North Texas Daily

Is there another Great Recession coming?

Is there another Great Recession coming?

Is there another Great Recession coming?
March 28
21:39 2017

The United States of America. A modern superpower. A country characterized by its ability to execute influence on a worldwide scale.

A strong military, abundant resources, a diverse population and a superior economy. All these things are reasons we have to be proud Americans. But things haven’t always been sunny skies and butterflies. We’ve experienced great wealth, but have also been known to recover from pummeling poverty.

Most of us were still in grade school when the Great Recession occurred from December 2007 to June 2009. It caused the U.S. labor market to lose 8.4 million jobs. In many best case scenarios, people took pay cuts to keep from being unemployed.

But how did this happen? The film “The Big Short” illustrated the events that led up to the housing market crash, which was one of the main reasons the global economy failed in 2007. It all began with the bursting of an $8 trillion housing bubble.

“The Big Short” is very historically accurate. The movie starts in the ’70s with the invention of mortgage securities. In common talk, it’s just a type of asset backed security that is secured by a mortgage or collection of mortgages. Initially, banks were in favor of the idea because it allowed them to undermine regulations. People eventually became curious as to why values in the housing market were surging, but those who went digging were condemned as unpatriotic.

Ironically all of the characters who played a role in “The Big Short” were the people who foresaw the discrepancies. To them, it became fact, as there was a problem with these kind of securities. The film is precise about the trajectory of events and did a great job depicting the lack of urgency from very powerful and influential people, such as then-Chairman of the Federal Reserve Ben Bernanke, who had the ability to stop things before they led to an economic disaster.

The reason why this is still an eerie issue is because we haven’t escaped the prospects of this happening again. In many experts’ opinion, the “seeds” of the next housing crisis have already been planted.

This is not an area in which we lack supervision or comprehension, these elements that caused our economy to collapse in 2007, are captured in a gauge called the National Mortgage Risk Index. What this index does, specifically, is monitor the trends of sloppy lending.

The NMRI has detected some of the same tendencies in our housing market today that were present in early 2006-2007. The key insight that this meter gives us is that “lending standards have slipped so much that we are about two-thirds of the way to the level of sloppiness that contributed to the financial meltdown,” according to the American Enterprise Institute by Oliner.

Why does the housing market and a financial meltdown matter to a college student? Because we’re all approaching a period of time in our lives in which things are uncertain enough. Contemplating what careers to pursue, figuring out what our aptitudes are. We don’t need the economy to be in limbo in the midst of it all.

I’m not writing this article to incite fear or anxiety into the hearts of the optimistic. In my own experience, I try to avoid the topic of politics and industry as I feel as if they’re out of my control. But as I delve into the issues, I have found that having a knowledge of these things is part of fulfilling your patriotic duty.

There are people all over the world who are prohibited access to information such as industry and government. But we should know the facts, internalize the issues and collectively figure out how to solve them.

Featured Illustration: Antonio Mercado

About Author

Nate Jackson

Nate Jackson

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