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What are the The Possible Contributors to the Great Recession in relation with Mortgage - Essay Example

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The global economy of the world is well-aware of the Great Recession of 2009 which was one of the massive declines in the history of economic recessions. It initiated at the start of the year 2007, prevailing severely through the year 2007 and affecting the economies of Europe…
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What are the The Possible Contributors to the Great Recession in relation with Mortgage
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What are the The Possible Contributors to the Great Recession in relation with Mortgage

Download file to see previous pages... Starting as a liquidity crisis which can be in a layman term defined as, “A state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high.” (Caouette, 25) This gravely caused an imbalance that resonated great economic crisis all around the world. This global crisis also gave a room to policy makers to intervene, as it was being quite difficult for the economic experts to handle this situation. However, the after effects of the Great Recession are still perpetuating in the global economy and have also limited the economic growth in 2012-2013 and have not completely recovered from the Great Recession. How Great Recession was stimulated? The major causes of the Great Recession date back to the start of 2007, however, the world wasn’t fully aware of the crisis until mid-2008, which could also be the main reason why it couldn’t recover from the crisis because it took a lot of time to look into what caused this crisisand rectify it. The root cause can be highlighted as the decline in the US consumers’ demand because of the gradual decrease in the Federal Reserve’s interest which was predicted to reach nearly zero and it was believed to occur by the year 2008, therefore they could not provide debts for people who called for refinancing. What triggered the economic crisis on a level of instability was the breakdown of mortgage-backed security. Moving on, another cause that resulted in this crisis can be pointed as the massive debt levels, which has long been acknowledged as an agent and a contributive factor for recessions that further led to the domino effect and perturbed the entire economic situation. Other causes were believed to be Government deregulation, over-leveraging, credit default swaps, collateralizing debt obligations, increase in the oil prices, and overproduction of goods as resulted by the Globalization. These were the main factors due to which the process of the economic crisis was accelerated. What Great Recession resulted in? The three regions globally affected by the Great Recession were Household, Income and Labor Dynamics in economy of Australia being an adequate example. The rate of employment was gravely affected which could also be noticed in the survey conducted in late 2009, which showed a high rate of job dismissals from 3.5% in 2008 to 5.4% in 2009. The types of workers that were affected due to this as usually suspected to be are the low-skilled workers and labors working in the informal sector, instead it was the working who were the full-time employers relating to skilled occupations. Globally, the Trade & Industrial production went through a complete manufacturing crisis. Environment was adversely affected and the rate of pollution increased as the industrial emissions gradually sped up. Unemployment increased in the US as the employment rate then was 4.9%. Tourism, insurance, small-business lending and political instability stimulated throughout the globe because of the economic and financial crisis. Mortgage Lending Practices – How they were affected? Mortgage loan can be defined as, “A loan on real estate that is usually secured by a mortgage.” (Jacobus& Thomas, 567). This could also be used as a generic term for loan. Demand is absent in recessionary periods so the interest rates are brought down to trigger it, lower interest rates entice people to get new mortgages and previous ones refinanced at a lower rate. Real estate lending crisis was triggered by the subprime lending mechanism, i.e. below normal rates. Financial institutions offered real estate at ...Download file to see next pagesRead More
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