And as a bonus question, how have we fallen into the same problem we did just 14 years ago, how did no one think “let’s do it differently this time guys!”
In: 6
It’s NOT the same problem as 14 years ago… a recession just means a period of negative economic growth. Recessions are a common economic cycle, and in reality going 14 years without one is unusual. Most of the time not nearly as painful as the one in 2008. There can be many causes and a range of severity. The 2008 recession was the deepest recession since the Great Depression of the 1930’s. And it was caused by a house of cards built upon real estate prices, mortgages, and financial system based off them. Increasing demand for mortgage-backed securities caused loosened lending, and mortgages were given to just about anybody for absurd amount of money. The idea at the time was that real estate doesn’t go down in value, so it’s safe even if somebody defaults here or there. The volume of defaults and snowball effect as prices fell, as well as the ways in which financial markets were intertwines were not well understood until it was too late.
This time, the recession will be caused by rising inflation caused by COVID, and the attempts to slow the economy to slow inflation. But cutting access to borrowing has the side effect of slowing growth. Real estate prices aren’t the cause, but a victim, as higher mortgage interest rates cut affordability. Home prices may level off or fall slightly, but it’s due to reduced buying power of new buyers not unqualified owners defaulting.
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