Transcript Slide 1
The “Great Recession”: The Government’s Response House of Cards Caused by Credit Bubble Led to Credit Crunch •Banks were technically “bankrupt” and were not been lending money (credit crunch). •This is a major crisis and free markets cannot work without a functional banking system. FNMA (Fannie Mae) & FHLMC (Freddie Mac) Government takeover Wall Street Firms Bankrupt or Bought Bear Stearns Merrill Lynch Lehman Brothers Mergers Crash of the Tita Paulsen/Lehman AIG Insurance Company Government Takeover 2 years later—who won Government Takeover of Subprime Mortgages Government injected huge amounts of money into the Banking System through the TARP program TARP = Troubled Asset Relief Program •passed by Congress and okayed by Pres. Bush in October 2008 700 billion dollar Government program to “fix” •a the U.S. banking system J.Stewart interview re: use of G.S. Propped up J.Stewart clip—700 b.bailout The Federal Reserve • The Federal Reserve has responded to the financial crisis by lowering interest rates from 5.25% to 0.0%! • They hope this will lead more people to borrow money to buy homes and cars Ben Bernanke Chairmen of Fed Internet Bubble Collapse Housing Bubble Collapse President Obama’s Plan President Obama and the Congress passed a 778 billion dollar fiscal stimulus package in January 2009. This included a combination of: • ↑ Government Spending • Tax Cuts • Infrastructure Spending on roads, bridges, tunnels, etc… • Incentives to business to invest in green technology Stimulus package discussion starts 1:34 in Fighting the 2008-09 Recession GDP = C + I + G + (X-M) The hope has been that by: 1. Fixing the banking system 2. Raising Government Spending 3. Lowering Interest Rates The economy will recover: • • • • As people can get loans, consumption (C) should rise in GDP As Gov’t spending ↑ (G) will rise in GDP As confidence rises, business will invest more, (I) in GDP will rise All of this should, in theory, eventually lead to new jobs being created! Even rappers hurt • 2008 Economy Stock Market worst year since 1937 – SP500 -40.0% 2009 Economy • Stock Market- best year since 2003 – SP500 +23.0% • Unemployment rose 4.9% to 6.7% • Unemployment rose 6.7% to 10.0% • GDP growth: • GDP growth: • Fed Funds Rate 5.25 0.25% 0.0% -2.6% • Fed Funds Rate 0.25 0.00% 2010 Economy • Stock Market- good year • Unemployment fell from 10.0% to 9.8% • GDP growth • Fed Funds Rate 0.00 0.00% (SP500 +13.0%) +2.5% to +3.0%