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.
Who ended 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.
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.
During the Great Recession of 2009, who was president?
In the midst of the Great Recession and a severe financial crisis that began in 2007, President Barack Obama was inaugurated in January 2009. His government continued the previous administration’s financial bailout and auto sector rescue, and promptly implemented the American Recovery and Reinvestment Act of 2009 (ARRA), a $800 billion stimulus package that featured a mix of new spending and tax cuts. By March 2010, the private sector had started adding jobs on a monthly basis, a trend that lasted until the conclusion of his term, although public sector employment recovered more slowly due to budget constraints.
President Barack Obama then signed the Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” into law in 2010. By 2016, the law has provided health insurance to around 24 million individuals through a mix of state healthcare markets and a Medicaid expansion. It reduced the number of people without health insurance from over 16 percent in 2010 to around 9 percent in 2015. During his time in office, healthcare expenses remained stable. Premiums for individuals covered by employers, for example, increased by 69 percent from 2000 to 2005, but only by 27 percent from 2010 to 2015.
After subsidies, approximately 70% of consumers on the ACA marketplace exchanges could get insurance for less than $75 per month by 2017. The ACA was evaluated by the Congressional Budget Office (CBO) several times, and it was rated as a moderate deficit reducer because it included tax hikes primarily on high-income taxpayers (roughly the top 5% of the population) and reductions in future Medicare cost increases, which offset subsidy costs. The bill received no Republican votes in the House or Senate.
Obama signed the DoddFrank Wall Street Reform and Consumer Protection Act in 2010 to address the banking sector excesses that led to the crisis. This law restricted bank risk-taking and replaced an old regulatory framework that was inadequate in monitoring the non-depository or shadow banking sector, which had surpassed traditional depository banking and was at the heart of the crisis. The Consumer Financial Protection Bureau was also established as a result of this legislation. However, unlike the Glass-Steagall Act, it did not break up the largest banks (which had become even larger due to forced mergers during the crisis) or separate investment and depository banking. Only a handful of Republicans in Congress voted in favor of the bill.
President Barack Obama had a majority in both the House and the Senate during his first two years in office, which coincided with the 111th United States Congress, which is widely regarded as one of the most productive Congresses in terms of legislation passed since Lyndon B. Johnson’s Great Society. The Republicans, on the other hand, captured the House majority in November 2010 and decreased the Democratic Senate majority. Following that, he faced either a divided or Republican Congress, confining his economic legislation to primarily financial issues.
The Great Recession caused federal government revenues to plummet to their lowest level in 50 years as compared to the size of the economy.
At the same time, spending on the safety net (including automatic stabilizers like unemployment compensation and disability payments) and stimulus programs skyrocketed.
As a result, the budget imbalance grew, raising serious financial issues.
As a result, a series of tense debates with the Republican Congress ensued.
With the economy on the mend and key budget measures passed, President Obama turned his attention to a new issue: income and wealth disparity. From 1950 to 1979, the top 1% of the population received around 10% of all income. However, by 2007, this had climbed to 24%, owing to a mix of globalization, automation, and regulatory changes that undermined workers’ negotiating power in comparison to capital (owners). During 2013, he called the rising economic disparity the “defining challenge of our time.” Starting in 2013, his tax increases for higher-income taxpayers lifted their effective tax rates, reducing after-tax income disparity while job creation remained strong.
Wealth inequality had risen in lockstep, with the top 1%’s share of wealth rising from 24% in 1979 to 36% in 2007. While household net worth in the United States increased about 30% from its pre-crisis peak in 2007 to 2016, majority of this increase went to the wealthiest 1% of the population, as it had done before his tenure. By 2015, the richest 1% possessed 42 percent of the world’s wealth.
With infrastructure investment to create middle-class jobs and a federally mandated raise in the minimum wage, President Obama aimed to alleviate inequality before taxes (i.e., market income). While the latter was defeated by the Republican Congress, due in part to his support, numerous states increased their minimum wages. In late 2015, the House and Senate enacted the Fixing America’s Surface Transportation Act, the largest infrastructure bill in a decade, in unusual bipartisan fashion.
Stock markets increased by 180 percent, corporate profits increased by 122%, auto sales increased by 85 percent, home prices increased by 24 percent, real GDP increased by 15%, the number of jobs increased by 8%, and the number of Americans without health insurance decreased by 39 percent from the start of his presidency in January 2009 to late 2016. The yearly government deficit fell by 58 percent, but the national debt increased by 88 percent.
Which president brought the Great Recession to an end?
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.
Which countries were the hardest damaged by the 2008 recession?
The crisis had an impact on all countries in some form, but some countries were hit more than others. A picture of financial devastation emerges as currency depreciation, stock market declines, and government bond spreads rise. These three indicators, considered combined, convey the impact of the crisis since they show financial weakness. Ukraine, Argentina, and Jamaica are the countries most hit by the crisis, according to the Carnegie Endowment for International Peace’s International Economics Bulletin. Ireland, Russia, Mexico, Hungary, and the Baltic nations are among the other countries that have been severely affected. China, Japan, Brazil, India, Iran, Peru, and Australia, on the other hand, are “among the least affected.”
What triggered the recession of 2008?
The housing bubble burst in 2007 and 2008, triggering a protracted recession that saw the jobless rate rise to 10.0 percent in October 2009, more than double its pre-crisis level.
What caused the global recessions of 2008 and 2009?
- The Great Recession refers to the global financial crisis that occurred in 2008-2009.
- It all started with the housing market bubble, which was fueled by an overabundance of mortgage-backed securities (MBS) that packaged high-risk loans together.
- Reckless lending resulted in an unprecedented number of defaulted loans; when the losses were added up, several financial institutions failed, necessitating a government rescue.
- The American Recovering and Reinvestment Act of 2009 was enacted to help the economy recover.
During the Great Depression, who was the president?
Franklin D. Roosevelt became President in the midst of the Great Depression, and he helped the American people restore hope in themselves. He instilled hope by promising swift, decisive action and declaring in his Inaugural Address that “the only thing we have to fear is fear itself.”
What was Obama’s contribution to the country?
Barack Obama’s term as President of the United States began on January 20, 2009, with his first inauguration, and ended on January 20, 2017. Obama, an Illinois Democrat, was elected president after defeating Republican contender John McCain in the 2008 presidential election. He was re-elected four years later, defeating Republican nominee Mitt Romney in the 2012 presidential election. Obama was followed by Donald Trump, a Republican who won the presidential election in 2016. He was the first African-American president, as well as the first multiracial, non-white, and Hawaiian president.
A significant stimulus package, a partial extension of the Bush tax cuts, health-care reform legislation, a big financial-regulation reform law, and the termination of a major US military presence in Iraq were among Obama’s first-term actions. Obama also named Supreme Court Justices Elena Kagan and Sonia Sotomayor, the latter of whom became the Supreme Court’s first Hispanic American. Until Republicans won a majority in the House of Representatives in the 2010 elections, Democrats controlled both houses of Congress. Following the election, Obama and congressional Republicans got into a long fight over government spending and the debt ceiling. The Obama administration’s anti-terrorism strategy downplayed Bush’s counterinsurgency strategy, relying more on host-government militaries and extending air strikes and special forces deployments. The military operation that culminated in Osama bin Laden’s murder on May 2, 2011, was orchestrated by the Obama administration.
Obama took moves to tackle climate change during his second term, signing a major international climate pact and an executive order limiting carbon emissions. Obama also oversaw the implementation of the Affordable Care Act and other laws signed into law during his first term, as well as the negotiation of a nuclear deal with Iran and normalization of relations with Cuba. During Obama’s second term, the number of American forces in Afghanistan decreased considerably, however American troops remained in Afghanistan throughout his presidency. Following the 2014 elections, Republicans took control of the Senate, and Obama continued to clash with them on government spending, immigration, judicial nominees, and other matters.
What was the purpose of the Economic Stimulus Act of 2008?
The Economic Stimulus Act of 2008 included a number of provisions designed to help the economy recover from the Great Recession. Individuals may be eligible for a tax credit of up to $600 in addition to $300 for each kid. Increased limits on depreciating assets for tax purposes benefited businesses. To loosen constraints and boost the sinking mortgage market, the Act raised conforming loan limitations.