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. Recession

    A significant decline in activity across the economy, lasting ...
  3. Great Depression

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

    An entity which is not greatly affected by a recession. Recession ...
  5. Lehman Brothers

    A firm that was once considered one of the major players in the ...
  6. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
Related Articles
  1. Markets

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  2. Markets

    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.
  3. Managing Wealth

    Tips For Recession-Proofing Your Portfolio

    Find out what to do when the sun sets on a burgeoning market.
  4. Trading

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  5. Financial Advisor

    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.
  6. Markets

    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.
  7. Markets

    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.
  8. Markets

    3 Times the FOMC Got It Right This Century

    Learn about three times that the Federal Open Market Committee (FOMC) and the Federal Reserve took positive steps to help the economy in the 21st century.
  9. Markets

    Why Deflation Is The Fed's Worst Nightmare

    The measures taken by central banks seem to be winning the battle against deflation, but it is too early to tell if they have won the war.
  10. Markets

    Did We Reach a Ceiling to Fuel Growth by Borrowing?

    Find out how years of low interest rates and high borrowing have left the world economy with anemic growth and unprecedented balance sheet liabilities.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  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. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center