It was around 10 years ago that the wheels fell off the housing boom in the United States and the Great Recession took its toll on the country. For many, this was the first time in their lives where they were impacted so harshly from an array of financial fronts.

Not only was it near impossible to buy a new home during this time, but as a result of a lack of buyers, housing prices stalled and then began to drop. The effects of the Great Recession didn't end there. The stock market lost over 50% of its value and tens of millions lost their jobs.

With a loss in savings and income, even fewer people were interested in buying a home and the result was housing prices falling off a cliff.

In this post, I am going to look at why the stock market lost over 50% of its value during this time and look at what has happened since. How has government responded to protect investors? How have investors fared in the 10 years since?

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Let's get started looking into these questions.

Why The Stock Market Dropped During The Great Recession

The reason the stock market dropped began out of uncertainty. At the time, banks were underwriting mortgages and then packaging these mortgages into pools and selling them to investors. On the surface, this looked like a nice fixed income investment.

But the problem was that the banks were mixing mortgages from various credited buyers. In many cases, you had mortgages that were going to easily be repaid by the homeowner because they could afford their house.

Mixed in with these mortgages were loans of homeowners who could not afford their monthly payments and were highly likely to default on their loan. Because investors had no idea what mortgages made up the security pools they were buying, fear set in.

When you add in job layoffs, loss of income, and a slowing economy with fear, it is not a surprise that the market dropped as though it did.

What We've Done To Protect Investors

Since the Great Recession, there have been numerous laws enacted to protect investors. Some laws have gone into effect to ensure that money market funds cannot break the buck. For investors the biggest impact has been the Dodd-Frank Act.