Great Recession (United States)

Great Recession (United States)
source
Name	Great Recession (United States)
Country	United States
Period	2007–2009
Causes	Housing bubble; subprime mortgage collapse; financial leverage; credit crunch
Outcome	Recession; financial institution failures; policy reforms

Great Recession (United States) The Great Recession in the United States was a severe economic downturn from 2007 to 2009 that followed a collapse in housing prices and a crisis in credit markets. It coincided with major financial institution failures and global market distress, prompting unprecedented interventions by the Federal Reserve (United States), the United States Treasury, and international partners such as the International Monetary Fund and the Group of Twenty. The contraction influenced fiscal debates in the Congress, presidential administrations including George W. Bush and Barack Obama, and governance at state and municipal levels such as California and New York City.

Background and Causes

The downturn followed a prolonged housing boom fueled by low interest rates set by the Federal Reserve (United States), mortgage securitization led by firms like Fannie Mae and Freddie Mac, and lending practices from institutions such as Countrywide Financial and Washington Mutual. Complex instruments created by Goldman Sachs, Morgan Stanley, Lehman Brothers, and Bear Stearns—including mortgage-backed securitys and collateralized debt obligations—spread risk across markets. Rating agencies such as Standard & Poor's, Moody's Investors Service, and Fitch Ratings assigned investment-grade grades that mispriced risk. Deregulation trends influenced by actors like Alan Greenspan and legal changes associated with the Gramm–Leach–Bliley Act interacted with innovations in derivatives markets overseen by the Commodity Futures Trading Commission and the Securities and Exchange Commission. Global capital flows involving institutions in Iceland, United Kingdom, Germany, Japan, and China amplified vulnerabilities, while academic debates invoked models from Hyman Minsky, John Maynard Keynes, and Milton Friedman.

Financial Crisis and Market Turmoil

The crisis surfaced with liquidity issues at shadow banking entities and hedge funds such as Long-Term Capital Management, renewed fears after the collapse of Bear Stearns and the bankruptcy of Lehman Brothers, and runs on banks including Washington Mutual. Interventions included the Troubled Asset Relief Program implemented by the United States Department of the Treasury and emergency lending from the Federal Reserve (United States) to institutions like Citigroup and Bank of America. Global responses involved central banks such as the European Central Bank, the Bank of England, and the People's Bank of China. Stock indices including the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite plunged, while credit markets such as the LIBOR and the commercial paper market froze. High-profile legal and corporate episodes involved executives at AIG, settlements with JPMorgan Chase, and restructuring at General Motors and Chrysler.

Economic Impact and Recovery

Output contraction was evident in GDP declines tracked by the Bureau of Economic Analysis and unemployment spikes measured by the Bureau of Labor Statistics, with sectors like construction and manufacturing hit severely in states such as Michigan, Florida, and Nevada. The recession precipitated declines in household wealth tied to housing price indices like the S&P/Case-Shiller Home Price Index and triggered foreclosures affecting homeowners in metropolitan areas including Las Vegas, Phoenix, Detroit, and Miami. The recovery path included fiscal stimulus measures championed by figures like Timothy Geithner and policy frameworks debated in forums such as the National Bureau of Economic Research and the Council of Economic Advisers. Markets stabilized over time as banks rebuilt capital, exemplified by capital raises from Wells Fargo and asset sales by Morgan Stanley, and GDP growth resumed under the Obama administration's policies and global demand shifts involving Germany and China.

Government Response and Policy Measures

Policymakers enacted emergency and stabilization programs including the Troubled Asset Relief Program, the Emergency Economic Stabilization Act of 2008, and auto industry support coordinated with the United Auto Workers. Monetary policy tools included lowering the federal funds rate by the Federal Reserve (United States) and unconventional measures like quantitative easing implemented under Ben Bernanke. Fiscal actions included the American Recovery and Reinvestment Act of 2009 enacted by Barack Obama and negotiated in Congress with leaders such as Nancy Pelosi and Harry Reid. Regulatory forbearance, stress tests overseen by the Federal Deposit Insurance Corporation, and programs at the Treasury Department such as the Capital Assistance Program aimed to restore confidence. International coordination occurred at summits such as the G20 London Summit.

Social and Labor Consequences

The recession produced sustained increases in unemployment with long-term joblessness issues tracked by the Bureau of Labor Statistics and labor market shifts affecting unions like the United Auto Workers and sectors represented by the Service Employees International Union. Housing distress led to foreclosure crises in counties such as Maricopa County, Arizona and Las Vegas Valley, prompting legal actions involving state attorneys general and modifications to mortgage servicing rules by the Consumer Financial Protection Bureau. Social outcomes included increased reliance on assistance programs administered by agencies such as the Department of Health and Human Services and policy debates in think tanks like the Brookings Institution and the American Enterprise Institute. Political consequences influenced campaigns by figures including John McCain, Barack Obama, Mitt Romney, and later policy platforms of Donald Trump.

Regulatory Reforms and Long-term Effects

Post-crisis reforms featured the Dodd–Frank Wall Street Reform and Consumer Protection Act establishing the Consumer Financial Protection Bureau and the Financial Stability Oversight Council, along with enhanced prudential standards for firms designated as systemically important financial institutions such as JPMorgan Chase and Goldman Sachs. Debates continued over the effectiveness of measures in venues like the United States Supreme Court and hearings before United States Senate Committee on Banking, Housing, and Urban Affairs chaired by senators including Christopher Dodd and Richard Shelby. The crisis reshaped academic inquiry at institutions such as Harvard University, Massachusetts Institute of Technology, and London School of Economics and influenced monetary policy research at the Federal Reserve Bank of San Francisco and Federal Reserve Bank of New York. Long-term effects included altered risk management at firms like BlackRock and Vanguard, shifts in household saving patterns observed by the Federal Reserve Board, and sustained political regulation debates in chambers such as the United States House of Representatives and the United States Senate.

Category:Recessions in the United States