Great Recession Essay

760 Words2 Pages

In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012). The recession officially began when the 8 trillion dollar housing bubble burst. (State of Working America, 2012) Prior to that, institutions bundled mortgage debt into derivatives that were sold to financial investors. Derivatives were initially intended to manage risk and to protect against the downside, but the investors used them to take on more risk to maximize their profits and returns. (Zucchi, 2010). The investors bought insurance against losses that might arise from securities so that they could secure their money. Mortgage defaults unexpectedly skyrocketed, which caused securitization and the insurance structure to collapse. (McConnell, Brue, Flynn, 2012). The moral hazard problem arose. The large firm investors thought they were too big for the government to allow them to fail. They had the incentive to make even more risky investment. As a result, unemployment rose. In Decembe... ... middle of paper ... ...training by leading the world in research and development, university research, and innovation. Netherland, another one of the world’s best economies, has a high quality health system. (Hess, Frohlich, 2013). By enhancing health, education, and training, society will feel more confident and optimistic about their skills and potential. Their prosperity will bring more productivity and growth to their economy. Better health and education will also encourage more research and development and innovation. There will be technological and medical advancements and innovations. People will begin opening their own small businesses and companies, bringing more jobs to the economy. (Zakaria, 2011). Better government regulation and higher education, health, and training will strengthen a nation’s economy and society and allow them to run more efficiently in the global context.

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