The Great Recession

Loading the player...

What was 'The Great Recession'

The sharp decline in economic activity during the late 2000s, which is generally considered the largest downturn since the Great Depression. The term “Great Recession” applies to both the U.S. recession – officially lasting from December 2007 to June 2009 – and the ensuing global recession in 2009. The economic slump began when the U.S. housing market went from boom to bust and large amounts of mortgage-backed securities and derivatives lost significant value.

BREAKING DOWN 'The Great Recession'

During the American housing boom of the mid-2000s, financial institutions began marketing mortgage-backed securities (MBSs) and sophisticated derivative products at unprecedented levels. When the real estate market collapsed in 2007, these securities declined precipitously in value, jeopardizing the solvency of over-leveraged banks and financial institutions in the U.S. and Europe.

Although the global economy was already feeling the grip of a credit crisis that had been unfolding since 2007, things came to a head a year later with the bankruptcy of Lehman Brothers, the country’s fourth-largest investment bank, in September 2008. The contagion quickly spread to other economies around the world, most notably in Europe. As a result of the Great Recession, the United States alone shed more than 7.5 million jobs, causing its unemployment rate to double. Further, American households lost roughly $16 trillion of net worth as a result of the stock market plunge.

The aggressive policies of the Federal Reserve and other central banks - though not without criticism - are widely credited with preventing even greater damage to the global economy. For example, the Fed lowered a key interest rate to nearly zero in order to promote liquidity and – in an unprecedented move – provided banks with a staggering $7.7 trillion of emergency loans.

RELATED TERMS
  1. Depression

    A severe and prolonged downturn in economic activity. In economics, ...
  2. Lehman Brothers

    A firm that was once considered one of the major players in the ...
  3. Great Depression

    An economic recession that began on October 29, 1929, following ...
  4. Recession

    A significant decline in activity across the economy, lasting ...
  5. Recession Resistant

    An entity which is not greatly affected by a recession. Recession ...
  6. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
Related Articles
  1. Budgeting

    Market Crashes: Housing Bubble and Credit Crisis (2007-2009)

    When: 2007-2009Where: Housing centered in the United States and Britain; Credit crisis occurred around the world The amount the market declined from peak to bottom: The S&P 500 declined ...
  2. Personal Finance

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  3. Credit & Loans

    Credit Crisis: Conclusion

    By Brian PerryThis tutorial has examined the most remarkable period many investors may ever experience. The credit crisis reshaped the financial landscape, threatened the stability of international ...
  4. Credit & Loans

    Credit Crisis: Bird's Eye View

    By Brian PerryThe credit crisis of 2008 includes some key events. Let's take a look at the series of events that reshaped the global financial community and forever changed the investment landscape. ...
  5. Economics

    How Do Asset Bubbles Cause Recessions?

    Understand how asset bubbles often lead to deep, protracted recessions. Read about historical examples of recessions preceded by asset bubbles.
  6. Credit & Loans

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.
  7. Bonds & Fixed Income

    Tips For Recession-Proofing Your Portfolio

    Find out what to do when the sun sets on a burgeoning market.
  8. Economics

    3 Financial Crises in the 21st Century

    Take a look at several of the most prominent financial crises of the 21st century, and understand why the Great Recession was a truly remarkable contraction.
  9. Active Trading Fundamentals

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  10. Economics

    4 Countries in Recession and Crisis Since 2008

    See which major world economies haven't recovered from the global recession in the early 21st century, including a long-stagnant industrial power in Asia.
RELATED FAQS
  1. What are some examples of expansionary monetary policy?

    Learn about expansionary monetary policy and how central banks use discount rates, reserve ratios and purchases of securities ... Read Answer >>
  2. How did the Great Recession affect structural unemployment?

    Understand the events in America that led to the Great Recession. Learn about structural unemployment and how it was affected ... Read Answer >>
  3. How do financial markets react to recessions?

    Learn more about the relationship between recessions and financial markets by identifying the fundamental characteristics ... Read Answer >>
  4. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
  5. What is a growth recession?

    A growth recession is an instance in which an economy grows at such a slow pace that it creates net unemployment, meaning ... Read Answer >>
  6. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center