ECOCB535_Competency_2_Part_1.doc The Great Recession and Financial Crisis University o

ECOCB535_Competency_2_Part_1.doc    The Great Recession and Financial Crisis  University of Phoenix  ECOCB/535: The Digital Economy  The Great Recession and Financial Crisis  The US economy faced several challenges starting in 2007 that lingered for several years prompting the Federal Reserve to step in taking corrective action. It is uncertain what the exact causes of the recession were, but there is agreement on several factors that contributed to it including the surge in subprime mortgages and the bail outs for companies such as Fannie Mae, Freddie Mac, and AIG (Tatom, 2013). The popularity of subprime mortgages grew significantly with low interest rates and even had encouragement from the government to increase home ownership with potential borrowers with low credit. Fannie Mae and Freddie Mac are government sponsored companies that dealt in purchasing and securitizing mortgages from lenders. AIG is primarily an insurance giant that invested a great deal in subprime mortgages (Auerbach, 2018). This bubble popped when the high-risk investments began defaulting at a rapid rate and the financial industry drastically misjudged the amount of risk involved. Accounting discrepancies or misdirection in all three companies gave a false impression regarding their solvency and looming liability. The size of these three companies was large enough the Fed decided intervention was necessary to prevent further damage to the national and international economies (United States, 2010).  Figure i: Subprime security purch