Study Notes on the Great Recession

Recall explanations for why the Great Recession occurred.
Identify consequences of the Great Recession, particularly among individuals and families living in poverty.
Discuss how larger economic factors such as the Great Recession make it difficult for families to stay out of poverty.

The Great Recession refers to a serious economic downturn, specifically occurring from 2007 to 2009. It was closely related to the U.S. housing market collapse and the global financial crisis.
Significance:
- It was identified as the longest recession since the Great Depression.
Economic Indicators:
- GDP fell by 4.3%.
- Unemployment rose to 10%.
- The U.S. labor market lost 8.4 million jobs.
- Home prices fell by 30%.
- The S&P 500 index declined by 57%.
- The net worth of U.S. households and nonprofit organizations decreased from $69 trillion to $55 trillion.

Main factors leading to the Great Recession:
- Housing bubble burst
- Financial market chaos
- An almost complete economic meltdown.
- This information is corroborated by the History Channel.

Relative poverty matters; Americans were striving to keep pace with the consumption patterns of wealthier individuals whose incomes grew significantly.
Noteworthy statistics and societal changes:
- House size grew by 15%, averaging 2,227 square feet from 1997 to 2007.
- There was a remarkable trend toward luxurious home features such as impressive foyers, granite countertops, and raised ceilings.
- Home renovations also saw a surge during this boom.

Deregulation of banks in the 1980s led to structural changes in the banking system.
- Merging of commercial and investment banks rendered banks more divergent in their operations.
- Banks offering home loans engaged in riskier investment practices, including:
- Expansion into higher risk loans with higher interest payments.
An important trend was Mortgage Securitization, which allowed banks to bundle various mortgage loans into securities for investors.
Lack of Regulatory Oversight allowed for riskier practices.
The subprime lending market's increase resulted in average housing prices soaring by 60% from 1997 to 2006.

A contributing factor was the low interest rates maintained by the Federal Reserve.
These low rates made purchasing homes appear more affordable, as monthly payments were lower.
However, many subprime loans featured low initial payments that then transitioned into ballooning payments after a few years, leading to confusion among borrowers.
As homes were frequently overpriced and the demand faded, the following repercussions occurred:
- An increase in mortgage defaults.
- Financial institutions began failing, creating a widespread panic in the economy.
Responses included:
- Congressional bailout programs such as:
- Troubled Asset Relief Program (TARP).
- American Recovery and Reinvestment Act of 2009.

A 22% increase in poverty was observed from 2006 to 2011.
Temporary Government Actions to aid affected individuals included:
- Expansions of the Earned Income Tax Credit.
- Expansion of the Child Tax Credit.
- Making Work Pay Tax Credit.
- Increased duration & level of unemployment insurance.
- Expansion of the Supplemental Nutrition Assistance Program (SNAP).
The effectiveness of these programs was evidenced by positive outcomes in alleviating the impacts of the recession on poverty levels.