What is the result of the credit crunch, a recession or a depression Essay

What is the result of the credit crunch, a recession or a depression Recession of 2007-2009 and Great Depression - Essay Example The effects of credit crunch were considerably destructive for the financial institutions. Most of the investment banks were suffered a lot. They had no choice either to reduce the value of their assets or to file for bankruptcy. For many investment banks, even the value reduction of assets did not prove to be sufficient enough to protect them for the severity of the global financial crunch. It looked as the investment banks were struggling to fight for their existence; they were trying to stay alive and remain a part of the financial world. But, for many banks, their lives saving attempts were insufficient to protect them from the effects of the credit crunch. As a result, many investment banks had no choice left in the period of 2007 to the year of 2009; willingly or unwillingly, many declared their bankruptcy. In the initial face of the credit crunch, the financial and investment banks faced the harshness and severity of the financial crisis, the entire situation was so disappoint ing that many disappeared from the international financial circle and mergers, acquisitions, liquidations, bankruptcies and nationalization were the only options left for them (The WTO Doha Round and Regionalism, 2009). ‘Recession is when your neighbour loses his job; depression is when you lose yours’ (Ronald Reagan (1980) as saying, quoted by Eslake, 2008). Interestingly, there is no official or generally accepted criterion to identify a difference between a ‘recession’ and a ‘depression’. ... On the face of it, the period of recession is comparatively less than the period of depression. For instance, some economists are of the view that the recession may occur and last for two to three quarters. And its impacts could be limited to some particular sectors of an economy. As a result, recession could put negative impact on the index of employment and may trigger some sort of unemployment in some specific economic sectors of the economy. On the other hand, the period of depression tends to be larger and wide spread. The Great Depression of 1929 did not continue for one or two years; rather it constantly showed its pressure on the economy throughout the decade on the 1930s. Additionally, depression tends to be wide spread in an economy. It almost hit negatively to each economic sector of an economy. Causes of the Great Depression The decade of 1920s considerably experienced consumers taking on more debt in America. In this period of decade, according to Bernanke (1983) the out standing amount of real estate mortgages sharply increased from the level of $11 billion to the level of $27 billion. The debt instalment also saw a sharp increase due to a wide spread availability of consumer goods. Due to the facility of credit and other forms of debt, many consumers facilitated their needs by increasing their purchases of household appliances, cars, homes and other basic necessities that they liked (Parker, 2007). This cause came from the consumer side that were mostly showing their consumer confidence on the economy of the America. On the other hand, the stock market was touching new psychological heights. And on each passing day, the stock market had something more than the previous day