Who Caused the 2008 Great Recession? | 5-Minute Videos | PragerU

Transcript:
Who Caused the 2008 Great Recession?
Presented by Franklin Camargo

From 2007 to 2009, America suffered a severe economic downturn known as the Great Recession, also known as the subprime mortgage crisis.

The economy, as measured by GDP, or gross domestic product, shrank by over 4%. Unemployment doubled, peaking at 10%. The Dow Jones Industrial Average fell 50%.

Millions lost their homes.

How did this happen?

Here’s the short version: in the spring of 2006, housing prices, which had been rising for years, began to decline and then freefall—30% nationwide, 60% in some markets like Las Vegas and Phoenix.

Why did this lead to a recession?

The usual explanation goes something like this: free-market ideologues in Republican administrations deregulated the banks. Free from constraints, these institutions enticed millions of Americans to take out home loans that were beyond their means.

It was, according to Forbes Advisor, “a classic tale of greed and deregulation…”

There’s one more crucial component here. These “subprime loans” were variable, that is, they rose or fell based on interest rates. When interest rates were low, monthly payments were affordable. If interest rates increased, so would monthly payments. But few thought that would actually happen.

This raises an obvious question: How did banks, which are inherently risk-averse, become so reckless with their money?

To answer that, we need to look at federal policy, specifically a piece of legislation called the Community Reinvestment Act, or CRA.

Signed in 1977 by