The Great Recession of 2008 is one of the biggest economic drops in history after the Great Depression of the 1930s; the recession was caused due to a crisis in the subprime mortgage market. Recession refers to fall or stagnation in the market. During this time many became unemployed and helpless, the crisis crept into different countries. Subprime Mortgage market crisis: During the min-2000s there was a significant boom in the housing industry, though the Commerce department in 2006 suggested that the number of home permits have reduced by 28 percent Federal Reserve could not predict the danger that would approach in the Future. With an increase in houses, many lenders gave away loans seeking profits without checking on to the trustworthiness of the borrowers. When lending happens on the basis of such risk these are called subprime mortgages, on the other hand, the financial institutions brought these mortgages for the sake of investments. In 2007 new century financial collapsed due to bankruptcy, American Home Mortgage also faced a similar fate. With the continued increase in homes and such loans, now the value of each home had fallen below what they had borrowed. The recession's main point was the US and the country also experienced some of its biggest falls in 2008. The unemployment rates reached about 10 percent Bear Stearns following the same crisis was purchased by JP Morgan Chase and later one of its huge Investment banks Lehman brothers failed leading the country to watch in silence. The incident led the Federal Reserve to provide insurance to AIG so that it does not collapse similarly. Measures were taken by the Federal Reserve: The stock market before the big fall had a great rise; many who had invested at this time had experienced huge losses due to the fall. The Federal Reserve initially in 2007 added liquidity to the market, it also reduced the interest rates – it had at a point even reduced them to zero on which loans were lent. Later a stimulus Act was passed to provide a sought of discount to taxpayers in the market. To ensure that there would be no further bail-outs of large companies a program called TARP- Troubled asset relief program was introduced, this enabled government to purchase the assets of the companies which were engulfed in financial trouble. The Government brought out the assets of about 9 banks during this time. Similarly, some other cuts on taxes were sanctioned by President Barack Obama as well. A Dodd-Frank Act was passed to regulate and restore the market and have financial stability.
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Tags : #Great Recession #drop in Economy