Economic Recession Research Paper
In a series of policy briefs, IRLE will highlight work by Berkeley faculty on the causes and long-term effects of the Recession.
In this brief, we review research from IRLE faculty affiliate and UC Berkeley sociologist Neil Fligstein on the root causes of the Great Recession.
The impact of late career job loss on myocardial infarction and stroke: A 10-year follow up using the Health and Retirement Survey. Presentation to the Workshop on the Implications of the Recent Economic Downturn for the Elderly, June 10-11, Committee on Population, National Research Council, Washington, DC.
Cambridge, MA: National Bureau of Economic Research.
Ten years later, Berkeley researchers are finding many of the same red flags blamed for the crisis: banks making subprime loans and trading risky securities. Catalyzed by the crisis in subprime mortgage-backed securities, the crisis spread to mutual funds, pensions, and the corporations that owned these securities, with widespread national and global impacts.
Congress just voted to scale back many Dodd-Frank provisions. The Great Recession that began in 2008 led to some of the highest recorded rates of unemployment and home foreclosures in the U. Ten years after the onset of the crisis, the impacts on workers and economic inequality persist.
The logic follows that banks did not care if they loaned to borrowers who were likely to default since the banks did not intend to hold onto the mortgage or the financial products they created for very long.
They all also invested these securities on their own accounts, frequently using borrowed money to do this.If Bernanke’s findings are correct, then policymakers were right to implement some of the most controversial policies of the financial crisis, including efforts to rescue the big banks and re-start credit markets.By bringing the panic under control relatively quickly, those policies prevented a still deeper and more protracted recession. Bernanke’s own summary of the research on his Brookings blog.Until the early 2000s, engaging with multiple sectors of the housing industry through a single financial institution was highly unusual; instead, a specialized firm would perform each component of the mortgage process (i.e.lending, underwriting, servicing, and securitizing). This changed when financial institutions realized that they could collect enormous fees if they engaged with all stages of the mortgage securitization process.Did you know that there have been several recessions in the U. Let's take a look at some of these recessions, how long they lasted, how they affected gross domestic product (GDP) and unemployment, and what is known about what caused them. A recession historically has been defined as two consecutive quarters of decline in GDP, the combined value of all the goods and services produced in the U. It differs from the gross national product (GNP) in that it does not include the value of goods and services produced by U. companies abroad or goods and services received in the U. Nalewaik, suggested that a combination of GDP and gross domestic income (GDI) may be more accurate in predicting and defining a recession. It's surprising to be sure, especially when you see these events covered in the media as one-time horrors. (For more on this see, A more modern definition of a recession that's used by the National Bureau of Economic Research (NBER) Dating Committee, the group entrusted to call the start and end dates of a recession, is "a significant decline in economic activity spread across the economy, lasting more than a few months." In 2007, an economist at the Federal Reserve Board (FRB), Jeremy J.Fligstein and Adam Goldstein (Assistant Professor at Princeton University) examine the history of bank action leading up to the market collapse, paying particular attention to why banks created and purchased risky mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) in the first place, and why they ignored early warnings of market failure in 2006-07.Conventional wisdom holds that the housing industry collapsed because lenders of subprime mortgages had perverse incentives to bundle and pass off risky mortgage-backed securities to other investors in order to profit from high origination fees.This means that as financial institutions entered the market to lend money to homeowners and became the servicers of those loans, they were also able to create new markets for securities (such as an MBS or CDO), and profited at every step of the process by collecting fees for each transaction.Using annual firm-level data for the top subprime mortgage-backed security issuers, the authors show that when the conventional mortgage market became saturated in 2003, the financial industry began to bundle lower quality mortgages—often subprime mortgage loans—in order to keep generating profits from fees.