Historic
Presidential Election | Obama Assembles a Centrist Administration |
Democrats Gain Seats in Congress Financial Crisis Hits Hard The U.S.
economy began to unravel during the summer of 2007, when home prices
began to drop and the rates on subprime mortgages started to increase,
leading to foreclosures and defaults. Most of the banks that held
these mortgages had sold them to investment banks, which in turn
bundled the mortgages into securities and sold them to investors,
including pension funds, hedge funds, and foreign national banks. The
drop in home prices and the attendant increase in foreclosures caused
a sharp fall in the value of the securities, leaving banks and
investors with enormous losses and a diminished market for their
assets. Investment banks began to crumble. In March, the
Federal Reserve approved a $30 billion loan to JPMorgan Chase to take
over Bear Stearns. The crisis grew more dire over the summer, and in
September, the U.S. government placed Fannie Mae and Freddie
Mac—companies that together held more than half of the country's
mortgages—under government conservatorship. Over the course of just
days, the once venerable Lehman Brothers filed for bankruptcy, Bank of
America acquired Merrill Lynch, and the Fed agreed to a $85 billion
rescue of insurance giant American International Group. In addition,
JP Morgan Chase bought the majority of Washington Mutual almost
immediately after the government seized the company. The Dow Jones
Industrial Average plunged by hundreds of points during this
tumultuous period. Bush Administration Embarks on a Series of
Bailouts President Bush signed a $700 billion bailout package
in early October. The legislation gave the Treasury Department
unprecedented authority to buy a wide range of troubled financial
assets, gave the government an equity stake in companies that
participate in the plan, and extended $150 billion in tax breaks to
individuals and companies. The day after Bush signed the bailout bill,
the stock markets in America, Europe, and Asia experienced their
steepest one-day decline in two decades. About one month after the
bailout was passed, the Treasury Department shifted course and said it
would help banks lend to consumers rather than buying troubled
mortgage assets. All the while, grim economic news continued to
be reported by the government: the GDP experienced its first decline
in 17 years, the unemployment rate continued to rise (by December, it
had reached 6.7%), the National Bureau of Economic Research announced
that the U.S. has been in recession since Dec. 2007, and U.S.
manufacturing hit a 26-year low. By December, nearly 2 million people
had lost jobs in 2008. In addition, the three major U.S.
automakers—GM, Ford, and Chrysler—pleaded unsuccessfully to Congress
for a industry-wide bailout package. Looking Beyond 2008
Obama, who will inherit this mess in January, vowed that once in
office he would quickly enact a vast recovery plan, which would
include a public works program, to shore up the economy and employ the
growing number of jobless. In addition to covering traditional
infrastructure projects, such as improving roads, utilities, dams, and
schools, Obama said the public works program would address
21st-century needs, such as expanding broadband Internet access,
updating government buildings to make them more energy efficient,
improving information technology at medical institutions, and
upgrading computers in schools. "We will create millions of
jobs by making the single largest new investment in our national
infrastructure since the creation of the federal highway system in the
1950s," Obama said. For more information on the U.S.
economy: |
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