Recession - A retrospect

Recession has generated a lot of interest in all classes of people, thanks to the immense media attention and other obvious reasons. Everybody, depending upon his awareness, has formed a perception of why the recession dubbed as the worst economic crisis since " The Great Depression" transpired. I too have been lured by the recession bug and formed my perceptions about them. Without dallying more, let me start with three important facts:

• US Home Ownership was at it's peak of 69.2% in 2004, which has otherwise typically been near 64% since 1980. Sub Prime lending was a major contributor
• B/w 1997 & 2006, prices of house in US had increased by 124%, median home prices were 4 times of median national income in 2004 and 4.6 in 2006, what otherwise was 2.9-3.1 for the two preceeding decades
• Third and most important, the MBS market had incresed exponentially favoured by a Govt. policy of making home available to everyone and huge investments by the highly leveraged finacial institution
• Using tools of structured fin. like cdo, cds, the risk of subprime lending was endlessly transfered from one party to other.
• MBS market had exceeded the market for US Trasuries & Bonds in 2000

These facts point to one thing which almost everybody missed - the housing bubble. The bubble busrted ultimately and the defaults and foreclosure activity increased dramatically in 2006, the repercussions of which began to be felt in 2007 and disaster unfolded in 2008 with major i-banks collapsing.