2008 Housing Crisis Essay

On Monday October 6, the stock market started a weeklong decline. During the years preceding this collapse, sub-prime mortgages thrived. People considered with bad credit risks were offered loans, which in reality they couldn’t afford. However, as long as housing prices were increasing, this poor practice was being pushed aside, due to the fact that the houses could be sold at a higher price if needed. As mortgages became easily available the demand for housing increased and the rise in house pricing made the owners feel rich. This phenomenon, called the housing bubble, had two faces: it made the Americans feel confident to spend more due to the incline of house values, and this was being reinforced by banks encouraging homeowners to take a

Global unemployment increased by 8.4 million (7.4%) during the year of the crisis and the global job losses was forecasted to hit 50 million the following year. (9) In the U.S., around 5.5 million jobs were lost and unemployment grew from 5% to 8%, which lead the government to raise taxes (4). Jobs losses were spread amongst a variety of industries: financial jobs fell by 14,000, business services jobs dropped by 113,000, manufacturing lost 149,000, leisure and hospitality industries, mining industries, construction sector, education and health were also heavily affected (10). The global financial and economic crisis had an impact on almost every sector. As businesses had to cut production, due to less demand on their products, workers were fired in large numbers. Those who did not lose their jobs were forced to accept lower wages or reduced working hours. Having a job is a major part of American society and culture. Becoming unemployed gives you another self-image which has a major impact on families and households. It often pushes families into financial and economic crisis, resulting in the loss of homes, increases poverty, debt and bankruptcy. It is also often related to increase of poor health, psychological problems and family

budget, however since 2008, this trend has been slowed down as the crisis has put more pressure on the nation finances. According to a research published in 2012 in the International Journal of Business and Social Science, “at least 44 states have made cuts affecting state government employees, 43 states cut assistance to public universities, at least 34 states have cut aid to K-12 schools and some education programs, 31 states have implemented cuts to health care services and at least 29 states have cut services for people who are elderly or have disabilities”. (12). In education for example, all the cuts had different consequences for students. In colleges, it meant “skyrocketing tuition” (13), while in K-12, the impact was often on after-school activities and more students per class. As Michael Leachman, director of state fiscal research at CBPP said “these are very deep and concerning cuts at a time when it’s recognized having a more educated workforce is crucial to the country’s future”. (12). As a result to the crisis, the number of government employees has been reduced drastically and many states had to opt for significant labor changes such as scaled back health and retirement plans along with pay freezes, salary cuts and furlough days. (12). States’ unemployment insurance trust funds had to borrow almost USD 50 billion from the federal government to cover the costs of jobless people which