10. Effects of the "Great Recession" of 2008 on American society

Question 1

Subprime Mortgages

Answer 1

subprime: irányadó kamatlábnál alacsonyabb, gazd másodlagos piac
mortgage: jelzálog; jelzálogkölcsön

These are home loans given to borrowers with poor credit histories. Since these people are seen as risky borrowers, the loans often come with higher interest rates. The problem? Many of these loans were adjustable-rate mortgages, meaning the initial low rates would skyrocket later, making them unaffordable for borrowers.

Question 2

default

Answer 2

késedelmesen teljesít; fizetési kötelezettségnek nem tesz eleget; nem teljesít
default on »one’s« student loans késedelembe esik a diákhitelével / a diákhitel visszafizetésével

Question 3

Mortgage-Backed Securities (MBS)

Answer 3

These are financial products created by bundling together a bunch of home loans (including risky subprime mortgages). Banks sold these to investors, promising steady income from homeowners’ payments. When homeowners started defaulting on loans, these securities collapsed in value.

Question 4

collateral

Answer 4

banki biztosítás, garancia? (gosh, I hate finances)

Question 5

Collateralized Debt Obligations (CDOs):

Answer 5

Think of CDOs as next-level MBS. They repackaged these bundles into new layers of financial products, dividing them into “tranches” based on risk. It was like building a house of cards—when one layer fell, the whole thing collapsed.

Question 6

Deregulation:

Answer 6

Over several administrations (Carter, Reagan, Clinton), financial rules were loosened to encourage economic growth. This included repealing the Glass-Steagall Act, which had kept commercial and investment banking separate since the Great Depression. Deregulation allowed banks to engage in riskier investments, contributing to the financial crisis.

Question 7

Speculative Frenzy:

Answer 7

This happens when investors go wild, betting that prices (in this case, housing prices) will keep rising forever. Spoiler alert: they didn’t.

Question 8

Troubled Asset Relief Program (TARP):

Answer 8

Enacted in 2008 under George W. Bush, TARP allocated $700 billion to stabilize banks by buying up toxic assets (like those subprime mortgages). While it prevented a total collapse of the financial system, critics argued it unfairly bailed out Wall Street instead of Main Street.

Question 9

Dodd-Frank Wall Street Reform and Consumer Protection Act:

Answer 9

Signed into law in 2010 under Obama, this was designed to prevent another financial crisis. Key provisions included stricter oversight of banks, banning some risky investment practices, and creating the Consumer Financial Protection Bureau (CFPB) to protect consumers from predatory lending.

Question 10

American Recovery and Reinvestment Act of 2009 (ARRA):

Answer 10

This $787 billion stimulus package was Obama’s response to the recession. It aimed to create jobs, boost infrastructure spending, and provide aid to states for health care and education. Conservatives criticized it for increasing the deficit, but many economists argue it helped stabilize the economy.

Question 11

Tea Party Movement:

Answer 11

A right-wing populist movement that gained traction in 2009, partly in response to TARP and Obama’s stimulus. They wanted lower taxes, less government spending, and stricter constitutional adherence. Think anti-big-government vibes mixed with fiscal conservatism and a healthy dose of cultural outrage. Their influence reshaped the Republican Party, setting the stage for later populist figures (cough Trump cough).

Question 12

Occupy Wall Street:

Answer 12

A left-wing response to the financial crisis that emerged in 2011. Their slogan, “We are the 99%,” highlighted growing inequality and the influence of the wealthiest 1% on politics and economics. Unlike the Tea Party, they focused on addressing corporate greed, income inequality, and systemic corruption.

Question 13

Unemployment and Long-Term Job Loss:

Answer 13

Unemployment hit 10% at its peak in 2009. Many of those who lost jobs struggled to re-enter the workforce, especially in industries like construction and manufacturing. This led to skill erosion, lower lifetime earnings, and increased reliance on social safety nets.

Question 14

foreclosure

Answer 14

jelzálog/zálogjog érvényesítése; végrehajtás; foglalás
lose »one’s« home to foreclosure jelzálog érvényesítése miatt elveszti az otthonát

Question 15

Housing Market Collapse:

Answer 15

Home values plummeted as the bubble burst, wiping out trillions in wealth. Foreclosures skyrocketed, particularly in minority and low-income communities, where subprime loans were disproportionately marketed.

Question 16

Low-Interest Rates

Answer 16

The Federal Reserve slashed interest rates to near zero to encourage borrowing and spending, but this had limited immediate impact on a frightened, debt-laden public.

Question 17

Mental Health Toll:

Answer 17

Rising unemployment, home foreclosures, and financial uncertainty caused a spike in anxiety, depression, and even suicide rates. Families were hit hard, leading to increased strain on relationships and child well-being.

Question 18

Racial Disparities:

Answer 18

Black and Hispanic communities bore the brunt of the housing crisis, as predatory lenders targeted them with subprime loans. Unemployment rates for these groups were significantly higher than for white workers.

Question 19

Income Inequality:

Answer 19

The recession widened the gap between the wealthy and everyone else. The stock market recovery benefited the rich, while wage stagnation and job losses hurt the working class.

Question 20

US Weaknesses

Answer 20

Limited unemployment benefits and no universal health care left many Americans vulnerable.
Recovery was uneven, with low-income and minority groups suffering longer-term setbacks.

Question 21

EU Strengths:

Answer 21

Countries with stronger safety nets (e.g., Scandinavia) had better outcomes in health and well-being. Generous unemployment benefits cushioned the economic blow.
However, austerity policies in countries like Greece and Spain caused prolonged suffering and social unrest.

Question 22

What was the Great Recession?

Answer 22

The Great Recession was a severe global economic downturn that occurred from late 2007 to 2009, primarily triggered by the collapse of the housing market and financial institutions in the United States.

Question 23

When did the Great Recession start, and what were its main causes?

Answer 23

Start: It began in December 2007.
Causes: The main causes were the burst of the housing bubble, risky mortgage lending practices, financial deregulation, and the failure of major financial institutions.

Question 23

What role did the Bush administration’s policies play in the Great Recession?

Answer 23

Policies: The Bush administration’s focus on tax cuts for the wealthy, deregulation, and a free-market approach contributed to the economic conditions leading up to the recession.
Impact: These policies, particularly the lack of regulation in the financial sector, allowed risky financial behaviors that exacerbated the crisis.

Question 23

What was the Troubled Asset Relief Program (TARP)?

Answer 23

Definition: TARP was a program enacted in October 2008 that authorized $700 billion to stabilize the financial system by purchasing distressed assets from banks.
Objective: The goal was to prevent the collapse of major financial institutions and restore confidence in the financial system.
distressed: nemfizetés miatt lefoglalt
asset: vagyontárgy, tőke, érték?????

Question 24

How did TARP contribute to handling the financial crisis?

Answer 24

Contribution: TARP helped prevent a complete financial meltdown by injecting liquidity (fizetőképesség) into banks and stabilizing financial markets.

Question 25

How did the Great Recession influence the 2008 election and Obama’s presidency?

Answer 25

Election Influence: The economic crisis highlighted the need for change, contributing to Barack Obama’s election victory.
Focus: Obama’s campaign emphasized hope and economic recovery, which resonated with a public reeling from the recession.

Question 26

Were Obama’s economic policies popular or effective?

Answer 26

Effectiveness: The stimulus package helped stabilize the economy, but recovery was slow, and unemployment remained high for several years.
Popularity: The policies faced significant political resistance, especially from conservatives and the Tea Party movement, leading to mixed public perception.

Question 26

What was the American Recovery and Reinvestment Act of 2009?

Answer 26

Definition: A stimulus package worth over $787 billion designed to boost the economy through infrastructure spending, tax cuts, and aid to state and local governments.
Purpose: It aimed to create jobs and promote investment and consumer spending.

Question 27

What was the Dodd-Frank Act?

Answer 27

Definition: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was a comprehensive set of financial regulations aimed at reducing risks in the financial system.
Goal: To prevent future financial crises by increasing oversight and accountability of financial institutions.

Question 28

How did Obama’s policies backfire politically?

Answer 28

Backfire: The unpopularity of the stimulus package contributed to significant Democratic losses in the 2010 midterms, weakening his political capital.
Reason: Many Americans felt the recovery was too slow and blamed the government for the ongoing economic struggles.

Question 29

What was the Tea Party movement, and why did it rise?

Answer 29

Definition: A right-wing populist movement that emerged in response to the crisis and government bailouts, advocating for lower taxes, smaller government, and conservative values.
Rise: Fueled by dissatisfaction with government intervention and economic policies, the Tea Party gained significant political influence.

Question 30

What were the progressive critiques of neoliberalism post-recession?

Answer 30

Critiques: Progressives called for greater regulation of the financial sector, increased social spending, and policies to address income inequality.
Goal: To challenge the dominance of free-market policies and promote a more equitable economic system.

Question 31

How did the Great Recession exacerbate political polarization?

Answer 31

Polarization: The crisis intensified divisions between conservatives, who favored less government intervention, and progressives, who advocated for more robust social and economic reforms.
Impact: This polarization led to gridlock (patthelyzet, holtpont) in Congress and hindered the implementation of comprehensive solutions to the economic crisis.

Question 32

The housing prices rose due to a combination of factors that created a housing bubble

Answer 32

Low interest rates were maintained by the Federal Reserve in the early 2000s to stimulate the economy, which made borrowing money cheap and encouraged people to buy houses.*
Subprime mortgages were offered to people with poor credit, which increased the demand for housing.*
Financial deregulation allowed for increased risk-taking by financial institutions and the creation of complex financial products, like mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), with minimal oversight. These products bundled mortgages together, obscuring the actual risk involved.*
Speculative frenzy occurred due to the combination of low interest rates, readily available credit, and lax regulation, which caused housing prices to rise to unsustainable levels.
The housing prices did come down. The housing bubble burst, which was the immediate catalyst for the Great Recession. When the bubble burst, housing prices plummeted. Millions of families lost their homes to foreclosure, and many others saw their property values decrease significantly, which wiped out much of their accumulated wealth

Question 33

What was the housing bubble?

Answer 33

A rapid increase in housing prices to unsustainable levels. This was fueled by low interest rates and readily available credit. It eventually “burst,” causing a major economic crisis

Question 34

What are subprime mortgages?

Answer 34

Mortgages given to people with poor credit. These often had adjustable rates that would later increase and become unaffordable, leading to foreclosures.

Question 35

What are Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDO)?

Answer 35

These are complex financial products created by bundling mortgages together. They were sold to investors, but their complexity masked the actual risk involved, contributing to the financial crisis

Question 36

What is deregulation and how did it contribute to the Great Recession?

Answer 36

Deregulation means reducing government oversight of financial institutions. This allowed banks to take more risks with complex financial products, contributing to the housing bubble and financial crisis

Question 37

What is the Federal Reserve and what role did it play?

Answer 37

The Federal Reserve is the central bank of the US. It kept interest rates low in the early 2000s to stimulate the economy, which also made borrowing money to buy homes very cheap. This contributed to the housing bubble

Question 38

What was the American Recovery and Reinvestment Act of 2009?

Answer 38

A stimulus package enacted by the Obama administration to boost the economy. It included over $787 billion for infrastructure, tax cuts, and aid to state/local governments

Question 39

What does “low road” practices mean in this context?

Answer 39

“Low road” practices refer to actions taken by businesses to reduce wages and benefits to save money, which furthered income inequality

Question 40

What is the social safety net?

Answer 40

The social safety net is government programs meant to protect people against job loss, poverty and other forms of hardship. The US had a weaker social safety net than Europe at the time of the Great Recession

Question 41

What was a significant effect of the Great Recession on the job market?

Answer 41

Massive job losses occurred, particularly in manufacturing, construction, and finance, with unemployment reaching its highest point in over fifteen years.

Question 42

How did businesses respond to economic pressures during the Great Recession?

Answer 42

Many businesses adopted “low-road” practices, reducing wages and benefits to save money, which contributed to the decline of unions and increased income inequality.

Question 43

What is “long-term unemployment” and its impact during the Great Recession?

Answer 43

Long-term unemployment refers to prolonged periods without work, leading to skill decline and a sense of hopelessness among job seekers.

Question 44

How did the social safety net fail during the Great Recession?

Answer 44

The social safety net did not adequately protect disadvantaged groups, such as children living with Hispanic or single heads of households, or in immigrant households.

Question 44

Who were disproportionately affected by the housing crisis?

Answer 44

Non-Hispanic blacks, Hispanics, poor, and minority communities were disproportionately affected by the housing crisis.

Question 44

What happened to the housing market during the Great Recession?

Answer 44

The housing market collapsed, leading to millions of foreclosures and plummeting home values, which wiped out much of the accumulated wealth of homeowners.

Question 44

What psychological effects did the Great Recession have on individuals?

Answer 44

It caused widespread economic uncertainty, fear, psychological distress, depression, and anxiety, especially among those who faced unemployment, income loss, or housing insecurity.
Also alcohol problems and suicide rates skyrocket.

Question 44

Which populations were most affected by unemployment during the Great Recession

Answer 44

Racial and ethnic minorities, the less educated, and immigrant workers experienced higher unemployment rates.

Question 45

How did the Great Recession affect public trust?

Answer 45

The crisis eroded trust in financial institutions, the government, and the economic system, leading to public outrage over government bailouts of financial institutions.

Question 46

How did the US social safety net compare to that of many European countries during the Great Recession?

Answer 46

The US safety net was less robust and less effective in protecting people against job loss and financial hardship than many European countries.

Question 47

What policy implications arose from the differences between the US and EU safety nets?

Answer 47

The differences in outcomes highlighted the importance of robust social safety nets. It suggests the US could benefit from strengthening its programs.

Question 47

What specific groups in the US were disproportionately affected by the weaker social safety net?

Answer 47

Racial and ethnic minorities (especially non-Hispanic blacks and Hispanics), those with less education, and immigrant workers experienced higher rates of unemployment and foreclosures. The social safety net did not provide the same protection to those from more disadvantaged backgrounds, such as children living with Hispanic or single heads, or with immigrant household heads or spouses.

Question 47

What were the results of the weaker US social safety net?

Answer 47

The weaker US safety net led to higher rates of job loss, foreclosures, and psychological distress. It also contributed to a greater increase in inequalities.

Question 47

What were some of the strengths of the EU social safety nets during this time?

Answer 47

Some European countries had stronger social safety nets that buffered their populations against negative health impacts and limited the widening of inequalities. Generous unemployment benefits were positively correlated with better mental and self-rated health, and they also reduced the association between unemployment and suicide.

Question 48

What were some weaknesses of the US social safety net during the recession?

Answer 48

Limited unemployment benefits were often insufficient to cover basic living expenses, and the lack of universal health care left many Americans vulnerable, particularly when they lost their jobs and employer-sponsored health insurance.

Question 49

Post-2008 Financial Crisis Recovery

Answer 49

Obama inherited a deeply wounded economy and implemented the American Recovery and Reinvestment Act (2009) to stimulate growth and save jobs.
 Infrastructure Spending: Invested in roads, bridges, and public projects to create jobs.
 Tax Cuts: Offered tax incentives to stimulate consumer spending and business investment.
 Aid to States: Provided funds to prevent layoffs of teachers, firefighters, and other public workers.
 Clean Energy Investments: Funded renewable energy projects to boost long-term economic growth.
o Economic recovery was slow but steady, with a focus on technology and green energy innovation.

Question 50

Dodd-Frank Act

Answer 50

(2010): Financial regulation reform post-2008 crisis. Introduced stricter regulations for financial institutions to prevent another crisis, though critics argued it stifled economic growth.
 Consumer Financial Protection Bureau (CFPB): Established to oversee financial products and protect consumers from predatory practices.
 Volcker Rule: Limited banks’ ability to make risky speculative investments with their own money.
 Stress Tests: Required banks to undergo regular tests to ensure they could survive economic downturns.
 Increased Oversight: Strengthened regulation of large financial institutions to reduce the risk of another financial collapse.