- From December 2007 to June 2009,

the United States suffered an extended economic downturn

that came to be known as the Great Recession.

It was the worst financial crisis in the US

since the Great Depression, leaving

an impact on homes and businesses

in America and around the world.

We'll look at the causes of the recession,

the recession itself, and its lasting impact.

While failures in financial regulation

and excessive borrowing by households and Wall Street

contributed, the primary cause of the Great Recession

was the subprime mortgage crisis.

A mortgage is a loan that allows people to buy a house upfront.

A subprime mortgage is normally issued to borrowers

with low credit ratings.

And historically, many banks wouldn't even make loans

to people with bad credit.

In the early 2000s however, the housing market was booming,

so banks began giving subprime mortgages to people,

even if they had low credit ratings.

In other words, lenders, often banks,

were loaning money to people who are less likely to be

able to pay them back and charging them

more money for those mortgage loans

through high interest rates.

Now on the face of it, it doesn't

sound like the best deal for the lender or the borrower.

But many people took on these subprime mortgages

because they stood to make a large profit if their house

increased in value.

And that seemed like a pretty good bet.

Houses had been increasing in value

over the past several years.

Home ownership had always been central to the American dream.

And people who may never have imagined they could own a home

saw the possibility in front of them.

So where did things go wrong?

In 2007, the housing bubble burst.

As demand went down, the prices of homes dropped rapidly.

People stopped investing in real estate

since it was no longer as profitable.

Many people were no longer able to pay off their mortgages

or sell their houses.

And the banks foreclosed their homes.

Since the foreclosed houses were now worth less money,

financial institutions lost money

too along with the homeowners.

As a result, the housing market failed, banks collapsed,

the economy plummeted, and the Great

Recession had officially begun.

So what did this mean for the average American?

The economic downturn was devastating.

Many people and businesses suffered huge financial losses

and therefore spent less money, further damaging the economy.

Financial firms were not as capable of lending money.

And in 2008, the US government finally

had to step in and bail out the banks, increasing

the national deficit.

During the Great Recession, more than 8 million Americans

lost their jobs, nearly four million homes

were foreclosed each year, and 2.5 million businesses closed.

Bank bailouts, federal aid to the auto industry,

and government spending programs helped

avoid an even bigger crisis.

But it may take decades more to fully

understand the significance of the Great Recession.