VII.Understanding the Recession: Stock Markets, Subprime Lending, and Bursting Bubbles

Date: 2015-10-07; view: 391.

In all, there have been over thirty cycles of expansions and recessions of the U.S. economy just since 1854. When markets are surging, “bubbles” form out of wild speculation and overvaluation that are based largely upon euphoria and greed. Electronic “herds” of investors are populated with optimistic, or “bull” buyers. In 2000, the dot.com economic boom came to an end as interest rates rose and investments in technology slowed. When an economic bubble bursts, the herd became fearful. A pessimistic “bear” market is a seller's stock market in decline. Some of these economic forces were the same key factors that caused the “subprime” mortgage bubble that burst in late 2007. However, it was dubious and unregulated lending practices (with encouragement from the U.S. government) that caused this shutter in the economy—with aftershocks felt around the world (Ferguson 2008).

Americans have tried to be cautiously optimistic, embracing the message of “Hope” in the presidential campaign of Barack Obama. Like many presidents who took over in the midst of recession, President Obama faced the task of virtually “remaking America”. Direct effects of smaller government and deregulation under previous administrations, but most recently with the energy and environmental policies of President Bush, were seen in the Gulf of Mexico when as much as 180 million gallons of oil gushed from a self-regulated rig's blownout wellhead. The question, then, seems virtually the same as that which faced a younger America: how big should the government be? The answer is overwhelmed by the sheer number of complexities that complicate the task facing President and Americans today—the task of remaking another new American economy.