2007-2009 Recession: Boom, Bust, and Beyond

"In February 2001, nonfarm payrolls hit their business cycle peak of 132.5 million. Ten years later, the latest data pegs February 2011 payrolls at 130.5 million, a 1.5% decline. To put this in perspective, the ten-year period of the Great Depression, 1929-39 saw a 2.3% decline in nonfarm employment, roughly the same magnitude."

"OVER the past year Vice-President Joe Biden has been barnstorming around America. As head of Barack Obama's Middle-Class Task-Force, he has stumped for administration policy, attempting to sell the doings of Washington, dc, to the average voter. It's a tricky job. Americans were keenly aware of growing inequality even before the recession; in 2007, the top 1% of earners took home 23.5% of all...

"The Senate on Thursday approved a far-reaching financial regulatory bill, putting Congress on the brink of approving a broad expansion of government oversight of the increasingly complex banking system and financial markets.  The legislation is intended to prevent a repeat of the 2008 crisis, but also reshapes the role of numerous...

"[T]he Cassandras who look, in retrospect, the most prophetic are Carmen Reinhart and Ken Rogoff. In 2008, the two economists were about to publish 'This Time Is Different,' their fantastically well-timed study of nine centuries of financial crises. In their view, the administration wasn’t being just a bit optimistic. It was being wildly, tragically optimistic."

"The tea leaves are clear: The Great Recession will not be a second Great Depression. And, as I argue below, President Obama's stimulus package, though imperfect, deserves a great deal of credit for bringing us back to the positive trajectory we're on today. Any reasonable grader of the stimulus's effects on driving recovery and combating joblessness would give the stimulus at least a B+. In...

Cato Institute's Mark Calabria argues that the current financial reform bill further entrenches big business without actually fixing the issues that contributed to the financial crisis.

"When Barack Obama entered office in January, 2009, the labor force participation rate was 65.7%, meaning nearly two-thirds of working age Americans were working or looking for work.

When the recession supposedly officially ended in June, 2009, the labor force participation rate was still 65.7%."

"Under the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the economic stimulus package, certain recipients of funds appropriated in ARRA (most grant and loan recipients, contractors, and subcontractors) are required to report the number of jobs they created or retained with ARRA funding after the end of each calendar quarter. The law also requires CBO to comment on those...

"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York...

"There is no doubt that GM has returned from the brink. It made $8 billion last year, a record high, and regained enough global market share to once again become the world’s biggest automaker, a title it had lost to Toyota. More impressive, it is planning to bump its profit margins from 6 percent last year to 10 percent this year, on par with its best-in-class rivals such as Hyundai and BMW....

"Many are calling for a 9/11-type commission to investigate the financial crisis. Any such investigation should not rule out government itself as a major culprit. My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis."

"The fallout from the recession has cut deeply into the housing security, employment and income of many Americans. But some parts of the country are clearly faring better than others. Here, three interactive maps show foreclosure and jobless rates as well as household income by county."

"Polls show over and over again that jobs are a major concern for Americans, hence the close scrutiny of employment statistics during presidential campaigns. While presidents don't create jobs, their policies can influence the direction of the economy by creating, or not creating, an environment that is conducive to job creation."

"I think we're all aware of the stock crisis that's been exploding this week — all thanks to that pesky little problem called the housing market.

It was also announced this week that the Federal Reserve would bail out AIG, and I heard on NPR this morning that they're considering doing more. So that got me thinking: Just how many...

Princeton University Economics Professor Paul Krugman argues in favor of expansionary fiscal policy over monetary policy, stating, "there's not much [Federal Reserve Chairman] Ben Bernanke can do for the economy."

"More than a third of young American families with children were living in poverty last year, according to an analysis of U.S. Census data that offers the latest indicator of spreading poverty in America.

In all, 37 percent of the country's young families -- defined as under the age of 30 -- slipped below the poverty line in 2010, eclipsing the previous high of 36 percent set in 1993,...

"Obama's desperate protests that his anti-business rant was taken out of context are betrayed both by that very context and because they are a part of a piece — just one more component of his war against the American entrepreneurial spirit.

He would have us believe that his words 'you didn’t build that' referred to roads and bridges and not businesses.

Given his accompanying...

"What is quantitative easing?

Short answer: It’s an unconventional monetary tool used by central banks to stimulate the economy.

Answer that might make sense: Normally, when there's a recession or the economy is limping along, the Federal Reserve will reduce short-term interest rates in order to spur more lending and spending. But right now, the Fed has cut...

"There is no more pressing problem right now than unemployment. Everything else pales in comparison. At last count, there were almost 14 million Americans were out of work, representing 9.1% of the labor force. If we include those who are discouraged and otherwise marginally attached or who have taken part-time work when they would prefer full-time, that number is over 15%. It’s hard to...

"The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism."

"'The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies,' write economists Glenn Hubbard, Greg Mankiw, John Taylor and Kevin Hassett in a paper released by the Romney campaign. But the paper only mentions two studies, and one of them, by Amir Sufi and Atif Mian, is about Cash for Clunkers, a tiny subprogram of the stimulus.

...

"U.S. taxpayers likely lost $1.3 billion in the government bailout of Chrysler, the Treasury Department announced Thursday.

The government recently sold its remaining 6% stake in the company to Italian automaker Fiat. It wrapped up the 2009 bailout that was part of the Troubled Asset Relief Program six years early."

Economist Veronique de Rugy explains that contrary to popular sentiment, regulation over the financial sector has actually increased over the past few decades.  As such, de Rugy argues that deregulation was not a cause of the financial crisis.

This chart shows the number of banks that failed from the mid 1920s to 1933.

"Although the economic well-being gap between young and old has been widening for decades, the economic turbulence of recent years has accelerated these trends.

Looking at changes from 2005 to 2009, all households had lower median net worth. But the decline for households headed by younger adults was much steeper.

For households headed by adults ages 65 and older, median net...

"Table 3 shows the delinquency rates of the NTMs [non-traditional mortgages] that were outstanding on June 30, 2008. The grayed area contains virtually all the NTMs. The contrast in quality, based on delinquency rates, between these loans and Fannie and Freddie prime loans in lines 9 and 10 is clear."

"This week's chart uses data from the Bureau of Labor Statistics (BLS) Employment to show the number of jobs gained during each presidential tenure since 1945 as well as the unemployment rate. This chart isn’t meant to compare President Obama (who's completed just under one term so far) to President Clinton (who completed two terms.) Rather it is meant to look at how each president...

"As the chart shows, between April-June 2012 (the most recent three month block for which government data is available), only 200,000 jobs have been created while 265,000 individuals have been added to the food stamp rolls. Additionally, in that time period, 246,000 workers were awarded disability."

"I divide the economy into two parts. On the one side are the combined public and quasi-public sectors, and on the other side is the rest of the economy. Public, of course, refers to government employees. ‘Quasi-public’, a term I just invented, includes the nominal private-sector education, healthcare, and social assistance industries. I call them ’quasi-public’...

"American families continued to take an economic pounding in 2010, with median household income declining, health insurance rates remaining dreary and the number of Americans living in poverty reaching a 52-year high, the U.S. Census Bureau reported Tuesday.

According to the yearly status update, real median income for U.S. households dipped by 2.3 percent, coming in at $49,445 in 2010...

This chart shows the amount of money pumped into the world's financial system by the Fed in collaboration with other central banks during the financial crisis in 2008.

"By 2008, the result of these government programs was an unprecedented number of subprime and other high risk mortgages in the U.S. financial system. Table 1 shows which agencies or firms were holding the credit risk of these mortgages- -or had distributed it to investors through mortgage-backed securities (MBS)-- immediately before the financial crisis began. As...

"About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling...

"Gasoline usage history shows a small rise in '07, then a plunge in '08. Usage level for the next two years was flat, followed by a huge plunge now."

"The effects of the recent recession, which began in December 2007 and ended in June 2009, have combined to make the years since 2007 the worst period of unemployment in the United States since the 1930s. ...

The extent of long-term unemployment is much greater than would be expected on the basis of its historical relationship with the overall unemployment rate (see Figure 2...). Had...

"This chart reports on the percentage change of private employment by state over the past ten years, leaving out the quasi-public sector.

The worst hit states, not surprisingly, are Michigan, Ohio, and Indiana. Massachusetts has a big decline as well, though I’m not sure that it’s fair to remove healthcare and education, which...

"The number of institutions on the FDIC’s 'Problem List' increased from 775 to 829 during the quarter. Total assets of 'problem' institutions fell, from $431 billion to $403 billion."

"The effects of the recent recession, which began in December 2007 and ended in June 2009, have combined to make the years since 2007 the worst period of unemployment in the United States since the 1930s. ...

The share of unemployment accounted for by the long-term unemployed (people who have been seeking work for more than 26 weeks) has been at an all-time high. Over 40 percent of...

This is an interactive map of bank failures in the United States between January 2008 and October 2010.

"The U.S. economy has not been healthy since 2001 when 9/11 pushed the country into a recession. As the accompanying data tell us, real GDP growth has risen to meet the long-term average of 3.11 percent just once since 2001, and that was in 2004. The combination of wars, financial collapse, natural disasters, and political games has taken a heavy toll on economic growth. No one is talking...

"The December employment report showed that nonfarm payroll employment fell 85,000 since November. (In November, employment ticked up 4,000; November’s gain was the first increase since December 2007.) In addition, the unemployment rate remained at 10.0%. The unemployment rate was 4.9% in December of 2007. In December 2008, 15.3 million people were unemployed. By...

"Here is an embiggened version of the infamous jobs chart prepared by Obama administration economists Jared Bernstein and Christina Romer back in January 2009 (and now updated again by me with data from the August jobs report).

You know, the chart that predicted what the unemployment rate would be if Congress passed the Obama stimulus plan. Note: This chart predicts the unemployment...

"Beyond the inconsistencies and implementation problems, financial-institution bailout policy has been unwieldy, inequitable, extremely costly, disruptive, and lacking in transparency and oversight. The policy response of bailouts and maintenance of the status quo has been precisely the wrong response, as it has led to retaining many of the mega-financial...

"In an effort to boost hiring and job creation and to invest in a variety of domestic infrastructure programs, Congress passed and the president signed the American Recovery and Reinvestment Act (ARRA), commonly known as the economic stimulus package, in 2009. ARRA represented one of the largest peacetime fiscal stimulus packages in American history. But little is known about the ways in which...

"Executives forecast ongoing economic gloom, but, for the second survey in a row, the percentage of the respondents who think the situation is getting worse hasn’t increased. Many say their corporate-management team is doing a good job in the crisis.

A gloomy economic stasis has taken hold, responses to...

"In this paper, I argue that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed...

"This paper examines mortgage lending and concludes that studies based on data created by the Boston Fed should be reevaluated. A detailed examination of these data indicates that irregularities in these data, when combined with the most commonly used research methodology, appear to have biased previous research toward a finding of discrimination against minority...

"This paper discusses events surrounding the 2007-08 credit crunch.  It highlights the period of exceptional macrostability, the global savings glut, and financial innovation in mortgage-backed securities as the precursors to the crisis. The credit crunch itself occurred when house prices fell and subprime mortgage defaults increased. These events caused...

"Imagine a team of doctors hovering over the bed of the U.S. economy. With charts in hand and apparatus all around them, the medical team confers about a patient that has been in intensive care since June of 2009, which is when the recession ended. While the patient listens, the senior physician makes a quick rundown:

Unemployment: 8.3 percent.—Should be 4.5 percent by now.
GDP...

"Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand—the change in government purchases of goods and services that the multiplier actually multiplies. Using new data from the Bureau of Economic Analysis and...

"Arnold Kling of EconLog talks with EconTalk host Russ Roberts about the role of credit default swaps and counterparty risks in the current financial mess. The conversation opens with the logistics of credit default swaps and counterparty risks and moves on to their role in the financial collapse. The conversation closes with a discussion of the political economy...

"Russ Roberts, host of EconTalk, discusses his paper, 'Gambling with Other People's Money: How Perverted Incentives Created the Financial Crisis.' Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for...

"William Cohan, author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Steet, talks with EconTalk host Russ Roberts about the life and death of Bear Stearns. The discussion starts with how Bear Stearns and other Wall Street firms made money and how they financed their operations. The conversation then turns to the collapse of Bear Stearns's hedge funds in the summer of...

"The Fordham Law School Federalist Society hosted this debate between David Epstein, Professor of Political Economy at Columbia University, and Peter Schiff, President of Euro Pacific Capital and U.S. Senate Candidate from Connecticut. Moderated by Fordham Law Professor Nicholas Johnson.

The topic: 'Will the Obama Administrations...

"Our economy is in crisis, and our government says that bold action is required. So we're diving in head first to get things back on track. But... what are we diving into exactly? Take a closer look at the government response to our current economic crisis."

"In the third of three days of hearings held by the bipartisan Financial Crisis Inquiry Commission (FCIC), former Fannie Mae executives Robert Levin and Daniel Mudd testified in the role of their company in the housing market collapse. They faulted Fannie Mae's backing of riskier mortgages on pressures related to increased competition from Wall Street firms and the...

"Former Federal Reserve Chairman Alan Greenspan was the lead witness at the first of three days of hearings by the bipartisan Financial Crisis Inquiry Commission (FCIC). Mr. Greenspan talked about what led up to the financial crisis in the housing markets and reminded the commission of his warning in 2004 to the Senate Banking Committee about sub prime mortgage...

As the new Chair of the Financial Services Committee, Barney Frank claims that America is becoming more and more unequal with too much wealth concentrating in the hands of a few. To combat this trend, Frank says he will focus on reforming CEO compensation and increasing home ownership among the low and moderate income brackets.

"The Corporations, Securities & Antitrust Practice Group hosted this panel on 'Deficit Reduction and the Role of the Federal Government in Regulating Business' on Thursday, November 10, 2011, during the 2011 National Lawyers Convention."

"Former BB&T Chairman and CEO John A. Allison discusses how mandates like Sarbanes Oxley and the Patriot Act helped cause the housing meltdown and financial crisis. He spoke at the Cato Institute's 29th Annual Monetary Conference held November 16th, 2011."

"Many regard the financial crisis as a failure of the free market and 'greedy' businessmen. But is capitalism really to blame for our current economic mess?

In this panel Yaron Brook, executive director of the Ayn Rand Institute, and Jerry Jordan, president of the Pacific Academy for Advanced Studies, will argue that today’s...

"Bankrupting America is back with our second edition of Real or Fake. Can you tell which of these facts about our government's spending are real or fake?

Shrimp on treadmill? Extraordinarily well paid life-guards? Could these possibly be real? Watch and find out."

Higgs discusses the Great Depression and the parallels, especially in terms of government action and failure, to the 2008 recession.

"In its first report to Congress on December 10, 2008, the Congressional Oversight Panel (COP or the Panel) posed ten basic questions – in effect asking for an explanation of the U.S. Department of Treasury’s goals and methods for the Troubled Asset Relief Program (TARP). The Panel’s questions, in turn, included a number of subsidiary questions, which sought...

This blueprint "presents a series of short-, intermediate- and long-term recommendations for reform of the U.S. regulatory structure. The Blueprint, announced in June 2007, is a key part of Treasury Secretary Henry M. Paulson Jr.'s efforts to improve the competitiveness of the U.S. capital markets in the increasingly global marketplace.

In this statement SEC Chairman Christopher Cox explains the decision to end the Consolidated Supervised Entities (CSE) program:

"The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to...

"To reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the-counter derivatives, and for other purposes."

"This dissenting statement is organized as follows: Part I summarizes the main points of the dissent. Part II describes how the failure of subprime and other high risk mortgages drove the growth of the bubble and weakened financial institutions around the world when these mortgages began to default. Part III outlines in detail the housing policies of the U.S....

"This is comprehensive legislation to overhaul regulations in the financial sector. It would establish a new Consumer Financial Protection Agency to regulate products like home mortgages, car loans and credit cards, give the Treasury Department new authority to place non-bank financial firms, like insurance companies into receivership, regulate the over-the-counter...

"The Financial Crisis Inquiry Commission has been called upon to examine the financial and economic crisis that has gripped our country and explain its causes to the American people. We are keenly aware of the significance of our charge, given the economic damage that America has suffered in the wake of the greatest financial crisis since the Great Depression....

"The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an...

"The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. Shrinking economic activity has put further pressure on banks' balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging...

In this hearing, Treasury Secretary Hank Paulson, Jr., Federal Reserve Chairman Ben Bernanke and SEC Chairman Christopher Cox testified about their request to give the Treasury the authority to make an unspecified line of credit available to Fannie Mae and Freddie Mac as well as the ability to purchase equity in either of these government-sponsored enterprises.

This is a compilation of economic data from the financial, labor, housing and business sectors leading up to and surrounding the time of the crisis.

"Appropriately, the problem of too-big-to-fail, and the policies that the government uses to address that problem, will be a particular focus of your forthcoming report and in the hearing today. In my view, the too-big-to fail issue can best be understood in the broader context of the financial crisis itself. Accordingly, this testimony provides an overview of the...

"We have proposed a program to remove troubled assets from the system. This troubled asset relief program has to be properly designed for immediate implementation and be sufficiently large to have maximum impact and restore market confidence. It must also protect the taxpayer to the maximum extent possible, and include provisions that ensure transparency and...

"First, I will describe, in general, the 'cultural revolution' that Moody’s senior management imposed at Moody’s and compelling evidence of its impact. Second, I will describe the techniques Moody’s senior management used to implement this revolution and why they were successful. Finally, I will describe a particularly egregious example of how the revolution...

"You have asked me to address several wide-ranging topics in my testimony today. I will attempt to address those topics by providing you with an overview of Bear Stearns and how we managed our organization, our funding policies and their evolution during 2006 to 2007 and the events leading up to our sale to JP Morgan Chase & Co."

Text of the Community Reinvestment Act which requires financial institutions, among other things, to "demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business."

Also know as TARP. "To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy produc- tion and conservation, to...

"Treasury today announced a voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.

Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms...

"Tracks financial market and macroeconomic events of 2007 and 2008, and allows the evidence to suggest the past and potential influence of government intervention."

"With so much information saturating the market, it has been difficult for both financial professionals and those in the academic community to gain a firm understanding of why the recent economic crisis occurred and what needs to be done to fix it. There is a real need, and demand, from both finance professionals and scholars to obtain answers as to what really...

"The real story of the crash began in bizarre feeder markets where the sun doesn't shine and the SEC doesn't dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can't pay their debts. The smart people who understood what was or might be happening were paralyzed by...

"Treasury created the Capital Purchase Program (CPP) in October 2008 to stabilize the financial system by providing capital to viable financial institutions of all sizes throughout the nation.  With a strengthened capital base, financial...

This link provides a timeline of the events and policy actions surrounding the 2008 financial crisis.

"FinancialStability.gov is the official government site providing information and data related to the 2008 Emergency Economic Stabilization Act (EESA) & Troubled Asset Relief Program (TARP).

In the fall of 2008, our nation was in the midst of the worst financial crisis since the Great Depression. Our financial system and economy were on the verge of catastrophic collapse. EESA was...

"The Task Force is a major initiative targeted at raising the living standards of middle-class, working families in America. It is comprised of top-level administration policy makers, and in addition to regular meetings, it will conduct outreach sessions with representatives of labor, business, and the advocacy communities. The Task Force will be chaired by Vice President Joe Biden. The Vice...

"The American Recovery and Reinvestment Act of 2009 requires the creation of 'a website on the Internet to be named Recovery.gov, to foster greater accountability and transparency in the use of funds made available in this Act.' Recovery.gov went live on February 17, 2009, the day President Obama signed the...

Provided by the Federal Reserve Bank of St. Louis, this site features an up-to-date timeline of the financial crisis, as well as links to research papers, reports and data.