The Five-Year Anniversary of the Financial Crisis:
A Look Back at the Progress We’ve Made
Five years ago this week, a financial crisis unlike any in
generations rocked Wall Street, turning a recession that was already hammering
Main Street into the worst economic crisis since the Great Depression. In the
months before President Obama took office, the economy was shrinking at a rate
of over 8%, businesses were shedding 800,000 jobs a month, lending to families
and small businesses dried up, and the American auto industry was on the brink
of collapse.
Upon taking office, Obama acted with unprecedented speed to
respond to the crisis and its impact on American families – taking actions to
stabilize the financial system, rescue the auto industry, and boost the economy
by providing tax relief to working families and keeping teachers and first
responders on the job. Within six months, he had signed the Recovery Act into
law, announced a framework for a new financial stability plan and implemented
its key elements, and taken action to support GM and Chrysler while requiring
the companies to retool. Now, on the five-year anniversary of the crisis, the
Administration has prepared a report that describes 15 key elements of the
response to the financial crisis and where we find ourselves today.
For example, it shows that:
Contrary to Initial Expectations, the Response to the
Financial Crisis Is Expected to Yield A Return to the Taxpayer: While initial
estimates by the Congressional Budget Office projected the TARP program would
cost over $350 billion, Treasury has already received nearly $422 billion in
total cash payments back from the government’s investments in TARP and support
for AIG. That is more than the $421 billion disbursed through TARP – with
further repayments expected. Broader measures of the Federal government’s
response to the crisis also project that the government will receive an overall
profit.
Treasury Has More Than Recovered Its Investments in Banks
and AIG: Contrary to initial estimates that efforts to stabilize the banks and
the American International Group (AIG) would cost tens of billions of dollars,
the Federal government is making a significant return on both programs.
Treasury has recovered $28 billion more than was disbursed on its bank
investments so far, while achieving the original policy goals of stabilizing
the banks and preserving lending. And investments in AIG from TARP and the
Federal Reserve have yielded a total positive return to taxpayers of $22.7
billion.
The Stress Tests – A Signature Element of the Response – Has
Built Confidence in the Banking System Without Putting New Taxpayer Funds at
Risk: In February 2009, the Administration and the Federal bank regulators
announced comprehensive stress tests of the nation’s largest banks to reduce
uncertainty regarding their solvency. Within months of the release of the
results, the largest banks in the country raised over $80 billion of equity
capital from private sources, with no major banks requiring additional
government support outside General Motors Acceptance Corporation’s (GMAC) participation
in the auto program. Today, capital has about doubled at the largest banks,
while stress tests modeled after the crisis-era efforts have been adopted as
part of the regular supervisory framework in the United States, and stress tests
have been adopted as a norm in the global regulatory community.
The Auto Industry Is Recovering: When President Obama took
office, the auto industry was on the brink of collapse – with the Bush
Administration estimating 1 million jobs could be at risk. Following actions to
stabilize the auto industry and require GM and Chrysler to retool their
operations, the Big Three are profitable and gaining market share for the first
time in 20 years, auto sales were higher in August than in any month in over
six years, and the auto industry is creating jobs at the fastest pace in 15
years. In addition, the government has recouped significantly more from its
investments in the auto industry than initially anticipated – with 90 percent
of the total invested in Chrysler returned as well as a substantial portion of
investments in GM.
The Housing Market Is Coming Back: To stabilize the housing
market and help families avoid foreclosure, the President took bold action
through an array of programs. Among other programs, the President launched the
Home Affordable Modification Program (HAMP), which has led to 7 million
households getting government and private sector relief, and Home Affordable
Refinancing Program (HARP), a refinancing program that nearly tripled in volume
after further changes to the program, rising from 400,000 homeowners in 2011 to
1.1 million in 2012, helping over 2.7 million in total. While significantly
more needs to be done to recover from the impact of the housing crisis, home
prices have been rising at the fastest pace in seven years – increasing 12
percent over the past year – resulting in 5 million homeowners coming out from
underwater in the last six quarters.
Because of the difficult choices made, our economy is
stronger – with 7.5 million private-sector jobs created in the past three and a
half years, and manufacturers creating jobs for the first time since the
mid-1990s. That’s why, as the President will make clear this week, it is so
important that we do not put our economy at risk of another crisis through a
decision by a minority of Republicans in Congress to refuse to pay our bills or
shut down the government. It also points to the work that still needs to be
done to create a stronger financial system with improved consumer protections,
while strengthening the cornerstones of middle-class life – including a good
job, a quality education, a home of your own, affordable health care, and a
secure retirement. As we look back at the last five years, it shows how far we
have come – and how we still have much more to do.
Amy Brundage is Deputy Press Secretary.