A Quantitative look at the Great Depression
according to Ben Bernanke an ex-member of the Federal Reserve Board of Governors, the Great Depression was due to the weak structures of the banks and stock markets. The Great Depression started in the United States in August 1929 and ended in the early 1940s. Consumer spending went down, and investments dropped despite the deliberate dropping of the interest rates. The changes caused a decline in industrial output and increased unemployment levels due to companies retrenching their workers. In 1933, recovery efforts begun and unemployment levels in the United States dropped from 25 percent in 1933 to 15 percent by 1940 (Fred online).
The subprime crisis is a set of events that brought about a mortgage financial crisis in the United States. Subprime mortgages are awarded to applicants who have a weak credit score and are likely not to pay back. In 2005, housing sector had peaked with houses having a higher price than their value. Consumers were forced to finance their homes by taking second mortgages. However, in 2007 interest rates became higher and this led to homeowners avoiding payments of mortgages due to the high payments. The number of mortgage repayment defaulters rose to 79 percent in 2007. Subprime lending contributed to this crisis. Subprime mortgages increased from 10 percent in 2004 to 20 percent by 2006. By 2007, over 1.3 trillion dollars subprime mortgages had been given and by 2008, 25 percent of mortgage delinquency a figure that rose from over 10 percent in 2006 (Noah, 21).
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