Federal Reserve Chairman Ben Bernanke informed Treasury Secretary Henry Paulson on September 17, 2008, that a considerable amount of public money will be required to stabilize the financial sector. On September 19, short trading of 799 financial stocks was outlawed. Large short positions were also required to be disclosed by companies. The Treasury Secretary also stated that money market funds would form an insurance pool to protect themselves against losses, and that the government would purchase mortgage-backed assets from banks and investment firms. As of September 19, 2008, initial estimates of the cost of the Treasury bailout suggested by the Bush Administration’s draft legislation ranged from $700 billion to $1 trillion US dollars. On September 20, 2008, President George W. Bush requested authorization from Congress to spend up to $700 billion to purchase distressed mortgage assets and stem the financial crisis. The crisis worsened when the bill was rejected by the US House of Representatives, resulting in a 777-point drop in the Dow Jones. Despite the fact that Congress enacted a revised version of the plan, the stock market continued to tumble. Instead of distressed mortgage assets, the first half of the bailout money was utilized to acquire preferred shares in banks. This contradicted some economists’ claims that purchasing preferred shares is considerably less effective than purchasing regular stock.
The new loans, purchases, and liabilities of the Federal Reserve, Treasury, and FDIC, as of mid-November 2008, were estimated to total over $5 trillion: $1 trillion in loans to broker-dealers through the emergency discount window, $1.8 trillion in loans through the Term Auction Facility, $700 billion to be raised by the Treasury for the Troubled Assets Relief Program, and $200 billion in insurance for the GSEs.
As of March 2018, ProPublica’s “bailout tracker” showed that $626 billion had been “spent, invested, or loaned” in financial system bailouts as a result of the crisis, with $713 billion repaid to the government ($390 billion in principal repayments and $323 billion in interest), indicating that the bailouts generated $87 billion in profit.
Which president was responsible for our recovery from the Great Recession?
Today is a fantastic day to be in Ohio. It was here that I spent six of the most formative years of my life. In Canton, I attended junior high and high school. However, my father was relocated shortly after I finished, and I haven’t had the opportunity to visit in many years. So, for me, this is a walk down memory lane. Indeed, I’ll be travelling to Canton tonight and returning to my high school the next day.
Ohio is not only important in my past; it is also important in my present. States like Ohio, Michigan, and California, where I now live, have been hit particularly hard by the financial crisis. These and other states have been hit the hardest by the Great Recession. Since the beginning of the recession, Ohio has lost almost 400,000 jobs, with an unemployment rate of 11%. I wanted to come here to discuss the Administration’s policies and aims, as well as to learn firsthand about the state of the local economy.
In my remarks this morning, I’d like to talk about the steps taken to end the recession as well as my assessment of how the economy is going. I’d like to talk about both the tangible progress that has been made and what more needs to be done to accelerate recovery.
I’d also like to discuss the significance of finance regulation reform for states such as Ohio. Our financial system’s new rules of the road are currently being written by Congress. I’d like to talk about the most important aspects of change and why they matter so much to each of us.
Treating the Recession
President Barack Obama took office in the midst of the greatest economic downturn since the Great Depression. I recall the conclusion of my first week of transitioning vividly. I was called out of a meeting on Friday, December 5th, 2008, to give the President-Elect a phone briefing on the November employment figures. It was evident that what had appeared to be a normal recession only a few months before had taken on alarming proportions. On that day, we discovered that almost half a million jobs had been lost in November. I found myself saying to myself, “I’m sorry, Mr. President-Elect, but the figures are just terrible.” He responded, “It isn’t your faultat least not yet.”
Other countries began to report astonishing reductions in output and employment in January and February of last year. Any notion that the rest of the world’s growth would help to offset the United States’ decline was crushed. We were clearly in the midst of a global contraction unlike anything we’d seen in more than a generation. Between November and March, the United States lost about 3 million jobs.
Clearly, the bursting of the housing bubble and the accompanying financial crisis were the primary causes of the recession. Trillions of dollars in personal wealth were destroyed in a couple of months, causing a sharp drop in consumer spending. Credit spreads soared and critical sources of credit dried up as a result of the bankruptcy of Lehman Brothers and the subsequent runs on money market mutual funds and other financial institutions. The Federal Reserve and the Treasury took swift action in the fall of 2008 to prevent a full-fledged panic, but stock prices continued to plummet and lending standards tightened rapidly into the following winter. The entire financial system was teetering on the brink of collapse.
President Obama recognized that this was a full-fledged catastrophe that demanded a full-fledged governmental response. Within its first few months, the Administration took numerous key steps in collaboration with Congress.
The American Recovery and Reinvestment Act, for example, was passed. The American Recovery and Reinvestment Act was the most aggressive countercyclical fiscal stimulus in history. It comprised $787 billion in tax cuts and spending, with around one-third of the total going to tax cuts, one-third to government investments, and one-third to relief to those most affected by the recession and distressed state and local governments. Over $200 billion in tax cuts and relief payments, like as unemployment insurance, have already been distributed to American people. Thousands of investment projects, ranging from roads and bridges to a better electrical system and clean energy production, are currently underway.
To assist restore the financial system, the Administration collaborated with the Federal Reserve and the FDIC. The stress test, which provided a complete assessment of the health of the 19 largest financial institutions, was perhaps the most crucial measure. The government’s promise to replace any detected capital deficits that the institutions couldn’t complete by raising private capital, combined with the meticulous cleaning of the records, helped to restore confidence in the financial sector. It also resulted in a surge of private capital raising, putting our financial institutions on far more solid ground. Credit spreads narrowed significantly, and stock values soared.
In addition, the administration tried to stabilize the housing market and reduce the number of foreclosures. The Treasury collaborated with the Federal Reserve to lower mortgage interest rates, lowering payments for millions of Americans who refinanced their houses. We also established a program to assist responsible homeowners facing foreclosure in lowering their monthly mortgage payments. More than a million homes have already received trial modifications, and we’re trying to strengthen the program so that more problematic homeowners are eligible and that more trial modifications become permanent.
The actions of the Federal Reserve were supplemented by these policy actions. The policy interest rate was soon cut to practically zero by monetary officials. To further lower longer-term interest rates, they made large-scale purchases of government bonds and mortgage-backed securities. They also developed programs that successfully resurrected some of the securitized financing that had dried up in the aftermath of the financial crisis.
This comprehensive policy response has made a significant difference. We learnt on Friday that real GDP, a measure of the total amount of goods and services we generate, increased for the third quarter in a row. The first quarter of 2010 saw yearly growth of 3.2 percent, which is a significant improvement over the 6.4 percent decline in the first quarter of 2009. Similarly, we resumed job creation in March. Employment increased by 160,000, and given the other data, we anticipate another positive reading in the April employment report on Friday.
Now, we all understand that the economy has a long way to go. The recession’s loss of output and jobs was so severe that it will take several quarters of strong growth and job creation to bring the economy back to full health and employment. However, we are undeniably on the right track. And the policy reaction is a significant reason we’ve been able to get back on track.
Congress mandated that the Council of Economic Advisers report on the Recovery Act’s economic impact every quarter. We take this obligation very seriously. We’ve spent the last year analyzing the impact of the Act’s different components, such as state fiscal relief, renewable energy mandates, tax cuts, and income-support payments. Each in-depth investigation has revealed significant effects on employment creation and growth.
According to our most recent analysis, the Recovery Act has preserved or produced almost 21/2 million jobs. That means 21/2 million individuals are now employed who would not have been if the Act had not been passed. Our projections are close to those of private forecasters and the neutral Congressional Budget Office, and are based on two separate techniques. They’re also in line with the statistics from direct recipients. Each quarter, recipients of around 15% of Recovery Act monies submit a form detailing the number of jobs created as a result of the Act. According to the most recent reports for this small portion of Recovery Act financing, nearly 700,000 jobs were directly sponsored.
However, our general job estimates and aggregate economic indicators may not be the best method to see the impact of the Recovery Act. It’s to assess what it’s doing on the ground in states such as Ohio.
Ohio has received nearly $2 billion in state fiscal assistance as a result of the Act. Thousands of teacher positions have been protected as a result of this support, and the state has been able to deal with the catastrophic effects of the recession on its budget without having to raise taxes significantly. The Act also provides funding for over 400 transportation projects in Ohio as well as over 2000 loans to small companies in the state. This is boosting job creation and long-term public and private investments, which are helping to turn around Ohio’s economy and make it stronger in the future.
Moreover, the Act has provided $21/2 billion in tax relief to 41/2 million Ohio working families, another $21/2 billion in assistance to nearly a million unemployed workers and others on the front lines of the recession, and half a billion dollars in one-time payments to 2 million Ohio seniors and veterans. This tax relief and income support is assisting families in more ways than one. It supports demand by providing money in people’s pockets, making the recession less severe and the recovery stronger than it would be without.
Where Are We Now and What More Needs to Be Done?
The economy is clearly improved as a result of our actionsthe treatment is working. However, we must be realistic about the significant problems that remain. With a 9.7% unemployment rate, it is apparent that, while the economy is improving, it is not yet fully recovered.
Fundamentally, the economy continues to be deficient in demand. Consumers and businesses stop buying during recessions for a variety of reasons, including a financial crisis or a decrease in wealth. As a result of the drop in demand, producers reduce production and lay off people. The resulting unemployment cuts demand even more.
When expenditure starts to recover, it is called a recovery. And that is precisely what has been taking place. Consumer spending was up sharply, while businesses were investing more in equipment and software, according to the GDP report released last Friday.
Even though demand is increasing again, it is still lower than it was when the recession began, and significantly lower than it would have been if we had expanded regularly over the previous two years. According to the Congressional Budget Office, demand (and thus output) is at least 6% below its trend path.
The GDP report released on Friday revealed the source of some of the demand shortfall. For example, while company investment in equipment and software is increasing again, it began at a painfully low level and remains so in absolute terms. And business investment in structures, such as factories, office buildings, and retail malls, continues to decline. Similarly, consumers are spending more, but house building is still modest, having dropped in the first quarter. As a result, a key historic source of demand and employment stays dormant.
Finally, state and local governments are cutting back on expenditure at the same time that the federal government is raising demand. Governments are being compelled to cut back on key services as a result of the recession’s destructive impact on state and local finances. Over the next two fiscal years, state and local governments are expected to face a $300 billion budget gap. If these shortages are filled through tax hikes, the impact on consumer spending might be significant. The impact on education and public safety could be disastrous if they are closed by laying off teachers and first responders, as numerous reports say is inevitable.
The current very high unemployment rate is a direct result of a demand shortfall. Because of structural changes or because workers aren’t looking for work, unemployment is low. It’s high because we’re not producing at even close to normal levels.
All of this means that governments must continue to take initiatives to assist in the generation of private demand and growth. It is insufficient that output and employment increase. We need to encourage robust growth in order to accelerate the recovery of output and employment to pre-recession levels. That is why President Obama has been working with Congress to approve a plan to help small businesses create jobs. A lending fund is one of the most important components of this package, as it will assist small firms in obtaining the finance they require to expand. Another provision exempts persons who invest in small firms from paying capital gains taxes.
In addition, the President is continuing to work with Congress to accelerate the transition to renewable energy. The clean energy manufacturing tax credit, one of the Recovery Act’s programs, has been particularly successful in helping American companies establish themselves as makers of sustainable energy items like wind turbines and solar panels. This event was massively overcrowded. More investments in this area would be beneficial to employment growth and the economy’s long-term health.
More funding for state and municipal governments would be extremely beneficial. One of the most difficult obstacles facing the US economy on the road to recovery is the poor status of state and municipal finances. One of the most effective ways we can support families, communities, and local businesses is to raise funding to retain teachers in the classroom and preserve important services.
The further activities we’re discussing are really focused. We looked for programs that provided the most bang for the buck. We’re all well aware of our significant long-term fiscal issues and the necessity to get our fiscal house in order. As the economy improves, the President is adamant about addressing the budget deficit.
However, it would be stupid to try to solve our long-term problem by immediately tightening fiscal policy or avoiding extra emergency spending to reduce unemployment. Immediate fiscal contraction will eventually suffocate the nascent economic recovery, just as fiscal and monetary contraction in 1936 and 1937 triggered a second severe recession before the Great Depression was fully recovered. Nothing would be more harmful to our fiscal future than a prolonged recession that resulted in more unemployment for the foreseeable future. Today’s responsible, targeted efforts that aid the private sector’s stronger recovery are the best policy for both people and the economy’s long-term health.
Conclusion
This year, I’ve utilized a lot of medical analogies. When the economy has been as bad as it has been, I believe it’s only natural. I gave a speech about the diagnosis and therapy of our economic woes about this time last year. I delivered a talk last fall about how close we came to disasterI guess you could call it a description of our near-death experience.
In assessing the economy this year, I had the impression of a doctor looking at a terminally ill patient with a renewed sense of hope. To be true, the patient is weakbut she is improving. The economy will be able to recover. This means that our short-term focus can move from crisis management to doing all possible to speed up the healing process.
It also signifies that it’s past time to start planning for the future. We must not only do our best to speed our recovery, but we must also adopt significant lifestyle adjustments that will keep us healthy in the future, just as a patient recovering from a heart attack must. The agony of the past two years has demonstrated how devastating the consequences of a financial crisis can be. To avoid a repeat, we need to put in place sound financial regulatory reform. We must apply what we’ve learned to build a stronger and more secure financial system, as well as a brighter future for all of us.
During the 2007 recession, who was president?
Significant income tax cuts in 2001 and 2003, the implementation of Medicare Part D in 2003, increased military spending for two wars, a housing bubble that contributed to the subprime mortgage crisis of 20072008, and the Great Recession that followed were all hallmarks of George W. Bush’s economic policy. Two recessions, in 2001 and 20072009, had a negative impact on the economy during this time period.
Who was responsible for the Great Recession of 2008?
The Great Recession, which ran from December 2007 to June 2009, was one of the worst economic downturns in US history. The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages.
What was Obama’s reaction to the financial crisis?
Obama signed the American Recovery and Reinvestment Act of 2009 into law on February 17, 2009, a $831 billion economic stimulus package aimed at helping the economy recover from the deepening global recession. The plan raised government spending by $573 billion for health care, infrastructure, education, and social services, with the rest going to tax relief, including a $116 billion income tax cut for 95 percent of working people. Only a few Senate Republicans voted in favor of the bill, which was overwhelmingly supported by Democrats.
ARRA, according to the CBO, would have a beneficial impact on GDP and employment, with the largest benefit occurring between 2009 and 2011. It forecasted a 1.4 to 3.8 percent increase in GDP by late 2009, 1.1 to 3.3 percent by late 2010, and 0.4 to 1.3 percent by late 2011, as well as a fall of zero to 0.2 percent after 2014. The impact on employment would be a 0.8 million increase to 2.3 million by last-2009, a 1.2 million increase to 3.6 million by late 2010, a 0.6 million increase to 1.9 million by late 2011, and declining increases in subsequent years as the US labor market approaches full employment, but never negative. Enacting the plan, according to the CBO, would increase federal budget deficits by $185 billion in the final months of fiscal year 2009, $399 billion in 2010, and $134 billion in 2011, for a total of $787 billion from 2009 to 2019.
Obama’s stimulus plan, according to the Congressional Budget Office and a wide range of analysts, has boosted economic growth. In February 2015, the CBO released its final report, which showed that ARRA had a significant positive impact on GDP growth and employment.
What brought the United States out of the Great Recession of 2008?
Congress passed the Struggling Asset Relief Scheme (TARP) to empower the US Treasury to implement a major rescue program for troubled banks. The goal was to avoid a national and global economic meltdown. To end the recession, ARRA and the Economic Stimulus Plan were passed in 2009.
Is there going to be a recession in 2021?
Unfortunately, a worldwide economic recession in 2021 appears to be a foregone conclusion. The coronavirus has already wreaked havoc on businesses and economies around the world, and experts predict that the devastation will only get worse. Fortunately, there are methods to prepare for a downturn in the economy: live within your means.
How long did the 2008 recession last?
Between 2007 and 2009, the Great Recession was a period of substantial overall deterioration (recession) in national economies around the world. The severity and timing of the recession differed by country (see map). The International Monetary Fund (IMF) declared it the worst economic and financial crisis since the Great Depression at the time. As a result, normal international ties were severely disrupted.
The Great Recession was triggered by a combination of financial system vulnerabilities and a series of triggering events that began with the implosion of the United States housing bubble in 20052012. In 20072008, when property values collapsed and homeowners began to default on their mortgages, the value of mortgage-backed assets held by investment banks fell, prompting some to fail or be bailed out. The subprime mortgage crisis occurred between 2007 and 2008. The Great Recession began in the United States officially in December 2007 and lasted for 19 months, due to banks’ inability to give financing to businesses and households’ preference for paying off debt rather than borrowing and spending. Except for tiny signs in the sudden rise of forecast probabilities, which were still significantly below 50%, it appears that no known formal theoretical or empirical model was able to effectively foresee the progression of this recession, as with most earlier recessions.
While most of the world’s developed economies, particularly in North America, South America, and Europe, experienced a severe, long-term recession, many more recently developed economies, particularly China, India, and Indonesia, experienced far less impact, with their economies growing significantly during this time. Oceania, meanwhile, was spared the brunt of the damage, thanks to its proximity to Asian markets.
What triggered the 1929 stock market crash?
The stock market in the United States grew rapidly during the 1920s, peaking in August 1929 after a period of reckless speculation during the Roaring Twenties. By that time, output had slowed and unemployment had risen, resulting in stocks that were well in excess of their true value. Low wages, debt multiplication, a faltering agricultural sector, and an excess of huge bank loans that could not be liquidated were among the major factors of the stock market crash of 1929.
What if I told you that The New York Stock Exchange was established in 1817, but its roots may be traced back to 1792, when a group of stockbrokers and merchants signed a contract under a buttonwood tree on Wall Street.
What was George W. Bush’s presidency like?
George W. Bush’s presidency as the 43rd president of the United States began on January 20, 2001, with his first inauguration, and ended on January 20, 2009. Bush, a Texas Republican, was elected president after a close victory over Democratic Vice President Al Gore in the 2000 presidential election. He was re-elected four years later, defeating Democrat opponent John Kerry in the 2004 presidential election. Bush was followed by Barack Obama, a Democrat who won the presidential election in 2008. Bush, the 43rd president, is the eldest son of George H. W. Bush, the 41st president.
The terrorist events on September 11, 2001, were a watershed moment in his presidency. Congress established the Department of Homeland Security as a result of the attack, and Bush declared a global war on terrorism. He ordered an invasion of Afghanistan in order to depose the Taliban, destroy al-Qaeda, and apprehend Osama bin Laden. He also signed the controversial Patriot Act, which allows the government to spy on suspected terrorists. Bush launched the invasion of Iraq in 2003, claiming that Saddam Hussein’s regime had weapons of mass destruction. When no WMD stockpiles or evidence of an operational affiliation with al-Qaeda were ever discovered, there was outrage. Bush had pushed through a $1.3 trillion tax cut package as well as the No Child Left Behind Act, a major education bill, prior to 9/11. He also supported socially conservative policies like the Partial-Birth Abortion Ban Act and faith-based welfare programs. He also signed the Medicare Prescription Drug, Improvement, and Modernization Act, which established Medicare Part D, in 2003.
Bush achieved a number of free trade deals during his second term and selected John Roberts and Samuel Alito to the Supreme Court. He attempted to make significant reforms to Social Security and immigration legislation, but both failed. The battles in Afghanistan and Iraq continued, and he sent more soldiers to Iraq in 2007. The Bush administration’s response to Hurricane Katrina and the scandal surrounding the dismissal of US attorneys were both criticized, resulting in a dip in Bush’s approval ratings. As policymakers sought to avoid a catastrophic economic calamity, a worldwide financial market crisis dominated his final days in office, and he formed the Troubled Asset Relief Program (TARP) to buy toxic assets from banking institutions.