Econ_week_3_.docx ECO 535 The Great Recession Housing price bubble, collapse, foreclosu

Econ_week_3_.docx  ECO 535  The Great Recession  Housing price bubble, collapse, foreclosures, and bailout of underwater mortgages  University of Phoenix  ECO/535  The Great Recession started in 2007 when millions of people lost both their jobs and their homes when the housing market burst.   Leading up to this crash, lenders were issuing credit to homebuyers without adequate risk management, many times with subprime mortgages. There were also lenders that promoted alternative mortgages including teaser introductory rates and no down payment required.  Up until that point, the housing market pricing had been slowly increasing over the past 12 years and peaked in 2007.  According to the U.S census bureau average price of homes peaked at $257K, compared to $165K in the year 2000. The chart below illustrates the burst.  To mitigate the crisis in November of 2008 the Federal Reserve used quantitative easing to avert the further disaster.  If they had not introduced quantitative easing, experts believe this may have led to a second Great Depression.  From the chart below one can see how quantitative easing helped change central banking, and the growth from $900B in 2008 to $2.2 trillion in 2009.  According to business insider, the asset purchases helped lower mortgage interest rates, reduced corporate borrowing costs, and prevented widespread bankruptcies early on in the crisis.  Quantitative Easing was also a key factor in the successful decline of the unemployment rate.  The corrective actions tak