2008 Global Recession: Where Did It Come From?

     In December 2007, the global economy took a steady decline into the following year, culminating in September 2008 in what has become known as the largest economic recession in recent history. Over the past 4 years, the impact of this worldwide downturn has become ubiquitous, raising unemployment, foreclosure and bankruptcy rates on a pandemic scale and lowering the average consumer's purchasing power as well as property values. So with these far-reaching consequences, one must naturally inquire as to how such a financial catastrophe came about; unfortunately, a crisis of such a magnitude has no simple origin. Despite this, the cause of the 2008 recession may trace back to several key factors present at its inception.
    The first of these factors is the low interest rates which affected a variety of global markets, especially the housing industry. As a counter to the economic decline of 2000/2001, the U.S Federal Reserve eased credit availability to debtors, pushing spenders further into debt whilst improving purchasing power; the end result of this was a bubble in the housing market of the late 2000s, driving house prices to unprecedented levels.
    The result of this economic bubble was an unanticipated market for credit default swap markets, meant as an alleviation tactic against growing debt levels. However, the nature of such a market requires that the housing market continues to rise: this is where debt-related issues began to truly expand. The artificiality of the consequent boom in housing prices led to a liquidation of debtor's investments. As a result, the housing bubble burst in 2008, plunging housing prices to devastatingly low levels; thus, the housing market fell into crisis and the global recession was born.
    As one may observe, the global recession of 2008 came about not as the result of any particular cause, but as the product of a combination of multiple economic factors. It is the intricacy of such a far-reaching issue which places so much significance on the maintenance of economic stability and reliability, so as to prevent a domino effect from wreaking potential havoc on the global market.

-Christopher Cattafi, Vice President, LMHS Investment Club