How They and You Caused the Great Recession and How We Can Prevent It From Happening Again

The Great Recession, which began in December 2007 and ended in June 2009, was the most severe economic downturn since the Great Depression. It caused a loss of millions of jobs, homes, and businesses. The recession was caused by a number of factors, including:

• The housing bubble
• The subprime mortgage crisis
• The collapse of the investment bank Lehman Brothers
• The failure of the government to regulate the financial industry

In this article, we will discuss how these factors led to the Great Recession and what we can do to prevent a similar crisis from happening again.

House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again

by Atif Mian

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The Housing Bubble

The housing bubble was a period of rapid and unsustainable growth in housing prices. It began in the early 2000s and peaked in 2006. During the bubble, housing prices rose by an average of 20% per year. This led to an increase in speculation in the housing market, as people bought homes hoping to sell them for a quick profit.

The housing bubble was caused by a number of factors, including:

• Low interest rates
• Lax lending standards
• Government policies that encouraged homeownership

Low interest rates made it easier for people to buy homes. Lax lending standards allowed people with poor credit histories to get mortgages. And government policies, such as the subprime mortgage tax deduction, encouraged people to buy homes they could not afford.

The Subprime Mortgage Crisis

The subprime mortgage crisis was a crisis that occurred in the United States from 2007 to 2010. It was caused by the failure of subprime mortgages, which are mortgages that are made to borrowers with poor credit histories.

During the housing bubble, many subprime mortgages were made to people who could not afford them. These borrowers often had low credit scores, high debt levels, and unstable incomes. When the housing bubble burst and housing prices began to fall, these borrowers were unable to make their mortgage payments. As a result, many subprime mortgages went into foreclosure.

The subprime mortgage crisis had a devastating impact on the financial industry. The failure of subprime mortgages led to losses for banks, investment banks, and other financial institutions. This, in turn, led to a loss of confidence in the financial system and a worldwide financial crisis.

The Collapse of Lehman Brothers

Lehman Brothers was a major investment bank that collapsed in September 2008. The collapse of Lehman Brothers was a major turning point in the Great Recession. Lehman Brothers was one of the largest investment banks in the world, and its collapse had a ripple effect throughout the financial system.

The collapse of Lehman Brothers was caused by a number of factors, including:

• The subprime mortgage crisis
• The failure of the government to rescue Lehman Brothers

The subprime mortgage crisis led to losses for Lehman Brothers, which weakened the firm's financial position. The government's decision not to rescue Lehman Brothers led to a loss of confidence in the financial system and a worldwide financial crisis.

The Failure of the Government to Regulate the Financial Industry

The failure of the government to regulate the financial industry was a major contributing factor to the Great Recession. The government failed to adequately regulate the housing market, the subprime mortgage market, and the investment banks. As a result, the financial system was able to take on too much risk, which led to the Great Recession.

Since the Great Recession, the government has taken steps to regulate the financial industry more effectively. These steps include:

• The Dodd-Frank Wall Street Reform and Consumer Protection Act
• The creation of the Financial Stability Oversight Council

The Dodd-Frank Act is a comprehensive piece of legislation that reforms the financial industry. The act includes provisions to regulate the housing market, the subprime mortgage market, and the investment banks. The Financial Stability Oversight Council is a new body that is responsible for monitoring the financial system and identifying risks to the financial system.

How We Can Prevent the Next Great Recession

The Great Recession was a devastating event that had a profound impact on the global economy. It is important to learn from the mistakes that were made during the Great Recession so that we can prevent a similar crisis from happening again.

There are a number of things that we can do to prevent the next Great Recession, including:

• Regulate the financial industry more effectively
• Educate consumers about financial risks
• Promote economic growth and stability

We must never forget the lessons that we learned from the Great Recession. By working together, we can build a more stable and prosperous future for ourselves and our children.

The Great Recession was a complex event that was caused by a number of factors. It is important to understand these factors so that we can prevent a similar crisis from happening again. By regulating the financial industry more effectively, educating consumers about financial risks, and promoting economic growth and stability, we can build a more stable and prosperous future.