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What Caused the Great Recession

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  • December 2012
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The question of what caused the great recession of 2007-2008 is on that is not easily answered. As with the great Depression of the twentieth century we can look back retrospectively and at some potential causes but the exact factors remain debated. When speaking of the great depression Ben Bernanke famously said, “To understand the Great Depression is the Holy Grail of macroeconomics.”(Bernanke, 2000) The same can easily be said of the great recession. For this discussion I will isolate the most commonly cited causes within the areas of governmental and the financial sectors.

When looking back on the great recession many suggest that the primary factors leading to this economic crash were brought on by the financial district. A 2012 report published by Better Markets points to Wall Street at the cause, saying, “It is not an overstatement to say that without Wall Street’s creation, demand for, packaging, sale and distribution of worthless securities, largely based on mortgages and related derivatives, there would have been no financial or economic crisis,”(Better Markets, 2012) Although this report, perhaps, overstates Wall Street's involvement, it's underlying arguments remain sound.

Other possible factors can be traced to the federal government and it's actions leading up to the recession. With the understanding that the financial district was creating unsupported loans and valueless securities we also see that this could not have occurred in a vacuum system. The securities and loan needed support. This support, in many cases, came from the federal government. A Business Insider article explained it this way, “The data shows that the principle buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending.”(Carney, 2009)

My personal experiences related to the great recession were...

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