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The 2007-09 financial crisis has proven to be the most severe economic crisis since the Great Depression. Economists date the recession from December 2007 through June 2009. The length and intensity of the recession was comparable to the 1973-75 and 1981-82 recession, What is extrodinary about the 2007-09 recession is the tepid recovery, both in GDP growth and in employment. Recessions following World War II have generally followed the pattern of the steeper the decline, the steeper the recovery. The recovery from the 2007-09 recession has not followed this pattern. The near financial collapse in fall 2009 was a major factor in the election of Senator Obama. In response, the main-stream media in the United states like the New York Times began talking about 'market failures'. Left wing economists began calling for the nationalization of major financial insttutions and inseently blame the crisis on the free market. Here there is enough bleme to go around. But the simple fact is that the crisis in the United States was at heart a eal estate bubble and Government interference in the free market was a major cause of that bubble. Alan Greenspan and the Federal Reserve maintained low interest rates for an extended period, fueling speculation. Left wing politicans chatrged that babkls pursued unfair lending practices precenting ninorities from obtaining morthgages. The Government beginning in the Clinton Administration began pressuring banks to make looser loans so that low-income people could qualify for home mortgages. Congress passed the Community Reinvestment Act (1977). Further legislation and administration policies encouraged banks to make mortgage loans to low income buyers. By the 200s,
Government lenders Freddie Mac and Fannie Mae were making reckless loans to low income home buyers. Decomcrats in Congress opposed Administration efforts to regulate the two home vlenders. These policies placed large numbers of homes in the hands of speculsators and low-income individuals without the income or responsibility to be home owners. The Bush Administration contributed to the crisis through an ideological resistance to financial regulation. In fairness to President Bush, however, the Administration did attempt to regulate the two Federal financial giats (Fanny Mae and Frddie Mac) at the heart of the bousing bubble. Here they were stopped by Senate Democrats (including Senator Obama) who threatened a filabuster. Although the media would like to paint the crisis a failure of the free market, it was to a very large extent a failure of public policy and resulted from goverment intervention to prevent markets from operating freely. The Obama Administration and Congressional Democrats continue to shield Gannie and Fredie from needed regulation.
The 2009-10 financial crisis has proven to be the most severe economic crisis since the Great Depression. Economists date the recession from December 2007 through June 2009. The length and intensity of the recession was comparable to the 1973-75 and 1981-82 recession,
It is imprtant to uunderstand the interntional economic situation. The world was awash wiyth cheap credit, often undiscipolined lending. It was a financial tsumami, but hardly just a finamcial phemonenon. Mny countries were tempted to borrow unporecented sums ithout any realistic ability to repay or disilined accounting and responsible risk mangement. Often political and social priorities were pursued without regad to basic economic principles. Earlier financial crises came from the developing world (Latin America and Asia). This time the bubbled were firnming in Europe. Icelandic banks borowed frm abroad and lent to domestic customers without assessing reaonably their ability to repy. The Greek Governmnt had been borrowing fir some time, using the moiney to increease goivernmnt workers and social problems while pursuing econmic policies that discouraged the economic growth needed to every repay the borrowings. Foreign banks made the loans largeky because Greece was an EU member. Irish bnks reported huge losses in yhe hundredv billion Euros, an extroduianry sum given thesize of the country's economy. [Lewis]
As a result of the crisis. the main-stream media in the United states like the New York Times began talking about 'market failures'. Left wing economists began calling for the nationalization of major financial insttutions and insesently blamed the crisis on the free market and greedy bankers. Here there is enough blame to go around. But the simple fact is that the crisis in the United States was at heart a real estate bubble and Government interference in the free market was an unintended, but major cause of that bubble. Alan Greenspan and the Federal Reserve maintained low interest rates for an extended period, fueling speculation. Left wing politicans chatrged that babkls pursued unfair lending practices preventing minorities and otgher low-income borrowers from obtaining mortgages. The Government beginning in the Clinton Administration began pressuring banks to make looser loans so that low-income people could qualify for home mortgages. Congress passed the Community Reinvestment Act (1977). Further legislation and administration policies encouraged banks to make mortgage loans to low income buyers. In the 2000s, Government lenders Freddie Mac and Fannie Mae were financing reckless sub-prime lenders. Democrats in Congress opposed Bush Administration efforts to regulate the two home lenders. These policies placed large numbers of homes in the hands of speculators and low-income individuals without the income or responsibility to be home owners. The Bush Administration contributed to the crisis through an ideological resistance to financial regulation. In fairness to President Bush, however, the Administration did attempt to regulate the two Federal financial giants (Fanny Mae and Freddie Mac) at the heart of the bousing bubble. Here they were stopped by Senate Democrats (including Senator Obama) who threatened a filabuster. Although the media would like to paint the crisis as a failure of the free market, it was to a very large extent a result of government tinkering with the free market. This was essentially a failure of public policy and resulted from goverment intervention which prevented markets from operating freely. The Obama Administration and Congressional Democrats continue to shield Frannie and Fredie from needed regulation and go focus on the ideological them that gteedy bankers and unreliable free markerts were at the heart of the crisis. Of course there are other aspects to consider, but there is no doubt real estate was at the hear of the crisis. .
Secretary Paulson and the Bush Administration acted to sabe the banking system through the TARP Program. This is a controversial program, but took the politically unpopular step of saving banks that were not adequately capitalized. The program suceeded ahnd most of the babks have paid back the Treasury which also made money on stock tendered as security.
The near financial collapse in fall 2009 was a major factor in the election of Senator Obama. The Obama Administration attempts to take credit for prevebnting economic collapse. This is no legitimate. This was accomplished by the TARP which was executed by the Bush Adminidstration. The Obama Administrations primary effort to deal with the financial crisisis was the Trillion Dollar stimulus pqckage. Other major efforts was bailing out the autimobile mabufacturers (GM and Crrysler), Cash for Clunkers, and a mortgage stimulus program. The Administration claims success for each of these programs. And saving the automobile companoes has considerable judtification. The Stimulus Paxkage outdide Democrativ Party circles and left-wing economists like Paul Klugman (who complsins it was not large enough) is increasingly being seen as a huge failure which was wasteful and primarily targetted at bailing out bloated srate and municipal governments. The Adminidtration began talking about creating jobs, but quickly anended that to jobs createedcand saved. Cristine Romer, the Chief White House Economist, predicted that Presuident Obama's stimulus package would keep the unemployment rate at 8 percent or less. It quickly climed to over 9.5 percent and has stayed at that level. And 9.5 percent is rouddly seen as an under estimation of actual unemployment.
President Obama is fond about castigating a host of business fat cats, especially oil, heakltvxare execurives, bankers, automobile, and others. Another target was companies planning business meetings in Las Vegas. Programs passed include both Obama care and Financial Regulation. Programs the President is trying to pass includ Cap and Trade and Card Check. Left-wing individuals installed as under-secretaroes thriughout federal agencies are busy expanding the regulatory burden. President Obama has explained that what he calls equity is more important in taxation than economic impacts. Thus he is attempting the increase tax rates (let the Bush tax cuts expire) regardless of tghe opinions of most economists.
What is extrodinary about the 2007-09 recession is the tepid recovery, both in GDP growth and in employment. Recessions following World War II have generally followed the pattern of the steeper the decline, the steeper the recovery. The recovery from the 2007-09 recession has not followed this pattern. There was an impression rate of growt in the last quater of 2009--5 percent. Growth has since cooled--1.6 percent in the second quarter of 2010. Jobs are bein created only skowly and businesses are hesitant to invest.
There is a sharp debate as to why the economic recovery is so tepid and what needs to be done. The President and the Democratic leadership in Congress maintain that the severity of the financial ctisis has made the recovery difficult. The 2007-09 was not especially severe, it was comparable to the 1973-75 and 1981-82 recessuins, but it is true that the financial system did suffer a major test. The Administration insists that the Stimulus Program was suceesful and now another major stimulus is needed. The Republicans ans apparently a substantial majority of the voting public disagree. They believe that the Stimulus and the President's anti business rhetoric and policies have done more harm than good. The result has been uncertaintly and higher costs of doing business leading to the tepid recovery.
Lewis, Michael. Boomerang: Travels in the Newv Third World.
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