Economic Crisis

According to the National Bureau of Economic Research (NBER), the U.S. has been in a recession since late 2007. The Merriam-Webster Dictionary defines a recession as a general slowdown in economic activity over a long period of time. There are many indicators used by economist to indicate an economic recession, the key indicator the NBER uses is to watch for two cycles of decline in the Gross Domestic Product. In 2008, three out of the four economic quarters displayed a downward trend within the GDP that has continued into 2009 (U.S. Bureau of Economic Analysis).
Economist have continued to debate over the exact causes of the recession but they all seem to point to the sub prime mortgage crisis as a key contributor.
Alan Greenspan, former chairman of the Federal Reserve, dropped interest rates to an all time low during his tenure. Incredibly low interest rates a boom in the housing market and increased consumerism throughout the early 2000’s(http://www.economicshelp.org/2008/10/mistakes-of-alan-greenspan.html).Greenspan finally increased the interest rates in 2005 in an attempt to adjust the market and as a result he created a crash in the market that left many families with negative equity in there homes and increasing mortgage payments for those with adjustable mortgages. Many homes went into foreclosures, leaving banks and government run companies, such as Freddie and Fannie Mack with a plethora of defaulted mortgages. The deregulated mortgage industry had been backed by securities that were sold on the open market by banks to private companies under the premise of being relatively safe investments. Investors, seeing there investments decline, began to pull money out of banks and sell back securities which drove many banks such as Lehman Brothers into bankruptcy , and caused others such as Merrill Lynch to be acquired by other companies or banks like Citigroup to seek financial bailouts from the government. The defaulting mortgages created a ripple effect throughout the economy resulting in the bankruptcy of several companies, such as Lehman Brothers, personal bankruptcy of families and unemployment.