Great Recession in the United States

Following the bursting of the housing bubble in mid-2007, and the housing market correction and subprime mortgage crisis the following year, the United States entered a severe recession.

The National Bureau of Economic Research (NBER) dates the beginning of the recession as December 2007. According to the Department of Labor, roughly 8.7 million jobs were shed from February 2008 to February 2010, and GDP contracted by 5.1%, making the Great Recession the worst since the Great Depression. Unemployment rose from 4.7% in November 2007 to peak at 10% in October 2009.

The bottom, or trough, was reached in the second quarter of 2009 (marking the technical end of the recession, defined as at least two consecutive quarters of declining GDP). The NBER, dating by month, points to June 2009 as the final month of the recession.

The recovery after the 2009 trough was weak and both GDP and job growth erratic and uneven. A solid, strong pace of job growth was not seen until 2011. By August 2015, the unemployment rate was 5.1%, below the historical average of 5.6% but still barely above the 5% when the recession started in December 2007, with roughly 12,639,000 jobs added since the Great Recession's payroll trough in February 2010. American household net worth fell from a pre-recession peak of $68 trillion in Q3 2007 to $55 trillion by Q1 2009, while real median household income fell from $56,436 in 2007 to $51,758 by 2012. The poverty rate increased from 2006 to 2010, reaching a peak of 15%, and held there through 2012 before dropping to 14.5% in 2013.

After the Great Depression of the 1930s, the American economy experienced robust growth, with periodic lesser recessions, for the rest of the 20th century. The federal government enforced the Securities Exchange Act (1934) and The Chandler Act (1938), which tightly regulated the financial markets. The Securities Exchange Act of 1934 regulated the trading of the secondary securities market and The Chandler Act regulated the transactions in the banking sector.

There were a few investment banks, small by current standards, that expanded during the late 1970s, such as JP Morgan. The Reagan Administration in the early 1980s began a thirty-year period of financial deregulation. The financial sector sharply expanded, in part because investment banks were going public, bringing them vast sums of stockholder capital. From 1978 to 2008, the average salary for workers outside of investment banking in the U.S. increased from $40k to $50k – a 25 percent salary increase - while the average salary in investment banking increased from $40k to $100k – a 150 percent salary increase. Deregulation also precipitated financial fraud - often tied to real estate investments - sometimes on a grand scale, such as the savings and loan crisis. By the end of the 1980s, many workers in the financial sector were being jailed for fraud, but many Americans were losing their life savings. Large investment banks began merging and developing Financial conglomerates; this led to the formation of the giant investment banks like Goldman Sachs.

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