1

Table of Contents

Introduction ……………………………………………………………………….….…………2

1. Showcasing the Timeline of Recessions up until the Great Recession ……….…….………..3

1.1. Understanding The Nature of a Recession …………………………………………3

1.2. Recessions through the Ages ………………………………………………………5

2. Critical Analysis of The Great Recession ……….………………………………...……...…8

2.1. What Was the 2008 Great Recession? …………......................................................8

2.2. Assessing the Intricacies of the Great Recession ………………………….….....…9

2.3. Looking into the Repercussions of the Great Recession …………………….……11

3. Contemporary Perspectives in Society and Long-Lasting Consequences ………...….…….13

Conclusion ……………………………..………………………………………………..…….15

Bibliography………………………………………………….………………………………..16
 2

Introduction

The global financial system was completely shaken by the 2008 financial crisis, which is

remembered as a pivotal point in the history of modern economics and left a lasting mark on

economies all over the world. Its roots, in a complex web of interrelated factors spanning from

careless lending practices to regulatory gaffes, highlighted long-standing systemic

vulnerabilities. This dissertation aims to offer a comprehensive analysis of the crisis, examining

its causes, spreading mechanisms, and policy responses as we consider its effects and lessons.

Besides contributing to its economic implications, the crisis brought to light significant

sociopolitical and ethical concerns, such as financial deregulation, income inequality, and

immoral behavior in the name of monetary gain. Utilizing viewpoints from political science,

economics, finance, sociology, and ethics, this analysis crosses disciplinary boundaries to

provide a comprehensive understanding.

This dissertation seeks to explain the events of the crisis and to extract useful lessons for

future risk management strategies, regulatory frameworks, and policy frameworks through

rigorous analysis and empirical research. We hope to create a more resilient, just, and sustainable

financial system that prevents the recurrence of such catastrophic events by learning from the

mistakes of the past. By doing this, we pay homage to the historical lessons and steer clear of the

past and toward a more stable economic future.

The motivation behind my choice to illustrate this turmoil in the economy is my deep

belief that a human being should always be in touch with the history of past events that had a

significant impact on the way of living life and its quality. I strongly believe that past dramatic

events are extremely resourceful when it comes to the lessons learned, lessons that aid us further
 3

in our decision-making process. Therefore, I see this topic as one of those examples that

humankind should really think it through.

This thesis is structured into three chapters. The first chapter explores the fundamental

characteristics and causes of economic recessions and examines historical examples of

recessions leading up to the Great Recession, highlighting key events and economic impacts. The

following chapter provides an in-depth analysis of the causes and triggers of the 2008 Great

Recession and discusses the long-term effects and consequences of the Great Recession on

various sectors and economies. The final chapter explores current societal perspectives and the

enduring impacts of the Great Recession on individuals, communities, and economies.

 4

1. Showcasing the Timeline of Recessions up until the Great Recession

This chapter provides an overview of recessions, defining them as periods of weak

economic growth, job losses, and declining economic output. The chapter introduces economist

Julius Shiskin's guidelines for characterizing a recession and also identifies various triggers for

recessions, such as sudden economic shocks, excessive debt, asset bubbles, inflation, deflation,

and technological change. This chapter also delves into historical recessions, highlighting events

like the Great Depression, the Roosevelt Recession, the Post-War Recession, the Post-Korean

War Recession, the Nixon Recession, and the Dot Com Recession, providing brief insights into

each.

1.1 Understanding The Nature of a Recession

A recession is characterized by weak economic growth, job losses, lower corporate sales,

and a drop in the nation's total economic output. The exact moment when the economy enters a

recession is dependent upon several variables.

Economist Julius Shiskin developed a few broad guidelines in 1974 for characterizing a

recession: The most widely accepted was the GDP decreasing for two quarters in a row.

According to Shiskin, two quarters of declining output in a row indicates there are significant
 5

underlying issues because a robust economy grows over time. Over time, this concept of a

recession spread to become the accepted norm.

It is widely acknowledged that the National Bureau of Economic Research (NBER) is the

authoritative source for determining the beginning and end dates of U.S. recessions. "A

significant decline in economic activity spread across the economy, lasting more than a few

months, normally visible in real GDP, real income, employment, industrial production, and

wholesale-retail," is how the NBER defines a recession.

A recession is triggered by a variety of economic variables, including:

 A sudden economic shock: An economic shock is an issue that occurs unexpectedly and

causes significant financial loss.

 Excessive debt: When people or companies take on too much debt, the cost of servicing

it may increase to the point where they are unable to make ends meet. A rise in

bankruptcies and debt defaults would then collapse the economy.

 Asset bubbles: Unfavorable economic results follow emotionally motivated investing

decisions. In times of economic prosperity, investors may become overly optimistic.

 Too much inflation: Inflation is the steady, upward trend in prices over time. Inflation

isn’t a bad thing per se, but excessive inflation is a dangerous phenomenon. Central banks

control inflation by raising interest rates, and higher interest rates depress economic

activity.

 Too much deflation: While runaway inflation can create a recession, deflation can be

even worse. Deflation is when prices decline over time, which causes wages to contract,

which further depresses prices. When a deflationary feedback loop gets out of hand,
 6

people and business stop spending, which undermines the economy. Central banks and

economists have few tools to fix the underlying problems that cause deflation.

 Technological change: While new inventions boost economic growth and productivity in

the long run, there may be brief periods of adjustment as a result of these advancements.

https://www.facebook.com/zgroupdigital/photos/a.221532769576566/279793767083799/?type=3

1.2 Recessions Through the Ages

1. The Great Depression (1929-1933)

America recovered from the devastation and disruptions of World War I in the 1920s.

As the US economy flourished, people jumped at the chance to invest in their

preferred, recently discovered means of generating wealth: the New York Stock

Exchange. Investors watched the ticker tape and traded using historically high levels

of margin during the Roaring Twenties. Spending eventually increased to the point

where security prices skyrocketed, greatly inflating the value of the assets. The

bubble burst on October 29, 1929, when the stock market crashed on Black Tuesday,

sparking what is now regarded as the greatest recession in US history and a period of

economic contagion.
 7

2. The Roosevelt Recession (May 1937 – June 1938)

The Roosevelt Recession, a severe economic downturn, occurred before the Great

Depression's full recovery. It was attributed to tight fiscal and monetary policy during

the New Deal, leading to a 11% decline in real GDP and 32% decline in industrial

production.

3. The Post-War Recession (November 1948 – October 1949)

In a similar vein, the Post-War Recession only lasted eight months from its peak to its

lowest point. Economists saw this recession as evidence that the US had successfully

adjusted to post-World War II conditions. Another strong expansionary phase with

6.9% annual GDP growth started in late 1949 and lasted 45 months.

4. The Post-Korean War Recession (July 1953 – May 1954)

After the Korean War In the end, the US's large war-related spending and the ensuing

inflationary pressures caused the recession. The US's inflation rate shot from 2% prior

to the war to an astounding 10% during this period. The Fed raised borrowing costs

and the money supply in an effort to reduce inflation. This recession was, in

comparison, quite short, lasting only ten months from the peak to the bottom.

5. The Nixon Recession (December 1969 – November 1970)

The Nixon Recession, a mild 11-month recession, followed the removal of the gold

standard in 1971, allowing currencies to float and central banks to exert more

influence. The dollar's depreciation exacerbated the recession and inflation.

6. The Dot Com Recession (March – November 2001)

The 1990s saw the longest economic growth in American history until the Dot Com

Bubble, when tech IPOs and overvalued stock prices led to a recession. The tech-
 8

heavy NASDAQ lost 77% of its value and took over 15 years to recover. The 2001

World Trade Center attack solidified a pessimistic outlook, triggering a recession.

2. Critical Analysis of The Great Recession

The aim of this chapter is to explore the causes of the recession, focusing on the collapse

of the U.S. housing market and the subsequent loss in value of mortgage-backed securities. The

chapter also examines the contributing causes of the recession, such as the government's failure

to regulate the banking sector, excessive risk-taking by banks and the ignorance of the financial

system's collapse by legislators. It looks into the repercussions of the Great Recession and the

strategies employed for subsequent recovery and analyses the gradual recovery of the economy.

2.1 What Was the 2008 Great Recession?

The severe drop in economic activity that began in 2007 and persisted for several years,

affecting economies throughout the world, was known as the "Great Recession." Since the 1930s

Great Depression, this downturn is regarded as the most significant. The official duration of the

U.S. recession was from December 2007 to June 2009; however, the term "Great Recession" also

refers to the subsequent worldwide recession that ended in 2009.

When the U.S. housing market collapsed, causing a massive loss in value of mortgage-backed

securities (MBS) and derivatives, the economic downturn got underway.

 9

www.nytimes.com

2.2 Assessing the Intricacies of the Great Recession

The 2007–2008 financial crisis has been building for years. By the summer of 2007, there

were indications on global financial markets that the years-long glut of low-cost credit was

finally coming to an end. The British bank Northern Rock was going to apply for emergency

funding from the Bank of England, two Bear Stearns hedge funds had collapsed, and BNP

Paribas was alerting investors to the possibility that they might not be able to withdraw money

from three of its funds.

Nevertheless, few investors realized that the world financial system was about to be engulfed in

the biggest crisis in almost eight decades, which would bring Wall Street's titans to their knees

and start the Great Recession.

Thousands of common people lost their homes, jobs, or life savings in a historic financial

and economic catastrophe. The Commission of Inquiry into the Financial Crisis concluded in

2011 that the Great Recession was preventable. The appointees—six Democrats and four

Republicans—cited a number of significant contributing causes that they concluded contributed

to the economic crisis.

 10

The report first noted the government's inability to regulate the banking sector. One

example of this regulatory failure was the Fed's incapacity to prevent banks from granting

mortgages to individuals who later turned out to be poor credit risks.

Subsequently too many banks assumed excessive risk. Although it was not subject to the

same oversight or regulation as the conventional banking system, the shadow banking sector—

which included investment firms—grew to rival it. Credit to households and companies was

disrupted when the shadow banking sector collapsed.

Legislators who were ignorant of the financial system's collapse and excessive borrowing

by businesses and consumers were two other factors mentioned in the report. This led to the

creation of asset bubbles, particularly in the housing sector where low-interest mortgages were

given to ineligible borrowers who were later unable to repay them. Housing values dropped as a

result of the subsequent selloff, leaving many other homeowners in default. The demand for the

mortgage-backed securities (MBS) that banks and other institutional investors held, which in

turn enabled lenders to grant mortgages to riskier borrowers, was adversely hurt by this.

Following the 9/11 attacks and the Dotcom boom of 2001, the US Federal Reserve

lowered interest rates in an effort to boost the economy. Mortgage debt skyrocketed as a result of

the financial and real estate industries being encouraged. But in an effort to rein in inflation, the

Fed increased interest rates between 2004 and 2006, which led to a housing bubble. The

extraordinary sales of mortgage-backed securities and derivative products by financial

institutions contributed to the 2007 real estate market collapse. With the failure of Bear Stearns

and the bankruptcy of Lehman Brothers in 2007, the credit crisis got under way. By the time the

Great Recession ended in June 2009, US households had lost over 8.7 million jobs and $19

trillion in net worth.

 11

2.3 Looking into the Repercussions of the Great Recession

The global central banks, including the U.S. Federal Reserve, were largely acknowledged for

averting even more severe harm to the world economy through their strong monetary policies.

Some, meanwhile, disagreed with the actions, arguing that they prolonged the recession and

created the conditions for future ones.

 Monetary and Fiscal Policy: The Fed reduced interest rates to nearly zero and provided

$7.7 trillion in emergency loans through quantitative easing. The US government also

stimulated the economy with $787 billion in spending under the American Recovery and

Reinvestment Act.

 The Dodd-Frank Act: In the 1990s, the US government enacted financial regulations

and stimulus packages, repealing the Glass-Steagall Act and allowing big banks to

combine to form larger organizations. As a result, the Dodd-Frank Act was enacted in

2010 and gave the government more authority to control the financial industry while also

putting consumer protections in place against predatory lending. Some who oppose the

law claim that those in the financial sector had a hand in its creation and execution.

The economy started to recover gradually after these measures. Three and a half years after the

official recession's start, in the second quarter of 2011, real GDP recovered from its pre-recession

peak. It had reached its lowest point in the second quarter of 2009. Wall Street washed over by a

wave of liquidity, and financial markets recovered.

The Dow Jones Industrial Average (DJIA) began to recover in 2009, breaking its 2007

high in 2013. However, unemployment and household income remained low, with

unemployment reaching 10% in 2009 and not recovering until 2015. Critics argue that policy
 12

response, including liquidity and deficit spending, favored big businesses and delayed recovery

by tying up resources in failing industries.

3. Contemporary Perspectives in Society and Long-Lasting Consequences

All things thought through, the global financial crisis of 2008 has had a lasting impact on

modern society, influencing global political environments, market dynamics, economic policies,

and financial regulations. Its legacy acts as a warning about the significance for prudent risk

management, efficient regulation, and adaptability to financial shocks.

www.thebalancemoney.com
 13

The listing that follows clearly displays the main implications of the 2008 economic collapse on

our current environment:

 Financial Sector Resilience: To make banks and other financial institutions more

resilient to shocks, significant changes have been made. Stress testing has become

commonplace, and capital requirements have been raised to gauge financial

institutions resilience to challenging economic times.

 Housing Market: Established at the center of the 2008 financial crisis, the housing

market has experienced variations across various geographic areas. While some regions

have seen tremendous growth and increases in real estate values, others are still plagued

by problems like housing affordability, foreclosures, and restricted credit availability.

 Behavioral Changes: Consumer attitudes toward risk and debt were significantly

impacted by the crisis. A lot of people became more frugal with their borrowing and

investing, favoring safer investments and savings over high-risk endeavors.

 Trade and Globalization: As a result of the crisis, trade and globalization policies were

reevaluated, and some nations implemented protective laws to insulate their economies

from outside shocks. Recent years have seen an increase in trade tensions, in part because

of persistent economic uncertainty resulting from the crisis.

 Technology and Innovation: The economic downturn accelerated technological

development in the industry, resulting in the emergence of fintech companies that provide

investment and alternative banking services. For instance, blockchain technology came

into being in part as a reaction to the perceived shortcomings of conventional financial

systems during the financial crisis.

 14

Conclusion

The financial crisis of 2008 is an eye-opening example of the results of reckless risk-

taking and regulatory flaws. As we draw to a close, it is obvious that a variety of complex

variables, such as inconsiderate lending practices, financial innovation, and insufficient

oversight, contributed to the crisis.

We must give transparency, accountability, and caution top priority in our financial

systems going forward. Through the reinforcement of regulatory frameworks and the resolution

of underlying differences, systemic risks can be reduced and a more robust, inclusive, and

sustainable global financial system can be constructed. By doing this, we pay tribute to the

lessons extracted from the past and steer the economy toward a more promising future that

places a premium on stability, prosperity, and equal opportunity for all.

The examination of recessions leading up to and including the Great Recession sheds

light on the cyclical nature of economic downturns and their profound impacts on society. The

timeline of recessions showcased the historical context and patterns, emphasizing the

significance of understanding the nature of recessions and their evolution over time.
 15

The critical analysis of the 2008 Great Recession delved into the intricacies of its causes,

triggers, and repercussions, highlighting the complexities that contributed to its severity. By

assessing the economic, social, and political dimensions of the Great Recession, a deeper

understanding of its lasting consequences was gained.

Moreover, exploring contemporary perspectives in society revealed the enduring effects

of the Great Recession on individuals, communities, and economies. The long-lasting

consequences underscore the need for sustainable economic policies, social safety nets, and

resilience-building strategies to mitigate the impact of future recessions.

Overall, this thesis underscores the importance of learning from past recessions, critically

analyzing their causes and effects, and adopting proactive measures to address the challenges

posed by economic downturns. By synthesizing historical insights with contemporary

perspectives, this study contributes to a holistic understanding of recessions and their

implications for society at large.

 16

Bibliography

Investopedia. Recession: Definition, Causes, Examples and FAQs. Web. November 20, 2023

https://www.investopedia.com/terms/r/recession.asp

David Rodeck. What is A Recession? Forbes. Web. November 20, 2023

https://www.forbes.com/advisor/investing/what-is-a-recession/

McKinsey& Company Team. What is a Recession?. Web. November 20, 2023

https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-a-recession

.Weatherly Asset Management. A Brief History of U.S Recessions. Web. November 20, 2023

https://www.weatherlyassetmgt.com/a-brief-history-of-u-s-recessions/

Federal Reserve History. The Great Recession and Its Aftermath. 2013. Web. January 23, 2024

https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath

Britannica Money. Great Recession. Brian Duignan. Web. January 23, 2024

https://www.britannica.com/money/great-recession

Forbes. Wayne Duggan. A Short History Of The Great Recession. Web. January 23, 2024

https://www.forbes.com/advisor/investing/great-recession/

Investopedia. Manoj Singh. The 2007–2008 Financial Crisis in Review. Web. January 23, 2024

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

Investopedia. 2008 Recession: What It Was and What Caused It. Web. January 23, 2024
 17

https://www.investopedia.com/terms/g/great-recession.asp

National Bureau of Economic Research. Robert E. Hall, Longer-Term Consequences of the

Financial Crisis. Web. January 23, 2024

https://www.nber.org/digest/oct14/longer-term-consequences-financial-crisis