The Great Recession was a major global economic downturn that occurred from late 2007 through 2009, though its effects lasted for years in many countries. It was the most severe economic crisis since the Great Depression of the 1930s.
What Was the Great Recession?
- It began in the United States with the collapse of the housing market and quickly spread globally.
- Triggered a financial crisis, massive job losses, home foreclosures, and economic contraction around the world.
Main Causes of the Great Recession
| Cause |
Explanation |
| Housing Bubble Burst |
Home prices skyrocketed during the early 2000s, but the bubble burst around 2006–2007. |
| Subprime Mortgages |
Banks gave risky loans to borrowers with poor credit ("subprime")—many defaulted. |
| Mortgage-Backed Securities |
These risky loans were bundled into investments. When loans failed, the securities collapsed. |
| Financial Institution Failure |
Lehman Brothers collapsed (2008); other banks were close to failing. |
| Deregulation & Weak Oversight |
Lack of proper regulation let financial institutions take massive, dangerous risks. |
| Loss of Confidence |
Panic and uncertainty caused people and businesses to stop spending and investing. |
Timeline of Key Events
| Date |
Event |
| 2006 |
U.S. housing market peaks, then begins to decline. |
| 2007 |
Subprime mortgage lenders begin to fail. |
| Sep 2008 |
Lehman Brothers collapses; global panic begins. |
| Late 2008 |
U.S. and other governments launch massive bailouts and stimulus packages. |
| 2009 |
Global economy hits bottom; slow recovery begins. |
Effects of the Great Recession
| Impact Area |
Details |
| Banking Sector |
Banks failed or required government bailouts. |
| Unemployment |
U.S. unemployment peaked at 10% (2010); even higher in some countries. |
| Foreclosures |
Millions of people lost their homes. |
| Stock Market |
Markets lost over 50% of value in a few months. |
| Inequality |
Wealth gap widened; many never fully recovered. |
| Global Impact |
Europe faced a sovereign debt crisis; global trade slowed. |
Responses to the Crisis
| Response |
Details |
| Government Bailouts |
U.S. government bailed out banks and automakers (TARP program). |
| Economic Stimulus |
Large spending packages to boost economy (e.g., Obama's 2009 Recovery Act). |
| Interest Rate Cuts |
Central banks slashed interest rates to near 0%. |
| Regulation Reforms |
Laws like Dodd-Frank Act in the U.S. to increase oversight of banks. |
Long-Term Consequences
- Rise in populism and political polarization.
- Distrust in big banks and Wall Street.
- Stricter regulations for the financial industry.
- Slow recovery for middle- and working-class households.
- Record-low interest rates for a decade.