U.S. residential and non-residential investment fell relative to GDP during the crisis
There are several "narratives" attempting to place the causes of the crisis into context, with overlapping elements. Five such narratives include:
There was the equivalent of a bank run on the shadow banking system, which includes investment banks and other non-depository financial entities. This system had grown to rival the depository system in scale yet was not subject to the same regulatory safeguards.[3]
The economy was being driven by a housing bubble. When it burst, private residential investment (i.e., housing construction) fell by nearly 4%. GDP and consumption enabled by bubble-generated housing wealth also slowed. This created a gap in annual demand (GDP) of nearly $1 trillion. Government was unwilling to make up for this private sector shortfall.[15][16]
Record levels of household debt accumulated in the decades preceding the crisis resulted in a "balance sheet recession" once housing prices began falling in 2006. Consumers began paying down debt, which reduces their consumption, slowing down the economy for an extended period while debt levels are reduced.[3][17]
Government policies that encouraged home ownership even for those who could not afford it, contributing to lax lending standards, unsustainable housing price increases, and indebtedness.[18]
The financial turmoil induced an increase in money demand (precautionary hoarding). This increase in money demand triggered a corresponding decline in commodity demand.[19]
Note 18: Thomas Sowell, conservative talking head.
The narrative that the recession is caused by liberal policies/government trying to help the poors is a right wing narrative instantly utilized to attack historical enemies. When all you have is a hammer all your problems look like nails.
