The Unites States' Recession

In December 2008, the National Bureau of Economic announced that the economy had entered into a recession a year ago in December 2007. It took a year for the government to declare that we were in a Recession. The United States was very close to a financial market meltdown and economic collapse in the late 2008 and early 2009. United States entered a severe recession accompanied by considerable job losses, skyrocketing unemployment, lower wages and a mounting number of American families at danger of foreclosure and poverty. The unemployment rate increased from 4.9% in December 2007 to 9.5% in Jun 2009. The Dow Jones

Industrial Average (DJIA) reached a peak of 14, 279.96 in October 2007 and then fell to 6,

440.08 in March 2009, a drop of almost 55% from the peak (Holt 2009).

Most economic experts in America could agree that the primary cause of the current recession was the credit crisis evolving from the bursting of the housing bubble. Demyank and

Van Hemert (2008) found that the value of subprime loans depreciated for six consecutive years before the crisis and that the problem could have been detected long before the crisis, but they were hidden by the rapidly rising home prices. The housing markets that had the largest home price increases were ordinarily markets where the local government enforced land restrictions that restricted the supply of land available for housing. Relaxed mortgage lending standards were mainly the product of government guidance. Krugman (2009) stressed that much of the financial that steered the housing bubble came from the unregulated “shadow banking system”

(investment banks, hedge funds, structured investments vehicles, etc.). The shadow banking system became highly influenced, and the bursting of th...

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...ubble and its results arose from market misrepresentations created by the

Federal Reserve, the government backing of Fannie Mae and Freddie Mac, and the Department of Housing and Urban Development and its Federal Housing Administration. Americans suffered through a severe recession in 2008 and 2009, due to a decline in adhering to government policies. We need to identify and redo policies that mislead housing and financial markets, and demolish fail agencies and departments, such as HUD. We should be guided by recognizing the two main errors that have been made. First, cheap-money policies by the Federal Reserve do not produce sustainable success. Second, delivering mortgage backing by imposing affordable housing mandates on banks and by providing federal support to Fannie Mae and Freddie Mac bonds can go wrong in a tragic way that damages the economy (White 2008).