What Did The Great Recession Cause?

The Great Recession, which ran from December 2007 to June 2009, was one of the worst economic downturns in US history.
The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages.
New financial laws and an aggressive Federal Reserve are two of the Great Recession’s legacies.

What influence did the Great Recession have?

This RFP has now been closed. The general rationale for the 30 project wins made in 2011 through early 2012 can be found in the original RFP outlined below.

The United States is now two years past the official end of the Great Recession, which lasted the longest and deepest since the 1930s. Although GDP and the stock market have risen since the recession ended in June 2009, the social and economic consequences of the downturn continue to ripple across the US economy. According to labor market data, more than 14 million Americans are unemployed, with 6.3 million of them out of work for more than six months. Another 11.3 million people are working less than they would like either part-time or looking for work but not finding it. Job growth is encouraging but sluggish, and at current rates of growth, reestablishing the pre-recession unemployment rate of 5% could take a decade or longer. Although the unprecedented number of home foreclosures experienced during the recession and its immediate aftermath has lessened, the housing market remains stagnant, with home prices hitting new lows in the first quarter of 2011. State and local budgets have seen huge gaps between revenues and expenditures as a result of the economic downturn, and stock market losses have exposed unfunded pension plans across the country. To attain balanced budgets, governments at all levels will have to undertake a mix of discretionary cuts and higher taxes, as predicted by the long-term repercussions of this recession. Public sector job losses have canceled out 40% of private sector employment increases in the two-year recovery, and government workforces are set to be under pressure for some time to come.

Given the likelihood of continued slow growth, high unemployment, low home values, and severe government fiscal limitations, the Russell Sage Foundation has opted to fund a series of studies on the social and economic consequences of the Great Recession. Long-term economic stagnation will most likely change American institutions and significantly impair many Americans’ life chances. We’re looking for studies that look at these effects across a broad spectrum of social and economic life, including, but not limited to, effects on individual aspirations and optimism about the future; health and mental health; family formation and stability, as well as children’s well-being; the viability of communities, particularly those hardest hit by the foreclosure crisis; the performance of the educational system at all levels; the incidence of crime and the performance of the criminal justice system. The Appendix demonstrates the types of topics that the Foundation is concerned about in each of these social and economic spheres. These are examples of the types of challenges the Foundation is interested in solving, although they are not meant to be exhaustive or exclusive.

In general, the Foundation will consider funding for a variety of projects, including:

Long-term studies on the effects of the Great Recession over the next three to five years. As a result, the effects of the fiscal crisis on state budgets, for example, may take some time to manifest. A comparison of the decisions governments make in balancing their budgets, as well as the implications of those choices, may not be significant for several years after the current crisis has ended. In another area, the consequences of the recession on families may not become apparent until after families have exhausted their resources in dealing with unstable work or housing, and if there are lasting repercussions on children, these may take even longer to manifest.
Analytic research that look at the long-term repercussions of the Great Recession across a variety of social and economic realms. An examination of how the recession affects underprivileged adolescents, for example, could look into the probable link between local variation in unemployment, school dropout, and criminal involvement. Alternatively, a study of older Americans’ labor market participation might look into the consequences of changes in pension wealth and the early receipt of Social Security benefits after a job loss.
Innovative investigations of the Great Recession’s deeper, more subtle consequences on psychological attitudes and social norms. Will the exceptionally high rates of long-term unemployment that have characterized this recession and its aftermath, for example, result in long-term scarring and decreased aspirations? Will high rates of overdue debt and “underwater” mortgages impair financial responsibility in general and undermine default norms? Or will the need to deleverage lead to a more conservative and cautious approach to household financial decisions in the United States? To assess the subjective impact of changed financial conditions, studies of these subjective issues may require a creative combination of qualitative and quantitative methodologies.
Studies of how the Great Recession has affected American institutions, particularly in reaction to economic and other challenges that have arisen during the crisis and its aftermath. Universities, for example, have faced severe budget restrictions as a result of state budget cuts or private endowment losses at a time when student financial aid needs are rising. What has been the impact of universities’ responses to these pressures? To establish generalizations about institutional change, studies of institutional adaptation of topics like these may rely on case studies of specific institutions or the collecting of administrative data across institutions.

In general, we’re looking for creative research projects that go beyond simple trend analysis to look at unintended consequences of the Great Recession. Such study might use comparisons of present conditions with what is known about the results of previous recessions to make testable predictions about the current slump’s likely effects. We expect many of the funded initiatives to employ publicly available data sets, but we also understand that valid assessments of predictions regarding the effects of the Great Recession may require conducting new waves of past surveys or replicating data from other sources that give pre-recession baselines. We are happy to evaluate ideas for restricted data acquisition or collection in such instances. The Foundation’s funding will be limited to research help, data analysis expenditures, and limited release time for analyzing and writing up results in all other circumstances. We anticipate that all working papers and research briefs from projects financed under this initiative will be published (non-exclusively) on the RSF website.

The second round of funding for this endeavor is now underway. After the first round, we sponsored ten initiatives in nine of the appendix’s domains (a description of projects funded in the first round can be found here). We will consider projects from all domains in this round, but we are particularly interested in projects that address the following topics that were not addressed in the first round: changes in attitudes and norms caused by the economic downturn, effects on communities particularly hard hit by foreclosures and/or unemployment, changes in the incidence of crime linked to recessionary conditions, and effects of the fiscal crisis on state and local budgets. We’re also interested in study on the labor market’s performance in the United States throughout this extended era of high unemployment. Although there are no restrictions on the quantity of funding requests that will be considered, cost/benefit analysis will be a major factor in the evaluation of all projects. For your information, prizes accepted in the first round typically ranged from $75,000 to $250,000 for project periods ranging from one to four years.

We ask all academics interested in being a part of this program to send us a letter of inquiry of no more than three single-spaced pages explaining the research topic on the effects of the Great Recession that you would want to do. Your letter should explain and estimate the research expenditures involved, as well as outline and motivate the hypothesis concerning the effects of the Great Recession that you are interested in exploring. It should also specify out the empirical work required and the data sources to be used.

All letters of enquiry will be reviewed by the Foundation’s Advisory Committee, and detailed proposals will be solicited for the initiatives that appear to be the most promising.

Over the last decade, poverty in the suburbs has soared by more than a third. Although poverty rates in the inner city are still greater, the gap is closing. Earlier downturns mainly evaded the effects of suburban areas, but not this time.

What happens when a community’s unemployment rate and foreclosure rate are both high? What effect will it have on housing stock, home values, fiscal capacity, out-migration, and more ephemeral issues such as social capital and social efficacy?
What impact has the recession had on the poor’s regional distribution and concentration?
How would a decrease in residential mobility influence a community’s social infrastructure?

From less than 3% of disposable personal income in 2005-2007 to nearly 6% of disposable income in 2010, the personal savings rate has increased. Furthermore, the total quantity of outstanding consumer credit has decreased for the first time since 1940 as a result of the present crisis.

What has the recession’s overall impact been on personal finances, consumer spending, and consumer confidence?
How did households cut back on their consumption? Are these solutions viable in the event that revenues do not recover?
Have people lowered or raised their savings and retirement contributions? To stay afloat, have families taken out loans against their current investment and retirement accounts? What are the ramifications?
Are these patterns indicating a fundamental shift in consumer and financial behavior?

For the better part of the last decade, crime rates in the United States have remained steady or even decreased marginally. According to some research, those tendencies may be in peril. While the general crime rate in New York City stays steady, the most current statistics shows that the murder rate has increased by 15% over the previous year.

Will crime rates that have been declining or constant in the long run continue in the same path or change?
With fewer resources and higher demands, how well will police, courts, and prison institutions be able to function?
Will states employ early release procedures to reduce the number of people incarcerated and their costs? Is it likely that caseloads for probation and parole will vary, and if so, how will this affect technical violation rates?
What will happen if a larger number of incarcerated people are released into economically challenged communities? What will happen to those people, their families, and their communities?

Families are likely to be affected in a wide range of ways. Job losses and unemployment, one of the most apparent characteristics of the recession, have been linked to higher stress, poorer health outcomes, decreases in children’s academic achievement and educational attainment, marriage age delays, and changes in household structure. According to recent statistics, the number of multigenerational homes increased by 12% between 2006 and 2010.

What impact has it had on marriage, divorce, cohabitation, fertility, and family structure? Has this had a greater impact on some groups than others?
What have been the ramifications for home labor division? Are fathers more likely than mothers to get laid off? Is it true that mothers work more when their fathers work less?
What impact has this had on young adult children? Are more people staying at home longer because of poor career prospects? Do they need more financial and social assistance?
What has been the impact on family function, particularly the quality of parents’ relationships, parent-child connections, and parenting?
What impact has this had on children’s immediate results, such as academic performance, behavior, and delinquency, as well as their long-term life prospects?

States faced overall budget shortfalls of nearly $300 billion between 2009 and 2012 due to a drop in revenue and higher demand for state services. The American Recovery and Reinvestment Act (ARRA) brought temporary relief, but it has finally come to an end.

What policy adjustments have states implemented to overcome substantial budget deficits, given that nearly all states are suffering significant budget gaps? What are the distributional effects of policy changes at the state level?
How will governments allocate the more constrained resources associated with diminishing tax receipts, given that health and prisons have been the fastest rising parts of state budgets over the last several decades? Which states are more likely to enact tax increases vs. spending cuts and with what impact on the state economy?
The financial crisis has brought to light the underfunding of pension systems across the country. What are the chances that states will follow through on promised benefits? What effect will it have on state budgets?

Thirty-five states reduced education budgets totalling roughly $8 billion in K-12 and higher education in 2010, and 31 states are seeking more cutbacks in 2011.

What impact do budget cuts have on the delivery of public K-12 education? What impact has graduation rates, class sizes, school closures, and teacher employment and turnover had?
What has happened to the quality of public higher education at all levels, from four-year universities to community colleges?
Has there been a rise in the demand for a college education? Has it changed as a result of the family’s socioeconomic condition or the demography of the students?
What has changed in terms of the net cost of a college education, and what are the implications for students from various socioeconomic backgrounds?

Between 2006 and 2009, the number of home foreclosure filings grew from from 1.2 million to over 4 million per year, with black and Hispanic areas being disproportionately affected. Home losses of this magnitude and concentration are likely to cause more community upheaval and deterioration. Home ownership is also one of the most common means of accumulating wealth in the United States, meaning more financial insecurity for millions of Americans in the short and long term.

Which people and communities have been the most affected by foreclosures? What have been the ramifications for both those who have lost their homes and the localities that have seen the highest rates of home loss?
Have the losses in wealth caused by home foreclosures been allocated differently across different groups?
Have housing policies aimed at reducing home foreclosures been successful? Who has benefited the most?

Job loss is a major source of stress, and it has been linked to a variety of health effects, including an increased risk of heart attack and stroke, diabetes, arthritis, and psychiatric issues, as well as increased melancholy, anxiety, and sleep loss.

What kinds of health and mental-health changes can be ascribed to the Great Recession’s economic uncertainty and its aftermath?
Has there been a psychological shift in the general public’s aspirations, optimism for the future, and expectations for performance and upward mobility, particularly among the young?
What are the health ramifications in neighborhoods that have been impacted especially hard by the recession?
What are the anticipated ramifications of health-care and mental-health service cuts?

As the recession has set in, the number of economic migrants crossing the Mexican border into the United States has dramatically decreased, and internal migration patterns may have transformed as typical employment possibilities for migrants have decreased.

What are the current trends in immigration and internal migration? What will the ramifications be for immigrant communities?
What has been the impact of the collapse of the building industry on internal migration? Is there a link between changes in other industries and changes in internal migration?
How has extended economic suffering and uncertainty influenced Americans’ attitudes toward immigrants, immigration, and the immigration debate?
Are the lasting consequences of the recession affecting return migration patterns?

The official poverty rate rose from 13.2% in 2008 to 14.3% in 2009, with roughly 4 million more people living in poverty than the previous year. Since 1969, nearly every recession has resulted in considerable rises in poverty rates, with the consequences disproportionately affecting children.

What impact has the recession had on the income and wealth of people at various levels of the income distribution? Which individuals and groups have experienced the most transformation? Which assets (for example, retirement assets, property, and investments) have been most sensitive to the downturn if diverse vehicles for wealth generation have been disproportionately impacted?
Has the rate of poverty changed, and who is more likely to slip into or stay in poverty?
Is the greater concentration of incomes at the top of the income distribution a result of the recession?
Has the gradual increase in economic inequality that has marked the United States since the 1970s been aggravated, reduced, or remained unchanged?

A lengthy period of high unemployment, typified by historically high long-term unemployment rates, is expected to have far-reaching implications for the operation of the US labor market, as well as the lives of the unemployed, their families and communities, and the institutions that support them.

How bad are the ramifications of long-term unemployment? Who are the people who are most affected? What policies and programs work best to re-employ long-term unemployed people?
Is the size of the recession a sign of a massive reorganization of the US labor market? To what extent are structural mismatches between skill demand and supply, rather than weak demand, the causes of long-term unemployment?
What geographical areas and localities have the highest levels of unemployment, and why? What are their chances of getting back on their feet?

During the Great Recession, American politics was extremely turbulent, with rising populist fury directed at incumbents blamed for the crisis, significant electoral swings, and new forms of political organizing and fundraising.

In the aftermath of the recession, how are political attitudes, party affiliation, and political involvement changing?
What role do business and government play in producing the problem and resolving it, according to Americans?

State and municipal pension liabilities are anticipated to be close to $4 trillion, while private pension account balances are down approximately $800 billion from pre-recession levels, notwithstanding the stock market recovery.

What effect do pension losses have on pensioners’ projected retirement income? Which groups have been hurt the hardest?
What impact does the loss of pensions and jobs have on older Americans’ retirement decisions? Is there a shift in the distribution of retirement age based on income or education?

Approximately 46% of the 14.6 million unemployed people have been jobless for 27 weeks or longer, and 31% have been jobless for 52 weeks or longer.

How well did the social safety net in the United States perform during the recession and the subsequent period of high unemployment? How has the recession affected the need for emergency and safety-net services? How well have different programs (such as TANF, SSI, and SNAP) responded to increased demand?
Have community nonprofits been able to address any gaps that exist? Is it possible that the impact of the recession on such NGOs has reduced their ability to respond to rising need?
In a high-unemployment environment, what happens to welfare claimants whose time-limited benefits expire?
What was the American Recovery and Reinvestment Act’s impact? What will happen to state welfare programs now that the ARRA is no longer in effect?

What caused the recession and how did it affect people?

A stock market crash is one of the effects of a recession. When consumers’ purchasing power is reduced, goods and services become difficult to market. As a result, company earnings decline in lockstep with their stock market price.

Another result of the recession is an increase in unemployment. Consumer spending is slowing, therefore businesses are cutting back on production. As a result of the reduction in production, people lose their jobs.

Another impact is the possibility of depression. A recession, in particular, might turn into a depression if it lasts for a long time.

Furthermore, during a recession, the government frequently spends money that it does not have to bail out firms. As the national debt rises, the government will be forced to spend less money on development.

What was the cause of the Great Recession?

During the late 2000s, the Great Recession was characterized by a dramatic drop in economic activity. It is often regarded as the worst downturn since the Great Depression. The term “Great Recession” refers to both the United States’ recession, which lasted from December 2007 to June 2009, and the worldwide recession that followed in 2009. When the housing market in the United States transitioned from boom to bust, large sums of mortgage-backed securities (MBS) and derivatives lost significant value, the economic depression began.

What impact did the global financial crisis of 2008 have?

The crisis caused the Great Recession, which was the worst worldwide downturn since the Great Depression at the time. It was followed by the European debt crisis, which began with a deficit in Greece in late 2009, and the 20082011 Icelandic financial crisis, which saw all three of Iceland’s major banks fail and was the country’s largest economic collapse in history, proportionate to its size of GDP. It was one of the world’s five worst financial crises, with the global economy losing more than $2 trillion as a result. The proportion of home mortgage debt to GDP in the United States climbed from 46 percent in the 1990s to 73 percent in 2008, hitting $10.5 trillion. As home values climbed, a surge in cash out refinancings supported an increase in consumption that could no longer be sustained when home prices fell. Many financial institutions had investments whose value was based on home mortgages, such as mortgage-backed securities or credit derivatives intended to protect them against failure, and these investments had lost a large amount of value. From January 2007 to September 2009, the International Monetary Fund calculated that large US and European banks lost more than $1 trillion in toxic assets and bad loans.

In late 2008 and early 2009, stock and commodities prices plummeted due to a lack of investor trust in bank soundness and a reduction in credit availability. The crisis quickly grew into a global economic shock, resulting in the bankruptcy of major banks. Credit tightened and foreign trade fell during this time, causing economies around the world to stall. Evictions and foreclosures were common as housing markets weakened and unemployment rose. A number of businesses have failed. Household wealth in the United States decreased $11 trillion from its peak of $61.4 trillion in the second quarter of 2007, to $59.4 trillion by the end of the first quarter of 2009, leading in a drop in spending and ultimately a drop in corporate investment. In the fourth quarter of 2008, the United States’ real GDP fell by 8.4% from the previous quarter. In October 2009, the unemployment rate in the United States reached 11.0 percent, the highest since 1983 and about twice the pre-crisis rate. The average number of hours worked per week fell to 33, the lowest since the government began keeping track in 1964.

The economic crisis began in the United States and quickly extended throughout the world. Between 2000 and 2007, the United States accounted for more than a third of global consumption growth, and the rest of the world relied on the American consumer for demand. Corporate and institutional investors around the world owned toxic securities. Credit default swaps and other derivatives have also enhanced the interconnectedness of huge financial organizations. The de-leveraging of financial institutions, which occurred as assets were sold to pay back liabilities that could not be refinanced in frozen credit markets, intensified the solvency crisis and reduced foreign trade. Trade, commodity pricing, investment, and remittances sent by migrant workers all contributed to lower growth rates in emerging countries (example: Armenia). States with shaky political systems anticipated that, as a result of the crisis, investors from Western countries would withdraw their funds.

Governments and central banks, including the Federal Reserve, the European Central Bank, and the Bank of England, provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal and monetary policy, to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the vital commercial paper markets, and avoid a repeat of the Great Recession. For a major sector of the economy, central banks shifted from being the “lender of last resort” to becoming the “lender of only resort.” The Fed was sometimes referred to as the “buyer of last resort.” These central banks bought government debt and distressed private assets from banks for $2.5 trillion in the fourth quarter of 2008. This was the world’s largest liquidity injection into the credit market, as well as the world’s largest monetary policy action. Following a strategy pioneered by the United Kingdom’s 2008 bank bailout package, governments across Europe and the United States guaranteed bank debt and generated capital for their national banking systems, ultimately purchasing $1.5 trillion in newly issued preferred stock in major banks. To combat the liquidity trap, the Federal Reserve produced large sums of new money at the time.

Trillions of dollars in loans, asset acquisitions, guarantees, and direct spending were used to bail out the financial system. The bailouts were accompanied by significant controversy, such as the AIG bonus payments scandal, which led to the development of a range of “decision making frameworks” to better balance opposing policy objectives during times of financial crisis. On the day that Royal Bank of Scotland was bailed out, Alistair Darling, the UK’s Chancellor of the Exchequer at the time of the crisis, stated in 2018 that Britain came within hours of “a breakdown of law and order.”

Instead of funding more domestic loans, several banks diverted part of the stimulus funds to more profitable ventures such as developing markets and foreign currency investments.

The DoddFrank Wall Street Reform and Consumer Protection Act was passed in the United States in July 2010 with the goal of “promoting financial stability in the United States.” Globally, the Basel III capital and liquidity criteria have been adopted. Since the 2008 financial crisis, consumer authorities in the United States have increased their oversight of credit card and mortgage lenders in attempt to prevent the anticompetitive activities that contributed to the catastrophe.

Who is responsible for the 2008 Great Recession?

The Lenders are the main perpetrators. The mortgage originators and lenders bear the brunt of the blame. That’s because they’re the ones that started the difficulties in the first place. After all, it was the lenders who made loans to persons with bad credit and a high chance of default. 7 This is why it happened.

What triggered the 2008 financial crisis?

Years of ultra-low interest rates and lax lending rules drove a home price bubble in the United States and internationally, sowing the seeds of the financial crisis. It began with with intentions, as it always does.

What causes an economic downturn?

Systemic breakdowns, unforeseen or uncontrollable human behavior, incentives to take too much risk, regulatory absence or failures, or contagions that spread issues like a virus from one institution or country to the next are all contributing reasons to a financial crisis. A crisis, if allowed unchecked, can lead to a recession or depression in the economy. Even if steps are taken to prevent a financial crisis from occurring, it might nonetheless occur, accelerate, or deepen.

Did Covid cause the downturn?

The COVID-19 pandemic has triggered a global economic recession known as the COVID-19 recession. In most nations, the recession began in February 2020.

The COVID-19 lockdowns and other safeguards implemented in early 2020 threw the world economy into crisis after a year of global economic downturn that saw stagnation in economic growth and consumer activity. Every advanced economy has slid into recession within seven months.

The 2020 stock market crash, which saw major indices plunge 20 to 30 percent in late February and March, was the first big harbinger of recession. Recovery began in early April 2020, and by late 2020, many market indexes had recovered or even established new highs.

Many countries had particularly high and rapid rises in unemployment during the recession. More than 10 million jobless cases have been submitted in the United States by October 2020, causing state-funded unemployment insurance computer systems and processes to become overwhelmed. In April 2020, the United Nations anticipated that worldwide unemployment would eliminate 6.7 percent of working hours in the second quarter of 2020, equating to 195 million full-time employees. Unemployment was predicted to reach around 10% in some countries, with higher unemployment rates in countries that were more badly affected by the pandemic. Remittances were also affected, worsening COVID-19 pandemic-related famines in developing countries.

In compared to the previous decade, the recession and the associated 2020 RussiaSaudi Arabia oil price war resulted in a decline in oil prices, the collapse of tourism, the hospitality business, and the energy industry, and a decrease in consumer activity. The worldwide energy crisis of 20212022 was fueled by a global rise in demand as the world emerged from the early stages of the pandemic’s early recession, mainly due to strong energy demand in Asia. Reactions to the buildup of the Russo-Ukrainian War, culminating in the Russian invasion of Ukraine in 2022, aggravated the situation.

Who was affected by the Great Recession?

Rising unemployment, dropping property values, and the stock market decline all had an impact on those approaching retirement, either directly or indirectly. Furthermore, many elderly persons who were not directly impacted by the recession had children or other relatives who were. For many older persons, the recession’s financial difficulties resulted in changes in wealth and spending patterns, as well as physical and mental health issues with long-term effects.